The financial crisis has been good for the reputations of dead economists embraced by the political left.
First, there were the reports of renewed interest in the teachings of Karl Marx.
Then unabashedly conservative leaders, including Prime Minister Stephen Harper, embraced the policies of John Maynard Keynes, the iconic British economist who provided the intellectual basis for governments to spend their way out of hard times.
Now, it appears the ideas of James Tobin, the American Nobel Prize winner who theorized about taxing currency speculators, are set for a fresh hearing.
In an article published in Prospect, a British current affairs magazine, Adair Turner, the head of England's banking regulator, mused about shrinking the country's “swollen financial sector” by adding a levy to bankers' deal making.
“If increased capital requirements are insufficient, I am happy to consider taxes on financial transactions,” Mr. Turner, a former investment banker and current British noble who goes by the title Lord Turner of Ecchinswell, said in an interview with the magazine.
“Such taxes have long been the dream of development economists and those who care about climate change – a nice, sensible revenue source for funding public goods,” he added.
The editors at Prospect apparently sensed they had a winner and orchestrated coverage for Mr. Turner's comments on the need to overhaul financial regulation.
Several London-based newspapers, including the Financial Times and the Guardian, ran stories to coincide with the release of the September edition yesterday.
News agencies, including Reuters and Bloomberg, also wrote stories on Mr. Turner, spreading the chairman of the Financial Services Authority's (FSA) evocation of Mr. Tobin – who died in March, 2002, just days after his 84th birthday – far beyond Prospect's 28,000 subscribers.
“An exclusive roundtable discussion led by FSA chief Adair Turner about global financial regulations in this month's edition of Prospect (out today), in which the head of Britain's top banking watchdog supports the idea of new global taxes on financial transactions, has been making headlines around the world,” the magazine boasted on its website yesterday.
But it will take more than media hype to lift the “Tobin Tax” from the pages of academic literature and insert it into the legislative proposals to tighten financial regulation in the United States, Britain and elsewhere.
Mr. Tobin, who was a professor at Yale University and a disciple of Mr. Keynes, proposed in 1971 that volatility in foreign-exchange markets could be curbed by charging small levies on currency trading, which he reasoned would deter speculation. Mr. Tobin said the revenue generated by his tax could be handed over to the United Nations to help fight poverty.
The idea became a rallying point for the anti-globalization movement at the end of the 1990s, and some left-wing politicians, including former French prime minister Lionel Jospin, a Socialist, endorsed the policy.
But most mainstream economists dismissed the tax as idealistic folly and the one stumble in an otherwise glorious academic career that earned Mr. Tobin the 1981 Nobel Prize in economics for his research on financial markets.
“I did a double-take when I read Turner's comments,” said Ian Lee, head of the MBA program at Carleton University's Sprott School of Business and a former banker. “That's something you'd read from an NGO to alleviate poverty in the Third World, not the head of the banking regulator. It's an absurd argument on all kinds of levels.”
Most economists dislike any variation of the Tobin Tax because they surmise it would distort private decision making.
Stephen Gordon, an economics professor at Laval University in Quebec City, said he failed to see how taxing financial transactions would have prevented the financial crisis, which he attributes to excessive leverage and poor risk management. Prof. Gordon also pointed out that such a tax would have exacerbated the credit crunch by making capital even more expensive.
But the biggest knock against the Tobin Tax is rooted in pragmatism: All the world's big economies would have to institute it to keep banks from simply doing business in jurisdictions that refused to apply the levy.
“It's something that, if it could be done, it would be worth doing,” said Douglas Peters, a former junior finance minister who is studying financial regulation for the Canadian Centre for Policy Alternatives, a left-of-centre research organization in Ottawa.
But the chances of getting it done are “about the same as my chances of having a summer cottage on Mars,” Mr. Peters said.
LEFT-LEANING POLICY MAKERS OF THE PAST
The German political economist and philosopher who published TheCommunist Manifesto in 1848. Marx said workers in a capitalist society are exploited by the owners of capital. He predicting that tension would lead to the eventual destruction of capitalism, which would be replaced by socialist government on the way to a classless society.
John Maynard Keynes
He rewrote economic theory in the 1930s by showing that free markets don't necessarily provide full employment. The British former public servant and father of Keynesian economics argued government spending and lower interest rates could alleviate the pain during slumps in the business cycle.
The Yale professor won the Nobel Prize in 1981 for his work on understanding financial markets and was a leading adviser to U.S. president John F. Kennedy. But Tobin is best known today for his controversial proposal to curb speculation in foreign exchange markets by taxing currency transactions.