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The Struggle Over the Financial Transactions Tax - a Politico-Economic Farce

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The Struggle Over the Financial Transactions Tax - a Politico-Economic Farce A Service of Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics Schulmeister, Stephan Working Paper The Struggle Over the Financial Transactions Tax - A Politico-economic Farce WIFO Working Papers, No. 474 Provided in Cooperation with: Austrian Institute of Economic Research (WIFO), Vienna Suggested Citation: Schulmeister, Stephan (2014) : The Struggle Over the Financial Transactions Tax - A Politico-economic Farce, WIFO Working Papers, No. 474, Austrian Institute of Economic Research (WIFO), Vienna This Version is available at: http://hdl.handle.net/10419/129019 Standard-Nutzungsbedingungen: Terms of use: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Documents in EconStor may be saved and copied for your Zwecken und zum Privatgebrauch gespeichert und kopiert werden. personal and scholarly purposes. 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Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, If the documents have been made available under an Open gelten abweichend von diesen Nutzungsbedingungen die in der dort Content Licence (especially Creative Commons Licences), you genannten Lizenz gewährten Nutzungsrechte. may exercise further usage rights as specified in the indicated licence. www.econstor.eu ÖSTERREICHISCHES INSTITUT FÜR WIRTSCHAFTSFORSCHUNG WORKING PAPERS The Struggle Over the Financial Transactions Tax – A Politico-economic Farce Stephan Schulmeister 474/2014 The Struggle Over the Financial Transactions Tax – A Politico-economic Farce Stephan Schulmeister WIFO Working Papers, No. 474 June 2014 Paper presented at the 11th Euroframe Conference on Economic Policy Issues, Paris, 6 June 2014 Abstract The struggle over the FTT has developed in three phases. In the first phase (2009 to 2011) the supporters of the tax went on the offensive, supported by the "shock effects" of the financial crisis. This phase ended with the (preliminary) "victory" in the form of the FTT proposal of the European Commission in Sep- tember 2011. The second phase was shaped by the search for ways how to implement the FTT within the EU. It ended with the publication of a modified FTT proposal by the Commission in February 2013 as basis for the implementation in 11 member countries. The last phase has been marked by a strong counter-offensive of the financial lobby which succeeded in playing off FTT supporting countries against each other, in particular Germany and France. This phase ended with a defeat of the FTT supporters. Not even in a group of EU countries will a general FTT be implemented in the foreseeable future. The struggle over the FTT was mainly carried out in two "battlefields", the intellectual disputes between economists at universities, research institutes and international organisations, and the political contro- versies between NGOs, political parties, governments and pressure groups, in particular the finance in- dustry. E-mail address: [email protected] 2014/166/W/0 © 2014 Österreichisches Institut für Wirtschaftsforschung Medieninhaber (Verleger), Hersteller: Österreichisches Institut für Wirtschaftsforschung • 1030 Wien, Arsenal, Objekt 20 • Tel. (43 1) 798 26 01-0 • Fax (43 1) 798 93 86 • http://www.wifo.ac.at/ • Verlags- und Herstellungsort: Wien Die Working Papers geben nicht notwendigerweise die Meinung des WIFO wieder Kostenloser Download: http://www.wifo.ac.at/wwa/pubid/47272 Stephan Schulmeister The struggle over the Financial Transactions Tax – a politico-economic farce Paper presented at the 11th Euroframe Conference on Economic Policy Issues in the European Union in Paris on June 6, 2014 Abstract The struggle over the FTT has developed in three phases. In the first phase (2009 to 2011) the supporters of the tax went on the offensive, supported by the “shock effects” of the financial crisis. This phase ended with the (preliminary) “victory” in the form of the FTT proposal of the European Commission (EC) in September 2011. The second phase was shaped by the search for ways how to implement the FTT within the EU. It ended with the publication of a modified FTT proposal by the EC in February 2013 as basis for the implementation in 11 Member States. The last phase has been marked by a strong counter-offensive of the financial lobby which succeeded in playing off FTT supporting countries against each other, in particular Germany and France. This phase ended with a defeat of the FTT supporters. Not even in a group of EU Member States will a general FTT be implemented in the foreseeable future. The struggle over the FTT was mainly carried out in two “battlefields”, the intellectual disputes between economists at universities, research institutes and international organizations, and the political controversies between NGOs, political parties, governments and pressure groups, in particular the finance industry. JEL: F31, G12, G13, G14, H25 Keywords: Boom and bust of asset prices, speculation, financial transaction tax. – 2 – – 1 – Stephan Schulmeister The struggle over the Financial Transactions Tax – a politico-economic farce) 1. Introduction The conflict between recognition and interest, explanation and justification, analytical and normative thinking shapes the work of economists to a much larger extent than the work of any other types of intellectuals. The reason is given by Keynes at the end of his “General Theory”: “……the ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else.” (Keynes, 1936, p. 383). If economic theories “rule the world” then the distribution of power, income and wealth depends on which economic theory becomes a “paradigm”. This is so because economists then derive from this “Weltanschauung” the “navigation map” for policy. The thinking of economists is therefore driven by the interaction of three forces/motives/activities: Analysis and recognition of “true” relationships (science), justification of interests (ideology), and elaboration of concepts for “improving the world” (ethics). Any output of economists’ reasoning is a “mixture” resulting from the interaction of these three activities. Even though one cannot exactly quantify the contribution of each of these activities (as they are closely interlinked), the following rule of thumb helps to gauge the importance of the ideological component of an economic theory or proposal: The higher is the degree of abstraction of their model, and the less its basic assumptions are derived from empirical research/experience, the more plausible is the suspicion that assumptions as well as methods were chosen to arrive at certain conclusions. Classical economist, notably Adam Smith, David Ricardo and Karl Marx, were well aware of the conflicting economic and political interests of different classes in society. As a consequence, they embedded their theories in the context of the interaction of these interests. Conceiving themselves as members of the society, those economists took clear positions in favour of certain classes and against other classes. Their economics was devoted to analysing the “political economy” and to formulate proposals for its improvement - the idea of a “value-free” economic science would have seemed absurd to the classics. Related to this understanding is their methodological approach: As they try to explain the most important economic developments like economic growth, specialization and trade, the distribution of income and wealth, the role of government in a market economy, etc., they try ) I dedicate this essay to Jernej Omahen, Chris Turner, Jean-Francois Neuez and Luca De Angelis from Goldman Sachs Research representative for all economists who sell their intelligence in the market for interest justifications. – 2 – to base their assumptions on observations and to reach general conclusions carefully in an inductive way (taking into account the historical and regional context). Even though the content of the - genuinely macroeconomic - theory of Keynes is very different from the – market-oriented - classical theories, Keynes shared the attitude of the classics in many respects: Also Keynes thought concretely and problem-oriented, based his reasoning rather on experience than on abstract models, and as a “political philosopher” he put his theory in the context of the conflict of interests of entrepreneurs, workers and (financial) rentiers. Last but not least, Keynes elaborated many concrete proposals for a better organization of the domestic and for the global economy. In complete contrast to this attitude, neoclassical economics, which has become the predominant school since the late 19th century, assumes that there exist “eternal truths” about the functioning of a capitalistic market economy. Economics is conceived as a value- free science, which aims at finding out these “economic laws” (they are assumed to be valid beyond time and space). Establishing economics as a value-free and, hence, non- ideological science is itself the most important ideological component of the neoclassical
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