NationStates Jolt Archive

In 1972, a Princeton Economics Professor proposed a very small levy on international currency exchanges as a way to "preserve some autonomy in national or continental monetary policies". A 1% on currency exchange would prevent rampant currency speculation, as well as providing a significant way of accumulating capital for UN programs without causing significant losses to a single party.

This idea provoked serious discussion, but was eventually dismissed as impractical. However, as of late, interest in several developed nations has returned.

Due to the continuing globalization of markets and increasingly severe economic crises, especially the 'Asian Meltdown' of '97, this idea has again come to the forefront of IPE debates. Given that 1.5 trillion dollars is traded each day, clearly a 1% levy is too high; however, even a fraction of a percent would help stablize markets, and could effectively pay off third world debt.

Speculative currency trading, which comprises a shocking 95% of all currency exchanges, makes shrewd investors and bankers large amounts of money, as they are able to take advantage of unstable markets. However there is a clear cost to this practice.

International speculation can turn local economic shocks into major financial crises, as capital quickly evaporates, which often spread to other countries. This leads to rising unemployment, wage cuts, inflation and reductions in public spending.

A tobin tax would discourage short term market speculation, while leaving longer term productive investments untouched.

I propose the UN impose a Tobin tax in order to support developing nations, launch international humanitarian initiatives, and help control volatile markets.

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And currency trading is wrong... because?

If domestic markets are doing poorly why is it wrong for me to invest in a foreign market?

And currency trading is wrong... because?

If domestic markets are doing poorly why is it wrong for me to invest in a foreign market?
Currency trading isn't nessecarily wrong. Currency speculation causes serious problems, most notably in the Peso crash of 95 and Asia 97. Tobin tax doesn't elimate currency trade, it merely makes it less profitable to try and capitalize on unstable markets.

It doesn't stop you from investing in foreign markets- long term investments wouldn't be seriously affected, as the tax is so small. However, people trying to make a dollar off miniscule changes in exchange rates would be discouraged.

And currency trading is wrong... because?

If domestic markets are doing poorly why is it wrong for me to invest in a foreign market?
Currency trading isn't nessecarily wrong. Currency speculation causes serious problems, most notably in the Peso crash of 95 and Asia 97. Tobin tax doesn't elimate currency trade, it merely makes it less profitable to try and capitalize on unstable markets.

It doesn't stop you from investing in foreign markets- long term investments wouldn't be seriously affected, as the tax is so small. However, people trying to make a dollar off miniscule changes in exchange rates would be discouraged.

Asia '97 happened because of gross government misspending, as the case with the development of Shanghai. This led to massive surpluses of things like office space. Without buyers, the economy crashed.

Amazingly, however, this crash started in Japan. We all thought it would start in China. Heh, go figure.

Asia '97 happened because of gross government misspending, as the case with the development of Shanghai. This led to massive surpluses of things like office space. Without buyers, the economy crashed.

Amazingly, however, this crash started in Japan. We all thought it would start in China. Heh, go figure.

Uhh... that's not entirely true. Cronyism and currency speculations were HUGE factors in the Asian crash. While surpluses may have initially triggered the crash, currency speculation caused foreign capital to literally pour out of the area, egged on by shady insiders information and cronyism. Currency speculation is responsible for aggravating the situation- as I argued, currency speculation turn local economic shocks into international crises.

Asia '97 happened because of gross government misspending, as the case with the development of Shanghai. This led to massive surpluses of things like office space. Without buyers, the economy crashed.

Amazingly, however, this crash started in Japan. We all thought it would start in China. Heh, go figure.

Uhh... that's not entirely true. Cronyism and currency speculations were HUGE factors in the Asian crash. While surpluses may have initially triggered the crash, currency speculation caused foreign capital to literally pour out of the area, egged on by shady insiders information and cronyism. Currency speculation is responsible for aggravating the situation- as I argued, currency speculation turn local economic shocks into international crises.

Okay, I'll give you that. Currency speculation might back a bad situation worse. But it will also make a good situation better, you know?

This just encourages economies to do better by adding more competition?

You could just abolish currency... :D

(At least I'd like to see you try)

Okay, I'll give you that. Currency speculation might back a bad situation worse. But it will also make a good situation better, you know?

This just encourages economies to do better by adding more competition?

Currency trades don't want economies to do well- what they desire is as much instablitiy as possible, as this effectively increase profit margins.

There are further problems with currency speculation: it allows foreign investors to directly 'attack' governments with policy desicion they don't approve. By selling off their currency, foreign investors can tear a currency apart- thus governments are at the whim of people they're not representing. For example, say an ellected government produces textbooks with a socialist bent. While education is clearly the domain of the government rather than foreign capital, investors can sell of their currency in order to affect government policy.

Furthermore, imagine if the US government did something investors didn't approve of- investors may sell their currency. If this led to a collapse of the US dollar, in a financial crisis similar to Asia's, the reprecussions would be enormous. This could lead to the greatest depression ever seen.

All a tobin tax would do is reduce this phenomenon, all the while generating capital that could be used for all sorts of worthy causes.

Okay, I'll give you that. Currency speculation might back a bad situation worse. But it will also make a good situation better, you know?

This just encourages economies to do better by adding more competition?

