Bubbles(was Volatility)

["Harry Veeder" <veed0001@xxxxxxxxxxxxxxxx>]

----------
>From: "John O'Donnell" <jackodonnell@xxxxxxxx>
>To: POST-KEYNESIAN THOUGHT <pkt@xxxxxxxxxxxxxxxx>
>Subject: Re: Volatility
>Date: Thu, Apr 6, 2000, 4:16 pm
>


>> >
>> >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".
>
>Actually, the "speed of electronic feedback" is not needed,
>only the feedback signal to respond to the effect of changes
>is needed. The speed of the response is limited by the
>ability to measure the effect(s) following implemented
>changes.

It seems to me speed may well matter depending on
the physical layout of the control system and how quickly
the system being monitored changes. But I don't know much
about the design of control systems so you may be right.


>However, to affect bubbles the feedback signal is not
>required. All that is needed is a tax that acts in
>opposition to price increases such that the higher the price
>goes the higher goes the tax thereby reducing the perceived
>value of the common stock and if the price falls the
>reduction of the tax lessens the damage to its value.

I would say this involves "feeback" since the tax moves
up or down depending on the size of the bubble. Though,
I must confess I don't know how to objectively
identify over valued stocks but I think the phenomena of over
valuation is objectively real even if it is poorly understood.


<snip>
>Although the monopoly tax optimizes growth of capital [i.e.
>the value of common stock] independent from any
>redistribution, the fact remains that a rational
>redistribution can also be determined that also can be
>optimized to grow t an economy. It's called a "Citizen's
>Dividend" in _Three Steps, etc._ and accomplishes the growth
>optimization by the same function as the monopoly tax. That
>is, it redistributes the costs of production from "variable"
>to "fixed" and thereby encourages lower retail prices that
>encourage greater economic activity.
<snip>

The trouble is redistribution makes the tax even more contentious.
People hate to imagine *their* tax money being used by individuals
whose way of living they don't like. I don't like to advocate
redistributive taxation as way to effect economic improvements.
Its use should be very limited.



Harry Veeder