When I was in London several weeks ago, Lord Turner, chair of the Financial Services Authority, revived an old idea, the Tobin tax. The tax is named after the economist James Tobin, who in the early '70s proposed a tax on all currency transactions that took place across borders. He believed that this would cut down on currency speculation. The Labour Party's Adair Turner believes that today's financial services sector has grown too large and a Tobin tax would help to bring it in line and reduce the excesses that lead to the global financial crisis.
Unfortunately, for both The City in London and Wall Street in New York, adding a new tax at a time when the financial services industry is just starting to recover will only delay a real recovery. In addition, both cities have suffered very significant job losses, which have reduced both their tax bases. The most likely result of a Tobin tax would be that capital would find more efficient locales and the job and tax losses would become even more profound. The British Bankers Association said: "If we introduce the wrong kind of regulation or the wrong kind of taxes we could so easily lose that position by driving business abroad...On so many occasions in the past the country has lost chunks of industry through making the wrong decisions. Let's not do that again." (Financial Times: August 28th, 2009)
At this point, it is clear that the G-20 is not ready to adopt Adair Turner's proposal. Have we forgotten how uncompetitive our economies were in the '70s before Ronald Reagan and Margaret Thatcher, two kindred souls, came to power, cut taxes significantly and made both economies the envy of the world? Now, I am not arguing that there were not abuses, there were and we clearly need more transparency. But the G-20 focus on global growth without a new tax on the financial services industry is a much better strategy for a sustainable recovery.
In closing, if you are focused on the media industry I strongly recommend a new book. The Curse of the Mogul, by Jonathan Knee, Bruce Greenwald and Ava Seave. It will be published by the Penguin Group on October 15th and can be pre-ordered on Amazon, including a Kindle edition. I have read it in galley form and it is a provocative read that uses deal analytics, over time, to support its thesis.