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[00:00:56] Well on the last podcast, Ben asked whether we could look into the work of Edgar Feige
[00:01:00] who proposed a simpler tax, an automated transaction tax.
[00:01:04] A small amount of tax on every transaction.
[00:01:07] Easy to find, hard to avoid, as a replacement to the complex tax system that every country
[00:01:12] has built up over the years.
[00:01:14] But would it work?
[00:01:15] We look at the pros and cons of that this week,
[00:01:17] and a couple of pieces of this to the feedback at the end today as well.
[00:01:19] So stay tuned for that.
[00:01:20] It's the Debunking Economics podcast.
[00:01:26] So Edgar Feige, he was a graduate of Columbia University,
[00:01:34] he was actually taught by Milton Friedman apparently.
[00:01:36] As I said last week, let's not hold that against him.
[00:01:38] He is an advocate of an automated payment transaction tax,
[00:01:42] the idea that we get rid of all taxes.
[00:01:44] So sales tax, income tax, corporate excise, capital gains,
[00:01:50] import and export duties, inheritance tax,
[00:01:52] all of those go and they all get replaced with a tax on all transactions.
[00:01:57] So every transaction, every transaction out,
[00:01:59] every transaction in has a small tax on it.
[00:02:03] And I guess the number one advantage of that, Steve,
[00:02:05] I can see lots of holes in this, even though there's,
[00:02:08] I think all of those holes will have been explored by now of course.
[00:02:11] But one advantage is obviously it is very broad based, no avoiding it.
[00:02:15] That's partly the issue because income tax is very easy to avoid it if you're wealthy.
[00:02:21] And that's one of the great drawbacks that occurred with a whole
[00:02:24] income tax approach to raising, not to raising revenue,
[00:02:28] but if you look at it in terms of the accurate accounting of government finances,
[00:02:32] it's taking out excess money creation by the government out of circulation.
[00:02:37] But if you're taking it out of the pockets of the working class and the middle class,
[00:02:40] you get the right-wing backlash and you get redneck Republicans
[00:02:46] who don't want to, all they see is the money coming out of their accounts.
[00:02:50] The tax ocean, they don't see the spending that goes in the other side to some degree.
[00:02:55] But most of the money gets accumulated by the wealthy who put the money in offshore havens
[00:02:59] and therefore what they're actually doing is skimming off the financial system of the government
[00:03:05] and calling it enterprise.
[00:03:07] Yeah. I wonder whether this has actually fixed that problem though,
[00:03:10] but we'll come back to that in a moment.
[00:03:13] But obviously the question is, it's a question of,
[00:03:18] let's address this one first of all,
[00:03:21] do you need to collect any tax?
[00:03:22] And I think you do, don't you? Because you need that control mechanism.
[00:03:25] If you accept the fact, because there'll be people who would say,
[00:03:28] well no, you don't because we're MMTers and we believe that the government can spend it,
[00:03:32] doesn't have to worry about taxation.
[00:03:34] Now hang on a second, I better dive in that before I get to talk about it.
[00:03:37] We're going to say what the second half of the sentence was.
[00:03:39] You do need that controlling mechanism because if your way of controlling how much money there is
[00:03:43] in circulation.
[00:03:44] Well then this relates to the history of the scale of the government in the advanced economies as
[00:03:49] well. Because the usual story we think what we've got used to has always been the rule.
[00:03:55] In fact, if you go back to the pre Great Depression and pre Second World War level
[00:04:00] of spending by the American government, again we have all this image of every 19th century show
[00:04:07] you see is got as you might have gunslingers, but it's also got the cavalry and the sheriff,
[00:04:12] etc., etc. And you would imagine the scale of government spending relative to GDP was the
[00:04:17] same then as it is now anything, but it's about one sixth the level.
[00:04:20] So government spending was of the order of say 5% of GDP rather than 30%.
[00:04:25] Now if you're running 5% of GDP, your as your total expenditure, then your deficit component
[00:04:33] of that can be actually quite small. And in fact, unfortunately from the 19th century,
[00:04:39] just like now, the American government was obsessed with getting its debt down.
[00:04:43] So it was actually normally running surpluses and eliminating eliminating money rather than
[00:04:48] rather than creating it. But if you're at that level, you know, yes, you can do without
[00:04:53] broad based taxation because if you're only spending in 5% to count to have the same
[00:05:00] level of deficit spending now, you need to tax 3% of GDP not 30% of GDP. And therefore
[00:05:07] you can get by with exiles taxes, land taxes, a range of smallish transaction taxes and so on.
