As noted in an earlier entry, Robin Hood should be remembered for staging a tax revolt. But some of those that mischaracterize him as a promoter of forced income redistribution are now egregiously defaming this hero by naming a tax after him!
A proposed “Robin Hood Tax” is being considered in many quarters that would assess a fee of 0.05% on what are said to be “speculative” trades in foreign currencies, shares & other securities.
Poor old Robin must be rolling over in his grave!!!
For their part, Gordon Brown, Angela Merkel & Nicolas Sarkozy have expressed support in anticipation of a vast windfall of new tax revenues. And they have been joined by a large growth of economists, including Nobel Laureate Joseph Stiglitz. Even Warren Buffett & George Soros have joined this chorus that seems tone deaf to how markets work.
Well, who could oppose such a tiny tax on such odious people like bankers!
Critics of speculative activities as if they were anti-social are ignorant of fundamental economic logic or are wielding crass demagoguery & populist pandering to expropriate lawfully-earned income.
Most people would define “speculation” as actions involving securities or commodities being bought solely for rapid resale or sold with the intent to rapidly repurchase them. Critics condemn such behavior either as having no “socially redeeming” quality or as being detrimental to other economic or financial activities
But the truth is that speculation is socially beneficial. since when correct guesses are made about future movements of prices, these actions tend to stabilize markets by reducing volatility of price & availability.
The most basic aspect of speculation involves buying at low prices to sell later at higher prices. But a similar strategy involves selling at high prices to buy back later at a lower price (known as “short selling”).
Consider buying early at low prices to sell later after prices rises. This means that more was sold when prices were low & more made available for sale when prices are going up. And buying at low prices will moderate further price declines while selling when prices go up will moderate further price increases.
Following the same logic, we can see that short selling also has a stabilizing effect. Selling at a high price in anticipation of lower future prices & buying back later after prices fall means more can be sold when prices are high & more purchases made when prices are going down. Selling when prices are high helps moderate further price increases while buying when prices are going down will moderate further price declines.
Speculators are worthy individuals that merit more acclaim than government officials with insatiable appetites for power & revenues or “do-gooders” that would impose taxes on activities so valuable to the functioning of society.