Bruce Krasting warns Dean Baker and the 99%'ers to beware of what they wish for.
Read the post at Zero Hedge, Enlightened Self Interest by Bruce Krasting
I’m half serious and half joking this morning. I’m looking at the TV and all of the OWS stuff that is happening around the world. This is gathering speed very quickly now. Anyone who thinks this is going to go away in a few days is just nuts.One global response from the “Deciders” to the current protests could be a transaction tax. That would be “popular”. It might just be something that is done as a way of appeasing the crowds. Whatever one thought of the possibility of a transaction tax a month ago, those estimates have to go up today. The bigger the protests, the greater the probability that the tax is implemented.A transaction tax would be like Prohibition. The Volstead Act just made crooks rich. It cost the government billions in lost revenue. The population came to hate it. It was bad policy that was adopted because of a visible protest movement of that time.The left side of my brain is with Rogoff. A transaction tax would kill liquidity/capital formation. That would result in a huge spike in volatility. This, in turn, would result in broadly lower equity multiples. The connection between stocks and the economy is too tightly correlated. A very sharp downturn in the economy would have to follow. For these reasons, I’m violently apposed to a transaction tax.The right side of my brain says, “Bring it on”. I’m confident that I can survive and thrive in that environment. Fortunes were made in the 30’s. What may come will be no different.I do want to be clear about this. The 99% have been pushing the transaction tax. They may get what they think they want. But in the end it will result in more pain for the 99’ers. The concentration of wealth in America will just get higher and higher up the ladder.A transaction tax that limits liquidity will not create jobs, it will end up costing the government net tax dollars. But guys like me will do just fine.Be careful of what you wish for.
Is it the case that "a transaction tax would kill liquidity/capital formation," as Rogoff claims?
Or is the real issue effective demand?