[00:05:15] And that then keeps the level of government spending of money creation through government
[00:05:20] spending below, you know, two or 3% of GDP, which is about the level you would need
[00:05:27] for an economy growing at the rate the 19th century American economy was now fast forward
[00:05:32] to today, you're running at six times that scale. You know, roughly speaking,
[00:05:39] government spending around the world is of the order of 30% or more of GDP. If you spent 30%
[00:05:45] in and didn't tax any of it back, you'd have your money supply growing by 30%
[00:05:49] roughly speaking. Yeah, and so this is a tax. Yeah, you have to tax and tax becomes
[00:05:54] a controlling mechanism for how much money there is in circulation. I guess
[00:05:58] if you've got a very small transaction tax, and it's easy for you to change that because it's a
[00:06:03] simple tax that's applied everywhere. So I don't know what it is say it's half a percent. And you
[00:06:07] go, oh, we're running, you know, there's too much money in circulation, we need to we need to pull
[00:06:11] it back. You could say, well, okay, we're going to make it 0.6%. And all of a sudden, that's
[00:06:15] enacted everywhere. So it has a fine tuning instrument, it could be a good thing, couldn't
[00:06:19] it? In that sense, as much as you manipulate the income tax, the only real, I mean, again,
[00:06:24] because it's imposed upon us individually, and we've got to pay it out individually. And it is a
[00:06:29] pain in the butt for everybody paying tax to have to go through the whole process of, you know,
[00:06:35] toting up your income and then, you know, looking at what the government's already taken out when
[00:06:39] you have, you know, tax pay as you go type taxation. It's a new sense that irritates people
[00:06:44] and they see the negative money coming out of their account, they don't see the
[00:06:48] positives that existed there as well from government spending causing part of the money
[00:06:52] that turns up in their bank accounts. So it's, you're on a hiding to nothing to turn the popular's
[00:06:58] right wing. And I would anti government spending by taking the money out through income tax,
[00:07:03] rather than taking it out through some more neutral mechanism. And the last thing you can do
[00:07:07] is sell the inflations up, we're going to increase your tax rate. I can't see that
[00:07:13] being a vote winner somehow. Yeah, yeah. But actually, that is the answer, isn't it? I
[00:07:17] mean, that's the, you know, the argument made is that if inflation becomes a problem,
[00:07:22] then we can increase the tax rate. But if you do that, I mean, people would be suppling doubly that
[00:07:27] this is why I think it's politically untenable to imagine you can adjust income tax rates
[00:07:32] as a way of controlling inflation. You could adjust transaction tax rates because
[00:07:36] there's so much smaller and they're not imposed on the individual who then finds out
[00:07:40] exactly, you know, how much money the government's taking out of my out of my finances.
[00:07:46] So I think in that sense, transaction taxes are if you are going to use taxation to try to
[00:07:51] reduce the rate of inflation, then it's far less politically dynamite to increase the small rate
[00:07:56] of a transaction tax than it would be to increase the large rate of income tax, particularly when
[00:08:02] given the capacity of the wealthy to finance, you know, pay for accountants and lawyers who can
[00:08:08] disguise where their earnings go and take their earnings offshore as well. You know,
[00:08:14] it's just to me, it's a nightmare to imagine you could adjust those income tax rates.
[00:08:17] The transaction tax is much more feasible. So yeah, let's keep on the inflation theme
[00:08:22] just for a second because of course that is the idea of, you know, central banks.
[00:08:25] Monetary policy is supposedly there to try and control spending and how much money is in
[00:08:31] circulation. That's the theory. That's what monetary theory is supposedly all about. With
[00:08:37] this, you wouldn't need them, would you? You'd just say, well, okay, the government can be in
[00:08:41] control of this because if we're looking at money supply, it's just tax. That's what that's the
[00:08:45] instrument we're going to use. Don't worry about interest rates. Well, I think then not that front,
[00:08:49] I mean, interest rate, this is something we should maybe pursue in some other podcast on at
[00:08:53] some point. But clearly interest rates weren't what reduced inflation when interest rates were
[00:08:58] going up. It's a classic case of correlation, not causation, which you can identify by
[00:09:03] taking a look at the as we spoke about recently Japan for the whole period of the
[00:09:08] post COVID inflation until just recently, Japan had a policy interest rate of minus 0.1%.
[00:09:16] And now it's gone up to was it zero point one? I keep forgetting.
[00:09:20] But it's zero. Yeah, it's gone from minus 0.1 to zero basically. Yeah.
[00:09:24] Okay, look, and across that time, the rate of increase in inflation was lower in Japan compared
[00:09:30] to the average than most of the rest of the world, certainly less than America and the UK.
[00:09:35] And its recovery was about the same speed. So we're doing nothing about interest rates,
[00:09:39] Japan controlled inflation by doing lots about interest rates America,
[00:09:43] American and English mainstream economists think they control the rate of inflation.
