Webster G. Tarpley
September 22, 2010
French President Nicolas Sarkozy has spoken the magic words: “Tax the banks,” and this is the big news from the opening day of this year’s UN General Assembly plenary session in New York. For reasons which have much to do with internal French political struggles, Sarkozy has thus placed the central question of the age on the international agenda: Who will pay the costs of the world economic depression? Will it be the bankers, speculators, derivatives mongers, asset strippers, and hedge fund hyenas who have created the current depression through the bubble economy of the last decades? Or, as the Koch-headed dupes of the Tea Party demand, will the cost of the depression be taken out of the hide of average working people around the globe under the banner of “free-market” swindles once again?
The financial transaction tax is the key to making the bankers pay for their own crimes.
“We have no right to shelter behind the economic crisis as supposed grounds for doing less,” said Sarkozy, who noted that government budgets are everywhere under tremendous pressure. “Finance has globalized, so why should we not ask finance to participate in stabilizing the world by taking a tax on each financial transaction?” “I want to tell you of my conviction that while all developed countries are in deficit, we must find new sources of financing for the struggle against poverty, for education and for the ending of the planet’s big pandemics.”1 Sarkozy stressed that he intends to campaign for the bank tax when France assumes the presidency is head of the Group of 20 and Group of Eight countries for a year, starting in November. That will keep the Tobin tax in the public eye over the next 14 months, at minimum.
What Sarkozy has thus proposed under the name of financial transaction tax is none other than the Tobin tax, the Wall Street sales tax, the securities transfer tax, or Robin Hood tax, which this website has long advocated. As Sarkozy specified, the financial transaction tax, like a sales tax, would take a small percentage of financial turnover and use the proceeds for purposes of world economic development. Naturally, the really critical questions are how big this percentage will be, who will collect it, and how it will be used. Now that Sarkozy has broached the issue before the court of world public opinion, all of these questions are very much up for debate. Sarkozy himself probably imagines the financial transaction tax as flowing into the coffers of the International Monetary Fund, where it would not be used primarily to fight world poverty, but rather to help pay off the debts of Third World countries which are beyond insolvency. Such an outcome must be opposed at all costs.
And such an outcome is far from being automatic. Now that Sarkozy has placed the question on the table, it is imperative to mobilize with all available energy and make this a far broader and deeper issue and the wily French president could ever imagine. Persons of good will must do everything possible to take control of this issue and use it to shift the world balance of political forces against finance capital and in favor of working people.
The best current estimate of the contending forces on this question would list France, Germany, Brazil, Norway, Austria, and a number of other states as supporters of a Tobin tax, with opposition coming from the usual suspects — the United States, Great Britain, and Canada, joined by China. How embarrassing for the Chinese to be seen in public in such bad company! Unless China is planning to join the English-Speaking Union, they urgently need to revise their position.
1% Financial Transfer Tax Means $10 Trillion for Development Based on Forex Alone
Concerning the potential impact of a financial transfer tax on world economic development, we can start by noting the report published by the Wall Street Journal on September 1 that the Bank for International Settlements now estimates the total turnover of foreign exchange and currency markets worldwide at about $4 trillion per day.2 Using the usual estimate of 250 business days in a calendar year, this means that the total turnover of world foreign exchange in currency markets is in the neighborhood of $1,000 trillion or $1 quadrillion per year. A modest but serious financial transaction tax of 1%, a penny on each dollar, could thus initially yield $10 trillion in revenue, assuming that speculation remained at its original level, which is admittedly not the most likely scenario.
On the other hand, this same Wall Street Journal points other flows of speculative money reach need to be taxed for the general welfare. These include US stock trading, which in April 2010 averaged about $134 billion per day, or $33.5 trillion per year. Turnover on the United States Treasury securities market averaged $456 billion per day in April, which comes out to about $114 trillion per year. To these should be added the total turnover in exchange-traded derivatives like futures, options, and indices, plus the massive issuance of over-the-counter derivatives such as credit default swaps, collateralized debt obligations, structured investment vehicles, and the like. Generally, the budget deficits of world governments at all levels are closely correlated with the fact that, under financial globalization, speculative interests pay virtually no sales tax, and generally manage to escape corporate income tax as well. They are like the French nobility of the ancien régime before 1789, insisting on their unique privilege of immunity from most taxation.
