A progressive group of Democrats, “We the People”, have just held an early beauty contest of five presidential hopefuls and possibles: Senators Cory Booker of New Jersey, Kirsten Gillibrand of New York, Kamala Harris of California, Bernie Sanders of Vermont and Elizabeth Warren of Massachusetts.
In this report, I only saw one interesting position.
Gillibrand … in response to a question … said she supports a tax on financial transactions.
A Tobin tax! It’s a wonk’s dream, tailor-made to appeal to the all-important RBC reader demographic: something like 0.003% of the US electorate, concentrated in a handful of blue states where Ricky the Spider-raccoon on the Democratic ticket would be a shoo-in.
It has three other characteristics.
1. It’s a genuine policy proposal. Other countries have tried it (Sweden for equities and bonds). It’s tricky, but there’s a big literature. It isn’t handwaving like Sanders’ “break up the banks.”
2. Though the tax really does stick it to Wall Street, it won’t be easy to explain this to the Rustbelt voters. How many know there is a highly organised worldwide foreign exchange market, let alone that it turns over $5 trillion a day?
3. The tax is anathema to Wall Street, a huge lobby in Washington and in Gillibrand’s home state, and a major source of political donations. Maybe their counterattack will help with problem 2.
Any Democratic nominee in 2020, whether it’s one of this five or Ricky the Raccoon, will run on the same basic platform: joined-up honest government, expanded health care, fighting climate change, reversing tax cuts for the rich, rebuilding alliances, letting the Dreamers stay. But to get the nomination, the winner will have to mark out something distinctive, in character and policy. Was Gillibrand improvising or flying a kite? She does not strike me as an impulsive politician. Walking back the proposal would damage her chances as a “flip-flop”. It looks to me like a calculated risk, and a pretty brave one. Have any of the other contenders staked out comparable positions on anything difficult?
Note on the FX market. The $5trn a day is from here. The real total is higher, as not all trades are cleared through the New York clearing-house. Physical global trade is about $16 trn a year, or $44 bn a day. Add services and long-term investment flows, and you might double that. What economic purpose is served by inflating this 50 times, with banks and dealers taking a cut – a small one, but a cut – on each artificial transaction?
Update one day later
The comments thread below confirms my point about the RBC readership. The Tobin tax is public policy catnip to you. Good, but nobody has picked up on the electoral politics. Gillibrand has moved the financial transactions tax from a nice academic speculation to live policymaking. She may well not become President, and may not prioritize the proposal if she does. On the other hand, a successful rival may take it on board – like Edwards’ health plan in 2008 that eventually became ACA. Folks, there is now a decent chance the Tobin tax will happen. Reporters should take an interest. Just who has Gillibrand been getting advice from? I’m sure Shiller, Krugman, Stiglitz, Arrow or deLong would take her calls.