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Keynes's Financial Transactions Tax Gaining Soul Momentum for Ressurection

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Sieben replied on Mon, Nov 30 2009 9:56 PM

I Just figured it out! I'll complete it as soon as I can! For now, here's a sneak peak at the Keynes-English Dictionary!

Bad: deflation, Say's law, Savings, underconsumption, overproduction, inelasticity, liquidity trap, Laissez-Faire,

Good: Spending, Stimulus, Injection, Paul Krugman, Investment, Low interest Rates, counter-cyclical,

Fundamental Truths: General Equilibrium, the multiplier, the paradox of thrift,

Myth: (I have to copy from the wikipedia article) As the stimulus occurs, gross domestic product rises, raising the amount of saving, helping to finance the increase in fixed investment. Finally, government outlays need not always be wasteful: government investment in public goods that will not be provided by profit-seekers will encourage the private sector's growth.

Ick! I made myself sick.

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Finally, government outlays need not always be wasteful


government investment


public goods


will not be provided by profit-seekers


will encourage the private sector's growth.

I got a good laugh out of these =D

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filc replied on Tue, Dec 1 2009 1:58 AM

As the stimulus occurs, gross domestic product rises, raising the amount of saving,

Lol is this seriously from the wiki? unbeleivable

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Kakugo replied on Tue, Dec 1 2009 5:45 AM

It's in the news at least weekly here in Europe. Can I say I am surprised they didn't call for it earlier?

PS: technically speaking Keynes isn't a zombie but a lich, an undead evil sorcerer who unnaturally extended his life by performing dark and damning rituals (the good old days of playing D&D)...

Together we go unsung... together we go down with our people
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Isn't that also called a Tobin tax? The idea has been tossed around by socialists a lot who apparently view "deregulated" transactions of capital as the root of all evil.

But now that P. Krug, The Man has also endorsed it, I think it's safe to jump on the bandwagon.

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Don Boudreaux has some good Tobin Tax-bashing pieces on Cafe Hayek:

Paul Krugman supports a “Tobin tax” as a means of reducing speculation (”Taxing the Speculators,” Nov. 27).

Bad idea.  Speculators buy assets only when they predict that these assets’ prices will rise; speculators sell assets only when they predict that these assets’ prices will fall.  And speculators profit only when they predict correctly.  So speculators who predict correctly help move asset prices more quickly to these assets’ ‘true’ values.

For example, a speculator who buys 10,000 shares of Microsoft believes that Microsoft’s stock is currently undervalued; the speculator’s purchase of this stock raises its price closer to what the speculator believes to be its ‘true’ value.  If the speculator is correct, his speculation raises that asset’s price closer to where it should be.  This ‘truer’ price – by more accurately reflecting market fundamentals – makes investment less risky for others and makes the allocation of capital more efficient.

But if the speculator is incorrect, he loses.  That is, the market already ‘taxes’ harmful speculative moves while it rewards beneficial ones.

Donald J. Boudreaux


Don also links to this piece (

It is all risk that originates in the real side of the economy.   One of the main purposes of the financial system is to manage that risk.  This is done in two ways: diversification and allocation. 

Diversification takes place on a large scale in the financial intermediaries of the economy: commercial bank loan portfolios; insurance company risk pools; investment management portfolios; etc.   Allocation of risk, to where it is born at lowest cost, take place through the capital markets (stocks, bonds, real estate) and especially the risk markets (options, forwards, futures, swaps, credit derivatives, etc). 

If the financial system was ideal then all diversifiable risk would be eliminated in portfolios of different kinds, and all not diversifiable risk (systematic risk) would be transferred (allocated) to whoever can bear the risk at the lowest cost.  The marginal cost of bearing another unit of any type of risk would be the same across all agents in the economy.  The finance system would then efficiently eliminate or allocate all the risk that originates in the real sector of the economy. 

Moving risk into portfolios and allocating risk across all the agents in the economy takes a lot of trading of financial instruments.  Moreover, risk must be reallocated continuously (dynamically) as the economy evolves.  So, the more efficient the diversification and allocation of risk, the more trading of financial instruments we will see in the economy. 


They want a Tobin tax to suppress speculation, not realising that they will damage the allocative efficiency of the financial system.


Austrians do it a priori

Irish Liberty Forum 


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I always wonder why there are people who think there's a need for government to step in to stop speculative activity. Such idiotic ideas are very popular in India, and give a lot of support to complete government control of the nation's banking industry (a system designed by John Kenneth Galbraith, a Keynesian and ambassdor to India).

Speculative activity helps in the best allocation of scarce resources. People who don't understand free market don't understand this fundamental fact. It's speculative activity which helps establish prices in stock market ahead of information, and rewards people for portfolio diversification and being able to take on high risk, high reward financial decisions. Individuals with small amount of money can not afford speculation, and wouldn't do it as often as the larger and better diversified institutional players in the market, who are the ones who are able to get better returns for that capital through speculative activity.

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