Archive for October, 2008

Tobin Tax

Thursday, October 23rd, 2008

I was recently drawn back to some of my older writing on the Tobin Tax by a companera’s request to comment on it. So, I thought that since the Tobin Tax is and will be on the agenda of some sections of the movements, it has been raised in the Beijing declaration by Focus on Global South and TNI, and it has already attracted some critical comments in various lists, it would be important for us to give it a slightly more critical analytical consideration. In the following notes I will freely take from my old article “Capital Movements, Tobin Tax, and Permanent Fire Prevention: a Critical Note.” In Journal of Post Keynesian Economics, Vol. 22, No. 2, Winter 1999-2000.

First, for those who need an intro, the Tobin Tax is a tax levied on foreign exchange transactions and takes its name from James Tobin, who proposed it in 1974 in the midst of the then crisis back then. An element of that crisis was the rise of short term capital movements, which nevertheless were a fraction of what we have today.

There are three main rationales for the Tobin tax . . . . In the first place, this tax would be essentially a small transaction tax that would penalize short-term round-trip movements of speculative capital, thus helping to “put grains of sand in the wheels of international finance” (Eichengreen, Tobin, and Wyplosz 1995). In this way, the Tobin tax would reduce the profitability of short-term speculation and allow exchange rates to better reflect long-term factors in the real economy rather than short-term speculative flows. The second rationale is based on the greater autonomy this tax would give governments in pursuing economic policies, by being shielded from financial market discipline on domestic fiscal and monetary policy. Finally, the third rationale for such a tax is its revenue-raising potential. According to an older United Nations study, a Tobin tax of merely 0.05 % could raise $150 billion a year (United Nations 1994: 9) [this is of course a pittance in relation to current bailout regimes (a pittance which of course depends on the low tax rate, which — following the “grain of sand” logic — has to be low, otherwise capital movements would be brought completely to a halt, and this is something its proponents do not wish.]

There are three main interrelated criticism of the Tobin Tax. The first one comes from Paul Davidson, a post-keynesian economist, who argues that “the imposition of a Tobin tax per se will not significantly stifle even very short-run speculation if there is any whiff of a weak currency in the market. In fact, any Tobin tax significantly less than 100% of the expected capital gain (on a round trip) is unlikely to stop the sloshing around of hot money. (Davidson 1997: 678)” Thus, taking for example the case of the fall of the Mexican peso during the crisis of 1994-95, in which the peso fell by about 60%, a Tobin tax of about 23% would have been required to stop speculative run on the peso.

In our terms, therefore, the first argument against the Tobin Tax is that it is not a solution to capital movement and their disciplinary role of enforcing crises following profitability expectations.

The second argument is this: if we want the tobin tax because it transfers money from capital to labour, then it is legitimate to ask why the Tobin Tax and no other form of progressive taxation or wealth redistribution and reformulation of property right? This question is even more legitimate, assuming the validity of the first argument.

Third, and consequently, there is what Werner mentioned, that is the Tobin Tax “comprise well thought out ideas as to how to secure existing social relations”, i.e. capitalist relations. It is a mild form of capital control, that does nor prevent crises, it modest revenue raising powers gives the impression of addressing social justice, but it will be instrument for casting a new capitalist deal. With respect to this, for us the question will be to try to assess how — in today’s given context of crisis in its specificity — the tobin tax could in fact be used to secure existing social relations, as a part of a new deal.

But in general, let us hope that our marches and demos in the next months and years will see less of those awful banners with the “%” sign: I could never had thought that such a symbol of capitalist compound interest rationality could also become the symbol of part of a social movement.

The austerity to come: pensions

Friday, October 17th, 2008

In the US, the loss in the value of pensions (private and public) amount to $1 trillion. And they still dare to tell us to diversify investment portfolio in order to minimise risk. See the Statement by Peter R. Orszag, Director of the US Congressional Budget Office.

meltdown management

Wednesday, October 1st, 2008

there is a a lot going on definitively in the current financial crisis, and events are moving very fast. Hence, let me try to put some order to some untidy thoughts with the disclaimer that I am commenting on a fluid situation and hence I am not 100% committed to what I am saying

* neoliberlism as we know it, is obviously finished. But this was true also before the recent g8 in Japan. The current crisis/meltdown of finance raises the *urgency* of dealing with the impasse they have been facing for some time now. This moment of crisis we are living is where the different positions and strategic horizons are forced to distinguish themselves and/or find a common ground. This is a challenge for both the ruling classes and for the “commmoners”.

* For capital’s *in general* perspective (that is the perspective of the “system that any government must try to the save whatever means necessary” to paraphrase today’s interview to Tory leader Cameroon who had a sudden taste for bipartisanship in the midst of the Tory conference) the impasse must be solved in a way or in another. Whatever way, it must provide the material conditions to launch a new phase of accumulation. This is obvious, even if it may sound a platitude. But it is a platitude that does constitute the strategic horizons within which the current debates are plaid out.