For purposes of illustration, we can use the figure of $10 trillion of increased revenue, which looms large in comparison with the current French foreign aid budget of €10 billion, which is robust enough to make France the world’s second-largest donor in this department. Much attention has been given in recent months to the tragic floods of the Indus River Valley in Pakistan. The Indus obviously requires development along the lines of the highly successful Tennessee Valley Authority built by the New Deal in the United States, with dams for flood control, hydroelectric power, irrigation, and the eradication of malaria. Give the Indus the TVA treatment, and the threat of new floods is largely neutralized. That might cost $1 trillion, but this would represent a permanent increase in the capital stock of Pakistan, and a permanent increase in the productivity of labor. It is well-known that TVA treatment is also required for the Ganges-Brahmaputra River system, as well as for the Nile, the Congo, the Amazon, the Rio de la Plata, the Mekong, the McKenzie River in Canada, and other underdeveloped river systems. For $10 trillion, all of these could be tackled, perhaps with money left over for the Bering Strait Bridge Tunnel, the Straits of Gibraltar Bridge Tunnel, and the Italy-Sicily-Tunisia connection. Carrying out these development projects would create hundreds of millions of new productive jobs at union pay scales in the EU, the US, and Japan, putting an end to the current world economic depression. This approach obviously goes far beyond anything that Sarkozy has in mind, but it happens to represent what is urgently needed for the future of humanity on this planet.
Nobody needs to be told that Sarkozy always has ulterior motives. He wants to run for reelection in 2012, but he is deeply unpopular and faces a revolt from inside the French administrative bureaucracy, including opposition from the domestic and foreign intelligence agencies. He will be challenged from the center-right by neo-Gaullist Dominique de Villepin, and from the center-left by Dominique Strauss-Kahn, the current boss of the International Monetary Fund. Because of Strauss-Kahn’s current job, he is likely to be tasked by London and Wall Street with opposing the financial transactions tax. If Strauss-Kahn acts as the valet of London and Wall Street on the Tobin tax, that will weaken him as a French candidate.
Sarkozy took care to couch his appeal in terms of the needs of Africa, where France currently has more client states and economic interests than any other permanent member of the UN Security Council. One million African children per year die of malaria, Sarkozy pointed out, and estimated that 30 African children would die from malaria alone during the eight or nine minutes it took him to complete his speech in the UN General Assembly. Sub-Saharan Africa is in fact the poorest region of the world, meaning that Sarkozy’s political motivation happens to coincide with the exigencies of objective reality.
The demand for a financial transfer tax will also bring Sarkozy into conflict with Obama, who as a loyal Wall Street puppet is certain to reject the idea that bankers and financiers ought to pay their fair share. Sarkozy has been sniping at Obama in various forms for some time, and may have concluded that being seen in a public dispute with the feckless tenant of the White House is good politics among French voters.
It is also interesting to note that the only European measures of any importance against the exorbitant power of bankers and financiers have come in recent years from center-right politicians. German Finance Minister Wolfgang Schaüble banned naked credit default swaps on Euroland bonds and naked short sales of German stocks back in May; at that time Sarkozy was AWOL. Now Sarkozy has re-launched the Tobin tax. By contrast, socialist politicians like Zapatero of Spain, Papandreou of Greece, Socrates of Portugal, and Sigurðardóttir of Iceland have all functioned as obedient slaves of the international bankers.
Interest in a Wall Street sales tax has been growing in the United States for some time. The concept is supported in a general way by the AFL-CIO, which has however failed to give the issue any prominence in an educational way, mainly to avoid embarrassing Obama. A Tobin tax has been endorsed by a group of House Democrats around Congressman DeFazio of Oregon. Green party candidates from Laura Wells in California to Howie Hawkins in New York State are also calling for a Wall Street sales tax. Ralph Nader has recently contributed an interesting article in Counterpunch, in which he points out that New York state already has a Tobin tax capable of yielding between $15 and $20 billion per year for that cash-strapped state, but that corrupt politicians have actually refunded the money to the speculators year after year since 1978, something which is obviously blatantly illegal and a huge political scandal.3 Among economists, Robert Kuttner of the American Prospect is also a Tobin tax supporter.
In the coming lame-duck session of November and December, the two financier parties are likely to attempt an assault on Social Security, starting from the genocidal prescriptions of the Simpson-Bowles austerity commission. They will demand in effect that the Social Security cash flow be fed into the voracious jaws of the Wall Street speculators. The only way to fight this attempt effectively is to be able to offer an alternative source of the substantial revenue needed to neutralize the budget crisis of local, state, and federal government in the United States. More than any other single measure, the Tobin tax or Wall Street sales tax is that alternative source.
So yes, Sarkozy has an agenda. But it would be total knavery to refuse to engage in the struggle to tax Wall Street by pleading one’s own supposed purity, while muttering darkly about the nefarious UN, globalization, the iniquity of foreigners, and the invincibility of the new world order. We may not have many more chances of this magnitude, so it is time to get busy.