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Home Publications Blogs Beat the Press Bloomberg Doesn't Like Financial Speculation Taxes and Is Prepared To Make Stuff Up to Make Its Case

Bloomberg Doesn't Like Financial Speculation Taxes and Is Prepared To Make Stuff Up to Make Its Case

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Thursday, 29 September 2011 13:36

Bloomberg News Service really doesn't like financial speculation taxes (FST). In fact it dislikes them so much that it is prepared to make things up to try to get people to oppose an FST. It told readers that the very low financial speculation taxes (0.05 percent on each side of a stock trade 0.005 percent on each side of a derivative trade) being considered by the European Union would shave 0.5 percentage points off of Europe's growth rate.

Let's think about this one for a moment. In the last three decades, the cost of trading shares of stock and derivatives has almost certainly fallen by at least twice this much. If the increase in the cost of trading from this tax would slow growth by 0.5 percentage points, then we should expect that a decline in costs of more than twice this size would raise annual growth by perhaps as much a 1.0 percentage point.

Since growth has been very weak in this last decade of low trading costs, does Bloomberg really want to tell its readers that it would have been 1.0 percentage point lower if there had not been a decline in transactions costs?

What about the UK which already has a tax on stock trades that is 5 times the size of the tax being considered by the EU. (This tax somehow appears as a "small duty" in the Bloomberg piece.) Since the UK tax is 5 times as large as the one that Bloomberg tells us would slow growth by 0.5 percentage points, does Bloomberg want us to believe that the UK's growth rate might increase by 2.5 percentage points (5*0.5 percentage points), if the UK eliminated its stock transfer tax?

Of course these claims are absurd on their face as is the claim that the tax could possibly have an impact on growth of the order of magnitude claimed by Bloomberg. This is clearly a case of Bloomberg making stuff up to put down a measure it doesn't like.

And we know that people resort to making phony arguments when they know they don't have real arguments. So, we should all extend a big thank you to Bloomberg News Service.

 

[Non-correction: I did find the EU study to which the Bloomberg editorial referred. It does refer to a reduction in GDP growth of 0.5 percent. However, this section is awkwardly worded and it is very clear that it is actually referring to GDP levels, not growth rates. In response to the comment by editorial board member Paula Dwyer (below), I suggest that it is Bloomberg that needs to make a correction.]

Comments (4)Add Comment
...
written by Dilip, September 29, 2011 4:00
The link to the Bloomberg piece in this post is broken.
Bloomberg View editorial board member
written by Paula Dwyer, September 29, 2011 4:13
As the Bloomberg article said, the 0.5 percentage point figure came from the European Commission's own analysis of its own proposal. It is not a made-up number, as you write. Can you please correct? Thanks, Paula
...
written by Anonymouse, September 29, 2011 11:54
Good to see the Bloom-Borg are riled up by being called out. So let me pile on.

As a BB alum, I'm certain that Paula the helpful BV editorial board member receives a large portion of her compensation in the form of 'certs' which are based on net increases in BB terminal sales. Anyone want to hazard a guess as to how much money a FST would cost her if it tanked new terminal sales?

I'll start the bidding at no big vacation and no new car. Do I hear trouble paying her mortgage?
Paula - re: EU impact study
written by Joe Emersberger, September 30, 2011 12:21
Hi Paula

The Bloomberg study didn't say if it was citing a worse case assessment or not. Looks like it must have been if this article is accurate.

http://news.yahoo.com/eu-proposes-0-1-pct-financial-transaction-tax-164142506.html

It says

"A European Commission impact study on the tax said there are strong risks of transactions relocating to countries not applying the levy.

With a tax rate of 0.1 percent, the Commission's models showed drops of up to 1.76 percent in gross domestic product in the long run."

Haven't seen the details of the models but 1.76% GDP reduction in the "long run" as a worst case is hardly scary. By my calculation that means lopping about 0.1% off GDP every year for 15 yeas - if 15 years in their "long run".

Moreover, wouldn't the consequences depend on what governments actually do with the speculation tax revenue? If they put it to better use than the speculators (very likely) then there would be net benefit.

The worst case models seem to assume the tax simply gets passed along 100% to the people mostly likely to consume and thereby reduce consumption by the exact amount of the tax.

If Bloomberg was citing a wose case,they shoudl have aid so, and explained the assumptions behind it.


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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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