Re: Volatility

["J. Barkley Rosser, Jr." <rosserjb@xxxxxxx>]

Paul,
      I don't wish to reopen old controversies here, but I
would say that the evidence you cite suggests that there
may have been cases where such taxes increased volatility
rather than decreased it rather than that such taxes ALWAYS
increase such volatility.  Not everybody accepts the conclusions
of those studies and they are hardly comprehensive.
      I would note, however, that there does not appear to be
any necessary virtue in terms of avoiding volatility to be gained
by "slowing down" market behavior.  In particular I am thinking
about what happens during panics.  It is well known, both from
1929 and from 1987, that during serious crashes, the tendency
to panic and extreme behavior increases when people are unable
to finalize transactions quickly and do not know what is happening.
This tends to lead to extreme selling behavior out of the panic of
uncertainty that becomes a self-fulfilling prophecy of a severe crash.
     Kindleberger's book, that I just recommended to Mine, covers
this issue quite clearly and well.  However, I do not think that this
is necessarily relevant to the taxation issue which may not involve
any slowing down of information flows, which is crucial for this.
Barkley Rosser
-----Original Message-----
From: Paul Davidson <pdavidson@xxxxxxx>
To: POST-KEYNESIAN THOUGHT <pkt@xxxxxxxxxxxxxxxx>
Date: Friday, April 07, 2000 11:48 AM
Subject: Re: Volatility


>At 08:16 AM 04/06/2000 -0700, you wrote:
>>Harry Veeder wrote:
>>
>><<SNIP>>
>>
>> > 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".
>
>As the talk returns to the use of taxes on financial transactions to reduce
>volatility (bubbles?), I wonder why no one look at the empirical evidence
>which shows that a transactions tax ALWAYS increases volatility measured as
>variance.  I cited studies done by others on this matter and then explain
>why this is NECESSARILY true in my  paper "Volatile Financial Markets
>and  The Speculator" in  the journal ECONOMIC ISSUES, September 1998.  This
>paper can be obtained from mu home page.
>
>Paul
>Paul Davidson
>Holly Chair of Excellence in Political Economy
>Editor, JOURNAL OF POST KEYNESIAN ECONOMICS [JPKE]
>Economics Department -- 523 SMC
>University of Tennessee
>Knoxville, Tennessee 37996-0550
>email: Pdavidson@xxxxxxx;   phone: (865)974-4221;    fax: (865) 974-4601
>http://econ.bus.utk.edu/Davidson.html
>
>