The Tobin Tax Lives Again

CAMBRIDGE – Something happened in late August that I never thought I would see in my lifetime. A leading policymaker in the Anglo-American empire of finance actually came out in support of a Tobin tax – a global tax on financial transactions.

The official in question was Adair Turner, the head of the United Kingdom Financial Services Authority, the country’s chief financial regulator. Turner, voicing his concerns about the size of the financial sector and its frequently obscene levels of compensation, said he thought a global tax on financial transactions might help curb both.

Such a statement would have been unthinkable in the years before the sub-prime mortgage meltdown. Now, however, it is an indication of how much things have changed.

The idea of such a tax was first floated in the 1970’s by James Tobin, the Nobel laureate economist, who famously called for “throwing some sand in the wheels of international finance.” Tobin was concerned about excessive fluctuations in exchange rates. He argued that taxing short-term movements of money in and out of different currencies would curb speculation and create some maneuvering room for domestic macroeconomic management.