3071-The political economy of new slavery

Emma Dowling 205
gross sum of any foreign exchange transaction; any speculative operation
would therefore incur the tax twice, once when bought and again
when sold. Originally, Tobin proposed a percentage between 0.5 and
1 per cent; however, more recent proposals have argued for a lower percentage
within the realms of 0.01 and 0.1 per cent for fear of deterring
actual beneficial activity. The Tobin tax can be said to have five main
objectives, 2 which I shall discuss in turn in order to shed light upon its
feasibility.
Encouraging investment
Any currency transaction tax seeks to encourage investment instead
of speculation. Most short-term speculation is carried out for profit
purposes only. Although some short-term transactions are closely linked
with real economic activity, such as hedging trade and investment
against exchange rate risk, and some are part of a short-term (rollover)
financing strategy of long-term investment, it would be confusing to go
into too much detail here. In the event of an implementation of the tax,
traders can still find enough opportunities for hedging risks. Short-term
speculation is rendered more profitable than long-term investment in
the sense that it yields immediate profit resulting from small profit
margins, yet it has drastic destabilizing effects. Mainstream neo-liberal
thinking neglects such problems.
However, recent studies show that short-term investment behaviour
leads to irrational economic behaviour such as short-term thinking.
Such thinking means that there is an increased asymmetry of information
and results, which makes investment impossible. Also, extreme risks
are taken. Private investors have more capital than central banks and
therefore more control over the market, which they exploit in favour of
profit. Furthermore, due to such short-term fluctuations, central banks
and supervisory agencies have much less time in which to detect a crisis
and react by buying a currency under pressure. Daily speculation leads
to the build up of speculative bubbles, which eventually have to burst
and more often than not cause crises as values are so far removed from
reality: despite the fact that speculative business of banks and funds has
been detached from the real economy, financial crises have not (Wahl
and Waldow, 2001, p. 7). The tax is said to be able to curb speculation and
encourage investment, since even a small tax would render short-term
activity unprofitable (the only reason speculators make such profits is
because of the huge sums they employ) but would have far less effect
on long-term investment; 3 ‘Undesired hot money is held back but the
liquidity needed for real economic activity can pass through...this is