* what way is of course important. We have at play two broad strategies within this horizon. One, which brings together the panicking US administration (Bush and Paulson) with “responsible” democrats who, pace some populism in their interventions that have realised some fine tuning to the robbery of the $700b, thought to go along with the bailout of Wall Street. I agree with Naomi Klein here. The shock is here delayed. The cost of this bailout (on top of skyrocketing military expenditures), would in the near future tie the hands of any US administration and be the basis of more typical neoliberal policies (cut in spending, re-privatisation of nationalised banks during the crisis, etc.) The infrastructure and energy investment promised by Obama will take place if he is elected, but in a context of populist austerity (in which the cuts necessary to fund these investment are distributed “fairly”). If instead McCain goes to the White House, austerity is already embedded in his agenda even without the $700b constraint. In either case, this bailout scenario is relying on the idea that the system could go on more or less as it did so far, a part for some buffering during this crisis. The difference between an Obama and a McCain administration here would be the difference of degree of governance: obama would manage the flow of domestic and international conflict in a more deal prone way and McCain would replay Bush’s script despite his annoying conciliatory tone he uses to dress the substance of his speech. Obviously, financial capital seem to want the bailout, as it save their skins and, potentially, at least part of their bonuses.

* if the rescue plan goes ahead (there is a vote on Wednesday, we will find in a situation in which public money has been used at a massive scale to buy assets above the value they would have had if the market were left to operate as in textbooks. This is not only something that enrages many people, it is also something that opens to a degree the socialisation of finance used, in this case, in order to save the system itself. Here the US “Middle Classes” are really caught in between a rock and a hard place. Bail them out, and swallow the anger that your money goes to save their neck and more sacrifices will be demanded from you tomorrow to pay for the bailout. Don’t bail them out, and face the prospect that your pensions, your access to credit, your job, your children college, your cars, your way of life is ultimately threaten by financial meltdown (see the amazing Bush’s speech) the other day). In this sense, the Middle Class as Middle Class will not get us out of this mess. The Middle Class must accept its end in order to aspire for a truly new beginning.

* now, the failure to pass the $700b plan (so far, don’t forget they are still trying to patch this up) is really interesting. There is obviously a lot of opposition to this bail out, bringing together hard core republicans and radical left types from the street. From a left-populist perspective, the argument has been made that instead of paying “greedy” Wall Street, money should be put towards funding home owners and the recovering of main street. Some versions of latter-day Keynesianism here are always at play. Saskia Sassen for example has made an argument along these lines in “open democracy”. (see also other examples cited in my blog post few days ago) Some of the arguments will be taken on board by McCain and, especially, Obama even if the $700b passes. But the real interesting perspective here is that this crisis is opening up an opportunity for true “market fundamentalists” to step in (even while they are riding as in the late 1970s a populist rhetoric): don’t bail out the suckers of Wall Street, let them face the risk they have incurred. This is the “moral hazard” argument, with which committed marketeers hammer in their sense of value and justice any time they are in front of a crisis. Crises, even big one, have a disciplinary role to play, to brig about needed restructuring. Let them play it. And since they are the true believer in the end of history (that is, really, that market capitalism is the bliss point of human evolution), they are confident that even a crisis of this proportion can be the basis of a new round of accumulation. Obviously, to the limit this stance could threaten the system itself, *if* the “commoners” had gone through a process of powerful enough political recomposition not only in the US, but across borders. Lacking this, lacking this “explosion of the middle class” and its recomposition into commoners and commoning predicated on new values, this stance offers also a great opportunity for truly massive and major restructuring of the economy and livelihoods at a planetary level in capital’s favour. This stance could even open to a period of the US state taking over of Wall Street devalued financial firms at a bargain, hence the creation of a US Sovereign Wealth Fund that would recapitalise in value in proportion to the global restructuring it is able to implement, and of the expectation of world growth it is able to elicit that would be reflected in the value of those nationalised financial firms. This of course could be in “partnership” with other sovereign wealth funds around the globe, a sort of “productivity deal” at governance level. Here we would have a situation in which the Middle Class would be tied to the neck to accumulation prospects (and its enclosures), around the planet not longer simply because of their pensions, but also for anything the state would provide for their reproduction. We can even imagine a situation in which in few years a Milton Fridman’s type of basic income is introduced together with a tax flat rate, grossly reducing tax revenue, but replaced by the revenue of the US people Sovereign Wealth Fund, capitalising itself in direct proportion to prospects of world accumulation (you can imagine the role of the US military then!!).

The main difference between this strategic course of action and the bailout will be in the intensity of the restructuring needed and its time frame. In either case, and whatever the scenarios ahead, it is certain that after the period of financialisation of society we are entering now the period of socialisation of finance. This has been recognised widely, even by mainstream press. The end of neoliberalism as we know it however, is not the end of capitalist enclosures, disciplinary and governance processes. It is the strategic reconfiguration of the social force we call capital on a new plane.

The question for us is how do we intervene in this new context. The question we should raise and problematise is “what socialised finance” — that is, in our terms, when we strip from money and finance its capitalist form and recognise its “rational kernel” as a conduit for the distribution and allocation of social powers — what decisions of social investments, for what priority, for what needs, through what mechanism of commoning, the fucked up commoning of capitalist enclosures and discipline, or others ones, which one?