When a journalist writes a silly article, that journalist can be ridiculed, but when an idiotic unsigned editorial is published by a newspaper, then the whole newspaper can be ridiculed. And that is the case with today’s editorial published in The Observer, one which promotes the implementation of the Financial Transaction Tax (FTT).
On March 30, 1981, The Times newspaper published an attack on Margaret Thatcher’s economic policies signed by 364 economists. Those economists were “totally wrong.” The recollection of this thirty year old statement should have been a useful reminder that economists, even as a pack, can make horrendous errors. It has not been a lesson learned by those that are responsible for the editorial on the subject of the ill thought out FTT in today’s Observer. Relying on a letter signed by 1,000 economists , the editorial argues that “Arguments against a Robin Hood tax are bogus” and concludes, “The question G20 finance ministers must consider is not whether a financial transactions tax should be implemented, but how quickly it can be put in place.”
I have previously explained why such a tax should be rejected. My argument is that if the FTT is implemented in the UK, London will be finished as the major financial centre for many financial transactions. Somewhere else, a place that does not implement the tax, will take our capital city’s crown. The Observer comments that this will not happen if “world’s major financial centres – London, Hong Kong, Frankfurt, Paris, New York” implement the tax as “there will be nowhere for trading to go.” They declare that “A few rogues might move to dodgy offshore havens, but big volume deals worth billions will prefer the security of reputable jurisdictions.”
The Observer does not explain why trading via an offshore location would make one a rogue, it just declares that it would be so. More importantly, there is a gaping logical problem with their fundamental point. It is certainly true that those trading billions of dollars wish to have a reputable jurisdiction. It would not be wise to wire hundreds of millions dollars to an island or country where a military coup could occur and a rule implemented that would prevent capital leaving the country. Likewise, it would not be wise to trade in a country where the legal system cannot be trusted.
It is not the case that all offshore havens are “dodgy.” If we take, as an example, Bermuda, that island is not a G-20 country and is reputable. The law is based on English law and as a British overseas territory, like the Falkland Islands, the British government, with the use of our armed forces, have a moral obligation to protect the islanders from a foreign invasion. It is because of this that Bermuda is already home to many insurance companies and offshore hedge funds. There is no reason why financial transactions could not be directed that way.
But, The Observer declares, why should people bother trading through somewhere such as Bermuda, because, “0.05% is hardly an onerous charge” and “It would scarcely dent the successful traders’ wealth, while raising billions for more deserving recipients.” Given that in some financial transactions, those executing them are hoping to make as little as 0.01%, the 0.05% charge certainly is onerous and would be prohibitive to trading in the first place. 0.05% is real money. To use a similar example to one I made in my previous post on this subject, if a Dubai based trader can save €50,000 in taxation when trading €100 million of a currency by simply picking up the phone to someone in Bermuda as opposed to someone in London, then the phone will not ring in London but will ring in Bermuda. It is pure fantasy to suggest that this would not happen. Perhaps the editorial writers for The Observer live in fantasy land.
Disclaimer
This article is written by the author in a personal capacity and the views expressed, which are his personal views, do not necessarily equate to the views of any organisations with which he is associated.
