While such a tax -- 0.6% of the gross value of the transaction is usually the figure mentioned -- will not cause a halt in investment, it will reduce trading liquidity in its tracks, in every market affected (here, meaning anything trading in NYC, Chicago, Philly, Boston, or on any domestically-run electronic exchange. Why? That's such a cinch to answer that even today I find it hilarious that any marginally informed or sane person doesn't see the answer as pellucidly as looking out the window at the sunrise.
The person purchasing shares for the long term won't much care about a 0.6% inside tax...but that person is NOT the bulk of the marketplace, merely a small fraction of it, and in any case there are many other things trading than shares of common stock, whether on or off exchange floors.
See if you can follow the addition, boyo -- then, tell me in all your expert (cough) wisdom why you won't kill off, literally kill right off, an enormous number of markets. Ready? Here we go with a nice, everyday, real-world (I know that's not your favourite world, but one has to start someplace) example.
Light Sweet Crude Oil for January 2005 is trading on NYMEX at $42.70/bbl as I write this. The gross transactional value of 1 contract -- 1000 bbls per contract -- is of course therefore $42,700. 0.6% of that is exactly $256.20. A typical commission on one side of a crude trade is $15-18, including floor fees and whatnot, and, of course, the trader will have to dispose of the contract at some point in future, costing another commission. Let's say, for convenience, that total commission and price slippage cost the trader $50.00 round-turn, thus something on the order of $310 in transaction costs for each contract traded.
Boy, what slick geniuses you people are. That's 31 points per contract, and I'm here to tell you right now that NO -- absolutely NO -- retail trader is going to deal in that kind of market, with such excessive costs. Kiss 'em goodbye from day 1 of the implementation of your asinine tax. But wait (as good ol' Ron Popeil always says), there's more.
Guess who else won't play, at that level of cost? The floor traders, the chaps who make the market. Ordinarily their costs are a couple of dollars -- that's right, putznagel, $2.00, $3.00, $4.00 or less -- per contract. You're going to hit them with a 12,250% increase in their daily business costs? The hell you will, pal -- the price of every exchange seat in the country will be down 80% or more before you can turn around. And, I wouldn't give real short odds on your continued existence should you happen to bump into one of them after implementing your little fantasy world, either.
Stick around, dimwit -- I'm just warming up on this topic, and, unlike you and your fantasy world, I deal in the real world. Typically, you clowns will attempt to brush off the argument so-far-made with something like, ''Well, that's just the commodity futures markets. That's just a gambling game, and we'd probably be better off if those markets were sharply curtailed in the public interest.'' Or some set of words to that effect, right?
Now, if it happens that you're somehow bright enough to NOT make that economically illiterate argument, please skip down to the next graf. How valuable are futures markets to the US? Oh, I'd say fairly valuable. Generals Grant and Sherman, and President Johnson, after the Civil War, made a special trip to the Chicago Board of Trade to thank the members, and the exchange, for their assistance in seeing that the Union armies had timely deliveries of oats (and other feed) for their horses, and also for preventing a food panic in the Eastern cities. That's just one of several dozen major examples, btw -- many more on request.
However, the futures markets aren't even the principal instance of the havoc your and your fellows' lunatic scheme will create. Let's just talk about debt for a moment.
The US gov't, and many of the states, and too many of the counties and cities, RUN on debt -- they quite literally can't exist without the issuance of debt. 0.6% is 60 basis points, chief; do you really believe that those who finance this government, especially increasingly the Japs and the ChiComs, are going to EAT 60 bp just because they're such nice chaps and admire your brain-damaged idea so much? Yah, right. Got some oceanfront property in the Sahara for ya, too. They're going to DEMAND that 60 bp back -- and even a bit more -- before the buy the bloody bonds in the first place. Sheesh. So, cleverly, your dingbat scheme immediately forces interest rates higher all along the yield curve, on a cost-plus basis. Why cost-plus? Because guess what, junior, Goldman and Solly and Paribas and Barclay's and every other investment bank in the world aren't going to accept your little haircut either. Their spreads will ALSO change immediately, to cover YOUR imposed cost. So, the gov't will pay more for money, not once but twice, and guess who foots the bill? Right you are, every taxpayer in the land will get, directly or indirectly, a tax increase. Ah, the marvels of static economic analysis, as practiced by incompetents!
Now, markets aren't going to shut down because of you and your dipstick notions (well, a few will -- but what the hell, you don't care), but what WILL happen, absolutely as quickly as can be arranged, is that every, and I mean EVERY, trading company will shift their emphasis elsewhere, meaning out of NY, out of Chicago, out of the US. They'll trade crude on IPE and SIMEX, Eurodollars on EUREX and SIMEX, corn and beans in Tokyo f'Heaven's sake, coffee and cocoa on LIFFE, US bonds in half a dozen places...and every damned bit of that volume will come right straight out of the US. That'll be just fine for the economy, won't it?
But you dorks will love it, because the revenues you anticipate from your little Frankensteinian adventure WILL NOT MATERIALISE, and you'll get another chance to tax the kwap out of everyone with another idea from Dildoes 'R Us.
The good news here is only that the markets have SO much more clout than paretic academics like you and Tobin that your crackhead plan hasn't the slightest chance of making it into law, even incrementally.
And, by the way, I haven't yet even gotten to what your faex-like idea will do to the dollar middle-term AND to retirement accounts immediately, whether SS or otherwise, throughout the nation. Nor will I withdraw one single ad hominem remark in this message; intellectually, you deserve every one of them.
Thanks for taking the time to go through the real situation in detail, and for pinging me to your post.
You are 100% correct.
I would nominate your post #62 to the FR Hall of Fame, if one existed.
Dang, I think we should start one, with your post as the first entry!
Can't say I've ever seen a more effective deconstruction/destruction of anyone or anything here.
And I can't think of a single more deserving target of such a lovely hydrogen bomb. ;-)
And incidently, I feel truly honored to have you agree with any post of mine. I mean it.
Your reply is a definite keeper as future hyperlink reference for any mention of the AFT on the web.
Outstandingly put!!!
Your comments are jeuvenile. Grow up. No tax proposal is perfect, and all have their merits. Let's have some intelligent civil discourse here. OK?