The return of the TOBIN tax: Must international transactions be taxed ?

The circle: Since François Hollande wants to link human rights to democracy in the francophone countries; one must remember that it's also essential to recall the close link between the human rights, the quality of the institutions and of those who make them function. This is why it's necessary to oppose the mad project of the Tobin tax.

In microeconomics, there is a basic law which has substantial implications both on national economy and global economy.

Beyond the mathematical expression which -if misunderstood- is likely to miss the bulk of the economic message, it’s needed to understand its meaning.

This act is known as Law of diminishing marginal returns which is for an economist almost a natural law…

Indeed, it’s in our biological nature of human beings: We have to accumulate and recovery a stock of calories (by consumption) to be able to provide energy (for production and labor.) When you have poor performance in a domain, it’s easier to increase your performance than when you already have reached a high level of performance. More a potential is approached, more opportunities to increase its performances have sold out or it takes to increase this potential itself (structural reforms).

So, I tell my students that it’s rather easy to spend a 5/20 to a 10/20 note - which makes a 100% progression- by seriously working. But we easily understand that, in progressing, we can’t maintain the same progression rate of 100% and it’s extremely difficult to pass 17/20 to 19/20 in the image of the high jump champion who wants to increase his record of a small centimeter. The last “small centimeter is harder to win than the first “small centimeter” even if they are objectively the same size. In LucBesson’s movie “The big blue”, Jean Reno who play the role of a diver who wants to beat the record of diving in apnea says: “One meter in the background hasn’t got the same length as a meter in the surface!”.

Emerging countries can have insolent growth rates of 10% for year ( nowadays, their rate is around 5%) because they were very low, they had a low level of capital accumulation and therefore a high level of the marginal return on capital. But let’s just look at the consequences of such a proposal in an open economy. The capitals, which circulate freely, go to invest into the countries ( direct investments) offering the best returns, that is to say in these emerging countries, which specifically permits to these countries to find  funding to finance the investments.

Thus the accumulation of capital increases, what feed the growth of the countries and by repercussion, the world economy. In consequence, he level of capital per worker will increase and so the marginal yields (the supplement of performance obtained with each dose of investment) will decrease to the point where capital will be invested in countries with higher  yield so with a best growth potential,

It is thus visible that the international mobility of capital can exploit all deposits growths at the global level, generating a process of caching up of the country growth: Taking off countries have the stronger growth potential (bare is very low) they attract the capital that will precisely feed this growth (they can raise the level of the bare) . But, there, on behalf of a static and ideological view which assimilates the free movements of capital to a necessarily guilty speculation, governments will rush to put in place a taxation of financial movements, following blindly the proposals defended by ATTAC.

The drama is that they will justify the implementation of this tax using an obviously noble – and therefore not open to criticism - : The support to the development and the fight against poverty in the world. However the help (the product collected by the tax) is generally collected by states and paid from top to these states. These states, benefiting from the help often have corrupt, immoral, inefficient political regimes; these regimes are at the origin of the poverty of their own countries, it’s precisely this corruption which endorses these sates, making them last, despite the fact people flee their countries. Indeed, billions that water from the top the governments of the countries helped this way, are rarely found in basic funding channels that contribute to the financing of the economy unlike many flows of direct investment that irrigate economy by the base and by multiple channels.

Equatorial Guinea is a small country of 500 000 habitants among the richest in Africa siting on a oil windfalls. President Teodore Obian Ngueme Mbasogo, in place since 1974 (Sic!) ,has appointed his own son as oil minister. His son, thus promoted bought himself a private yacht estimated at more than $200 millions. Indeed, independent economists have estimated that if this amount had been recycled in the local economy, the average income per habitant would be 2000 euros per month. At this time, the president of this country came to negotiate a relief of the debt, claiming the poverty of the African people. And the international institutions accepted, fearing to be accused of “rascism” or neo-colonialism by the” good consciences” totally undocumented. And this same phenomena can happen in Madagascar, Comoro, Algeria…

In the same time, local corrupt regimes continue to be supported by international assistance while ours  experts propose to tax international capital flows and speculation accused of being responsible for misery in the world although that these tax are specifically intended to these massive aids that reinforce, in endorsing, such regimes. In addition, the implementation of tax, curbing the international movement of capital (which is its displayed and researched goal) is precisely at the origin of the slowdown of the growth in these countries which compromises their development.

Once again, whether at the national level or at the international level, tax offers to repair what in fact it has itself caused: On one side the state break the leg and on the other its offers to be the savior, wining the monopoly in the provision of crutches. But as the tax has to be justified over the long period, state will break the leg again when it’s fixed so that the economy is at its growth potential. You are structurally handicapped. Emergent countries, opening to direct investment and international trade, exploited the full potential of the growth of the opening and became today the locomotive of the world growth. Globalization is not the problem; the problem comes from structures that are inadequate.  In a open economy, even if the French saving is abundant, it will go to place in the emerging markets that offer the best returns. Is it then needed to protect oneself and to opt out of the global capital market and therefore of the freedom of movement of the capital which is corollary? No, because our blockages is internal and structural. Yet again, they are related to a static vision (Keynesian approach) when it’s not Marxist (hatred of capitalism necessarily harmful         and exploiting the masses;) of the economy wild broadcast by parrots media.

Misery and end of growth often come from a choking ignorance of economic laws simple but that you refuse to understand while theirs implication are considerable including the keys of wealth and growth.

This is the message that has to be spread among our friendly French speaking countries in Africa.