Re: Volatility

["Harry Veeder" <veed0001@xxxxxxxxxxxxxxxx>]

----------
>From: GGard97342@xxxxxx
>To: POST-KEYNESIAN THOUGHT <pkt@xxxxxxxxxxxxxxxx>
>Subject: Re: Volatility
>Date: Wed, Apr 5, 2000, 2:11 pm
>

>In a message dated 03/04/2000 15:52:44 GMT Daylight Time,
>veed0001@xxxxxxxxxxxxxxxx writes:
>
>> Why does nobody (in government) ever consider taxation as an instrument of
>>  stock market regulation? A system of stock market taxes would be effective
>>  if they used the speed of electronic feedback rather than relying on the
>>  speed of human (eg. the FED) feedback. Such taxes could deflate "bubbles"
>>  before they "burst".
>>
>>  Harry Veeder
>
>
>They do. In Britain it was called "stamp duty", but now has another name as
>well as  there is an electronic variety. The rate is currently one half of
>one per cent, and is on most transactions other than government issues.
>
>May I remind you that in 1767 the American colonies developed a strange
>aversion form stamp duties. Do I take it that that aversion is crumbling and
>that we can expect a penitent US to apply for admission to the Commonwealth
>which has Queen Elizabeth II as head?
>
>Joking aside, I really think the colonists were right, and stamp duties are a
>hindrance to capital markets, and probably cause, not cure instability.

Yeah, economists must not waist their time considering such an option.
After all who can doubt the economic wisdom of a bunch of American
patriots with guns, not that the Crown was anymore enlightened at
the time.

Joking aside, I doubt the stamp tax is designed to do the thing
I suggested because from what you say it sounds a) too broad
and b) like it requires much human deliberation before an alteration
is considered. This is not how electronic feedback works.


>In
>Britain they are now in essence a tax on the savings of ordinary people and
>make the provision of pensions more expensive. But our current Chancellor is
>unlikely to abolish them as taxing the elderly has been his ploy to eliminate
>the government deficit.
>
>Geoffrey Gardiner

I am forwarding some more thoughts on this subject
that I exchanged with Henry C.K. Liu off line. I hope Henry does not mind.
The point is taxation can be designed to improve the quality of growth
without being an *overall* hinderance to the level of growth.


--------------------
>
>
>Harry Veeder wrote:
>
>>
>> Why does nobody (in government) ever consider taxation as an instrument of
>> stock market regulation? A system of stock market taxes would be effective
>> if they used the speed of electronic feedback rather than relying on the
>> speed of human (eg. the FED) feedback. Such taxes could deflate "bubbles"
>> before they "burst".
>>
>
>Henry C.k. Liu:
>
>Interesting notion.  The politcal resistence would be almost
>insurmountable. In recent
>decades, American phobia against taxes has become bipartisan.  Secondly, tax rates
>changes are much more cumbersome to effectuate than interest rates in the
>US system of
>government.  Or are you talking about a new tax in addition to income and
>capital gain?

No, I'm thinking of new taxes. Taxes aimed at certain areas of the stock
market which would automatically decrease or increase as conditions
improved or declined in the stock market. The government would debate
the purpose and design of a tax program but once implemented they would
be monitored by an independent body and their day to day (or hour to hour
or even minute by minute) adjustment would be largely
automatic.

The trouble is most contemporary economist simply don't even consider
taxation as a tool to regulate and promote growth. It is simply a
mechanism for legally taking money from people so that it may be
redistributed and reinvested.

Taxation has become nothing more than a necessary evil and economists
spend their time advising goverment how the burden should be distributed
so that it will minimize harm to the economy and individuals. Today, the
idea that somes forms of taxation (without redistribution) could promote
growth would, at first, sound strange to workers, almost all businessman,
most politicians and many economists.

For *these* taxes to implemented successfully, I believe it is
essential that the taxes not be kept as government revenue. The money should
simply be destroyed after being collected. It is only the records of
taxation that are important to keep. That way the tax has a singular
purpose.

>The fact that the real cost of high interest rate falls unevenly on
>citizens, banks and
>businesses is well observed by economists.  Generally, under the US tax
>structure, the
>rich and the successful suffer least while struggling businesses and low income
>families suffer most through higher prices.
>
>The most structural aspect of economic inequality in the US is the way Fed policies
>interact with the US Tax code. Taxes are generally deductable from income taxes and
>interest deductions are more valuable to those with higher income and
>therefore higher
>tax rates. A high income individual can recover as  much as 50% of his/her interest
>payments in tax savings (70% if all his/her income is from stocks and bonds
>or incomes
>from K-1 partnerships.)  The poor pay full freight on their 18% installment
>interest
>payments.  This problem becomes magnified as interest rates rise.
>
>Obviously, the rise in interest rate adversely affects those businesses
>that are rate
>sensitive, which exclude those in the new economy whose funds come from
>interest free
>IPOs.  Most consumers are not deterred by interest rates in their consideration for
>major purchases, including homes, as current data show.  They look only at monthly
>payment amounts.  The poor are priced out of the market before the rich by rising
>rates.  This is in fact a discrete system of rationing, dictated not by the
>unseen hand
>of the market but by the unseen hand of policy.  This is the most powerful
>argument in
>exposing the inconsistency between market fundamentalism and monetarism.
>The use of
>high interest rates to moderate econmic growth is nothing short of market
>manipulatuion.  It is no different than price control or demand rationing.
>
>The free market ethos of American politics considers repugnant the idea of
>government
>ration of any commodity, in this case credit, and a system that rations
>credit in favor
>of the rich and powerful is particularly offensive to American populism.
>It would seem that an alternative system to allocate credit according to
>need and/or
>national piorities would reflect more truly the American spirit, but alas, the US
>political system is designed to discourage politicians from taking on the rich and
>powerful.

I agree with everything else you say. Monetarism is a very blunt instrument
and too much is expected from it.

Harry Veeder