To the Editor:
Yesterday’s obituary on James Tobin (“The passing of an economics legend,” 3/25) failed to mention some of Tobin’s more innovative positions.
After retiring from Yale, Tobin’s career didn’t just sputter to a halt. He kept hankering for solutions to the problem of structural unfairness in economics. In line with many latter-day Keynesians, he thought the obstacles to justice could be best overcome by a thoughtful redistribution of assets.
“This requires progressive taxation of estates and intergenerational gifts, and of income,” he wrote. “A logical but radical instrument would be a progressive wealth tax.”
Private net wealth in the United States is about $25 trillion, 3.5 times GDP. Plowed into education and health care, a small fraction of this enormous wealth could alleviate a great deal of human suffering, Tobin argued. As an investment in human capital, it could also improve the economic well-being of everyone.
In the mid-1990s, Tobin presciently argued for measures to check the dangerous tendencies of globalization, dangers ignited by immense capital and immense liquidity. The now-famous Tobin tax was designed as a modest 0.25 percent tax on the purchase of national currencies. Not a large amount, but considerably more than the margins upon which currencies are often traded. Imposition of such a tax would moderate currency speculation since it would take larger fluctuations for buying and selling to be worthwhile.
This would encourage money to stay in one place for periods long enough to do some good. What Thomas Friedman has called the “Electronic Herd” would be kept from stampeding — and causing the capital flight that pulls the rug from under the middle class in just those countries which can’t abide the resulting instability.
The proposal, which was outlined in broad form by Tobin as early as the 1970s, also suggested making collection of the tax a prerequisite for membership in the International Monetary Fund and the World Bank, in the same way that subscription to the System of National Accounts is required for membership in the United Nations and its accompanying institutions.
Early in 1996, several citizens’ groups in Ottawa arranged a public meeting with some of the civil servants who had helped prepare for the 1995 G-7 summit in Halifax, where the refined version of the Tobin Tax was proposed for adoption. Critics cited the unfeasibility of enforcement; they cited the inefficiency of retarding the pace of financial transactions.
Apparently, in a world where money can be moved from one country to another at the speed of light, we don’t question whether it ought to be moved like that. The tax idea was dropped.
If the most powerful members of the international community had adopted the proposal, the Asian financial crisis that occurred three years later might have been obviated, or at least its massive transnational effects partially reined in.
Of all the ideas to come about making globalization more responsive to the needs of individuals and of individual countries, and smoothing out some of its excesses, Tobin’s proposal remains one of the most direct and deserving of legal consideration.
There would be no more fitting way to honor Tobin’s legacy as an economist and thoughtful public intellectual than by adopting some of his humane and sensible proposals for domestic and global economic reform.
If we truly care about people more than about money for the already well-endowed, we should reconsider a national wealth tax and an international tax on currency speculation.
Aaron Goode ’04
March 25, 2002