Currency trades don't want economies to do well- what they desire is as much instablitiy as possible, as this effectively increase profit margins.

There are further problems with currency speculation: it allows foreign investors to directly 'attack' governments with policy desicion they don't approve. By selling off their currency, foreign investors can tear a currency apart- thus governments are at the whim of people they're not representing. For example, say an ellected government produces textbooks with a socialist bent. While education is clearly the domain of the government rather than foreign capital, investors can sell of their currency in order to affect government policy.

Furthermore, imagine if the US government did something investors didn't approve of- investors may sell their currency. If this led to a collapse of the US dollar, in a financial crisis similar to Asia's, the reprecussions would be enormous. This could lead to the greatest depression ever seen.

All a tobin tax would do is reduce this phenomenon, all the while generating capital that could be used for all sorts of worthy causes.

Instability and performing well don't conflict with each other. The US economy was very unstable in the late 90s. But it was still very good.

Economies go up and down all the time. But hte central truth of hte matter is that more or less they go up more than they go down. There is not a single ten-year period in our nation's history where real GDP decreased.

And foreign investors have THE RIGHT to get governemnts to change their policies. It's MY money. I am PUTTING it in your country. If you want me to do so, you should LISTEN to what I have to say.

It's the ultimate taxation WITH representation.

Instability and performing well don't conflict with each other. The US economy was very unstable in the late 90s. But it was still very good.

Economies go up and down all the time. But hte central truth of hte matter is that more or less they go up more than they go down. There is not a single ten-year period in our nation's history where real GDP decreased.

And foreign investors have THE RIGHT to get governemnts to change their policies. It's MY money. I am PUTTING it in your country. If you want me to do so, you should LISTEN to what I have to say.

It's the ultimate taxation WITH representation.

Don't you see the danger in an increasingly unstable system?

Even currency speculators do.

'Instability is cumulative, so that the eventual breakdown of freely floating exchanges is ensured.' - George Soros, the largest currency speculator today, in The Alchemy of Finance.

Again, putting a very small tax on currency speculation does not limit the ability of foreign investment, nor does it constrain capital in any meaningful way. Foreign investment is good- profitting off unstable currencies hurts far more people than it helps.

This is an interesting article:
http://www.twnside.org.sg/title/nar-cn.htm

bump

Instability and performing well don't conflict with each other. The US economy was very unstable in the late 90s. But it was still very good.

Economies go up and down all the time. But hte central truth of hte matter is that more or less they go up more than they go down. There is not a single ten-year period in our nation's history where real GDP decreased.

And foreign investors have THE RIGHT to get governemnts to change their policies. It's MY money. I am PUTTING it in your country. If you want me to do so, you should LISTEN to what I have to say.

It's the ultimate taxation WITH representation.

Don't you see the danger in an increasingly unstable system?

Even currency speculators do.

'Instability is cumulative, so that the eventual breakdown of freely floating exchanges is ensured.' - George Soros, the largest currency speculator today, in The Alchemy of Finance.

Again, putting a very small tax on currency speculation does not limit the ability of foreign investment, nor does it constrain capital in any meaningful way. Foreign investment is good- profitting off unstable currencies hurts far more people than it helps.

This is an interesting article:
http://www.twnside.org.sg/title/nar-cn.htm

An unstable system MAY crash, but it will also GROW faster. Cuba has a much more stable economy than China, but this doesn't change the fact taht China's economy is outperforming Cuba eight to one...

Two remarks:

1) The Tobin tax really doesn't change that much. As I recall, normal monetary speculation doesn't change all that much, only when massive transactions are made, transactions that could make a nation's economy crash, the more severe version of the Tobin tax comes into effect. These were drastic taxations, much more than a mere 1% like the original proposal by James Tobin, but it was nothing but a sensible move. Monetary speculation isn't hindered by this, at least not speculation to acceptable limits.
Read economy books to figure out why monetary speculation even was introduced (or perhaps I should say, permitted). I assure you, monetary speculation normally is aiding economy. Massive monetary speculation however, is destroying, and this needs to be stopped.
As always, I give the clear signal that capitalism might be a good idea, however, unrestrained capitalism certainly is not. For the environment, in the broad socio-ecological sense, it is not.

I will talk to Wendell (Mr. Pope, of the Ministry of Finance) to get more background on the Tobin tax, and economy in general (economy as the science of scarcity). I need to get my facts straight if I'm going to continue this discussion, and Walt wouldn't be pleased if I would tell lies.

2) I would like to say that I find the act of 'bumping' very rude. I agree that the way these forums are run is very poor, especially with the load of (pardon me) litter on here, but by bumping you are simply clouding it even more.

Respectfully,
Michael Malthus

PS: I noticed Walt has finally put the introduction of our group on the Nationstates forum. I also noticed he forgot to mention this:
if you want to talk to anyone of the group, just telegram Walt Dixie government. All messages are briefly skimmed through by Walt, however, he won't read messages that have no relevance to him. He will throw them away, unless you put "Re: <insert name here>" at the first line; Walt will then redirect the messages to the selected person, if he's associated with the group of course.
I'd like to use the occasion to inform you that the first think tank should start soon (Guy has assembled some interesting people, aside from our own insightful crew), and that new resolutions might be presented. Of course, on the forums first.