If Robin Hood tax is stealth tax, then banks must be broken up
So, the Financial Times reports today that the Robin Hood tax – or Tobin Tax to it’s old chums, may be a ‘stealth tax’.
The argument, which comes from Oxford University’s Mike Devereux, is that banks will just pass the cost of the tax onto their customers. As I see it, it has profound implications.
What they taught me in first year economics was that, in a competitive market, price is set by supply and demand. If something costs more to produce than the price as dictated by supply and demand, then it won’t be sold. Simple. No one agent having influence over price is one of Adam Smith’s five conditions for a competitive market.
However, no market is perfect. In most markets, some companies are big enough players that they do have an influence on price. In many, we have monopolies – which even that loony freemarketeer Milton Freedman says exist “when a specific individual or an enterprise has sufficient control over a particular product or service to determine significantly the terms on which other individuals shall have access to it.” (OK, that’s also the first line of the wikipedia entry).
So, the extent to which a cost is passed on by a company depends on the extent to which the customer can go elsewhere. If the only argument we are going to hear from bankers spin doctors (can you think of anyone less popular?) against the “Robin Hood Tax” is that banks will pass it on to customers, then this means the banks are conseeding an important point. It is not a competitive market. They have monopolistic powers. They must be either broken up, regulated, or taken into some form of pubic ownership.
The second problem with an attempt to stoke worries in this way is that it allows the public to assume that by ‘customers’ they mean us. Of course, the truth is that other big businesses are the major clients that banks have. If the worst outcome of a Tobin tax raising billions to fund action against poverty, climate change, and to support our public services is that big corporations pay a portion of a tiny tax, then, frankly, I don’t see why we didn’t do it years ago. Which I guess is why Greens and friends were campaigning for it, years ago.