On a Remedy for the Grossly Lopsided Economy of this Nation and the World

Given that human beings are the most powerful animals on this planet and given that economic inequality has historically been a primary cause of the destructive unleashing of that power, it is imperative that we find a means to eliminate gross disparities of wealth and income. In this connection and others I wish to once again discuss the Tobin Tax, or as it is now frequently called, the transaction tax.

James Tobin was an American Nobel Laureate in economics. He was concerned with the plight of the billions of profoundly and perennially poor humans on earth. He saw this poverty as a function of gross economic inequality, especially between the African continent and the affluent nations of the northern hemisphere. To transfer more of the world's wealth to these impoverished nations and to accomplish several other objectives he proposed a small 0.5 percent tax on one of the least productive of economic activities, the "spot" market portion of the global currency market. In this market national currencies are bought and sold, using immediate transactions, as their relative values constantly change. While it has a non-unique function of providing currency equivalencies for purposes of trade, it is a highly speculative market with no overall regulation. The total global currency market had, as of April 20, 2010, an average daily turnover of an estimated $3.98 trillion dollars. This represents a market growth rate of approximately 20% since 2007. The spot market portion of the total global foreign exchange market, as of April 2010, had an average daily turnover of 1.450 trillion. It operates world wide 24 hours a day every day except weekends. The volume and immediacy of spot market transactions means that computers do a good deal of the investing based on formulas. As such it is a financial playground of the very rich.

As one can see, if this amount of money with this amount of transactions had a transaction tax, not unlike the sales tax you and I pay, a very substantial resource for alleviating the world's suffering and advancing the worldwide quality of life is within our grasp. In fact, Tobin argued that the 0.5 percent tax on spot market transactions would raise the $300 billion dollars a year that the United Nations says is required to eliminate the worst poverty and provide a basic education to all children world wide.

But this is not all that Tobin saw in his proposed tax. By taxing the highly volatile transactions of the spot market the wildest forms of speculation would be suppressed because in the small margins (but immense quantities) of currency trading a small tax would be enough.

Additionally, Tobin saw this process as the beginning of the establishment of a world currency, e.g. a Euro type currency applied world wide. This would not only eliminate speculation in money differentials, it would provide a strong impetus to world peace. National currencies, like national flags, are symbols of national significance. Every nation strenuously defends its currency. One tactic in international conflict is to try to destroy the value of the enemy's currency. A single global currency would also provide an icon around which people would increasingly find their common identity as citizens of one world.

Of course a transaction tax could be applied to any exchange of money. With the sales tax, we decided to tax the monetary value of the goods when they are sold. We, however, refused to tax food because it is too essential to human survival. This suggests a rule for applying transaction taxes, namely, the less important to human well being the higher the transaction tax.

My thoughts on the Tobin Tax, now generally called a transaction tax, were reignited by recent developments, especially in Europe. The transaction tax has become such a hot issue in Europe that the Austrian government says it will go ahead with this tax even if the other countries in the EU do not. The EU is, in effect, demanding more time so a Union-wide Tobin tax can be implemented. The European Union is creating an economic paradigm for a process by which humanity may yet find a way to coexist without a species-destroying conflict.

Bob Newhard