Commentary:Using tax policy to curb speculative short-term trading
- Publisher
- Springer
- Year
- 1989
- Tongue
- English
- Weight
- 267 KB
- Volume
- 3
- Category
- Article
- ISSN
- 0920-8550
No coin nor oath required. For personal study only.
✦ Synopsis
Professor Stiglitz doesn't seem to have much use for stock markets. He seems to think that they are legalized casinos, and whatever uses they might have for the discovery and display of information and the allocation of ownership claims shouldn't mislead us into recognizing sin for what it is. Like cigarette smoking and other forms of substance abuse, if society doesn't have the courage to ban it outright, the least it can do is tax it. Hence the transfer tax.
If this viewpoint seems mean-spirited, it is not my intent. But, to paraphrase Joseph Bishop, Professor Stiglitz's views on these matters are to me what the buffalo were to the Sioux. Make no mistake, despite the trappings of science, this article is a political tract in the tradition of Irving Fisher writing on the war and not on interest rates. It is devoid of the usual analysis of tax incidence or of suggestions for how one might compute such a tax. Instead we are treated to the policy implications of the latest--and still warm--theories of how the stock markets, work together with a heavy dose of just plain opinion. The article is wholly theoretical--even "speculative" in nature. The only numbers I found were that the transfer tax raises $12 billion annually in Japan and that it will "probably be less than 1 percent."
The tentative conceptual underpinnings of financial markets now being proposed as financial theory groups traders into four classifications: uninformed traders, noise traders, very informed, and partially informed. The class of uninformed traders includes the multibillion dollar pension funds who, in their supposed ignorance of the financial markets, simply index their portfolios. The very informed traders are those cunning speculators who watch all the relevant information and statistics, including such esoterica as the current price, and make sophisticated and, presumably, correct investment judgements. In between these two groups we have the partially informed who, while not smart enough to make the right inferences from the information they possess, are nonetheless wary enough to recognize that they are sheep among the wolves and will flock to trade when at their least disadvantaged.
Making all of this theoretical soup possible are the noise traders whose trading is motivated by a variety of rationales, but not by the desire to reap any return. Equivalently,