[00:09:47] I'm sorry guys, you just imposed pain on the pain on the populace who saw their commercial
[00:09:54] rates of interest rise because of that. And pleasure on the financial sector because
[00:10:00] you gave them a larger amount of money from their bonds while combining with neuroticism
[00:10:03] by reducing the value of their existing bonds and making it rather dangerous to have
[00:10:08] too many bonds in the market to market category and not enough in the whole to maturity.
[00:10:12] So it's a classic that we don't have a mechanism to control the rate of inflation.
[00:10:20] We do have central banks modifying interest rates and the belief they're doing.
[00:10:25] It's simplistic all around in this approach, isn't it? I think there are downsides.
[00:10:28] We will come to those. But another upside, the tax office, hey, sorry guys, you're
[00:10:32] going to have to find another job because EVD simply applied automatically on every single
[00:10:39] transaction. Presumably that's something that can be automated through the banking system.
[00:10:44] I mean, you might avoid it through using cash. But to be honest, it's going to be such a small
[00:10:49] level of tax. It's not going to be worth your while. So literally just be a tax through banks.
[00:10:55] Yeah. And all those thousands of people in the tax office busy looking at who's trying
[00:11:01] to dodge tax and how they're going to charge you and how they're going to, you know,
[00:11:04] and all the interest payments they charge you on late payments, all that sort of stuff just disappears.
[00:11:09] Yeah. And this is something which we're getting down to the fine issues now about tax because
[00:11:15] we in general say the government doesn't tax suspend it spends and then taxes and the
[00:11:20] MMT argument, which I'm moderately sympathetic with. I'm not a great fan of it,
[00:11:25] is that the imposition of taxation is what makes the money valuable in the first place.
[00:11:31] In reality, I think the actual position is money is valuable because it's money.
[00:11:36] It's a form of even if when government taxation is quite small and you can see that again looking
[00:11:41] at the 19th century American case. Some people had to pay taxes some of the time, but the vast
[00:11:47] majority of the population sitting certainly wasn't sitting down working out their tax return at
[00:11:51] the end of the financial year because they didn't have income tax. So it wasn't the money
[00:11:58] system was still effective even without taxation imposed on the individual. And the same would
[00:12:03] apply here paying a transaction tax on the money you had would be one of the characteristics of
[00:12:10] money. It wouldn't be something that you could decide to opt out from. The thing as well about
[00:12:14] VAT so the I mean we have a tax on transactions now when we buy something but in the UK,
[00:12:21] it's 20% and you'd have to think and you know okay with the usual caveat about well do how
[00:12:27] much do we want to encourage consumption but the system that we're using today that's what it's all
[00:12:31] about 20% VAT. I mean I just know from my own personal behavior there's something I want to buy
[00:12:38] and I look and I go oh that price is without VAT. Oh it's a bit much when you add 20%. I'm not going
[00:12:43] to buy it. I mean that's that it is an inhibitor to sales. Yeah it is and that's again because
[00:12:51] it is such a big you're just taxing that one component when you consume the thing is gone
[00:12:58] and we don't have taxations on on financial transactions. We now we never really have the
[00:13:03] banks charging fees on that sort of thing but we don't have the government charging taxation on it.
[00:13:08] So yeah it means that when we face income tax or VAT they're big numbers, big chunks and we
[00:13:15] can see them going out of our wallets. Transaction taxes which would be well let's get the guy's ID
[00:13:22] here but substantially lower percentage each time you wouldn't notice it and it would be the
[00:13:27] number of times on which it was done because it hits every transaction rather than the amount
[00:13:33] it is on a final transaction which is the role of VAT. Well Dr Feige reckons in 2005 he did the
[00:13:40] sums if the US wanted to to get the same amount of income from tax then you know to get the same
[00:13:50] level of from the tax returns then each and using a transaction tax each transaction would just be
[00:13:55] 0.3% so no one's going to feel that by and large and this is this is like a way in effective
[00:14:03] imposing entropy upon money because one of the points that that physicists make about
[00:14:10] that the everything in the real world is waste is inevitable you know everything degrades
[00:14:16] second law of thermodynamics means that when you use energy to do work you necessarily generate
[00:14:22] waste and the waste exceeds the amount of work you manage to isolate out by using that energy
[00:14:30] and that's I'm sure some physicists are going to jump on my throat on that one but the basic idea
[00:14:33] waste exceeds the waste we generate exceeds the amount we call GDP so we have this dilemma all
[00:14:41] the time except pardon me except for money money just accumulates and appreciates under our current
[00:14:48] system and this is I think Sotty's point the chemist who took a good look at economics and was
[00:14:54] quite horrified a yaga that money should depreciate so in that sense this is a bit like azalean money
[00:15:00] as well the money itself degrades with use and and therefore that itself addresses the issue
[00:15:08] of government spending being so great that without taking about in some sense you are going to
[00:15:13] cause a massive increase in the money supply which would cause inflation ultimately whether
[00:15:17] that's in consumer goods or an asset process so it's another way to attack the the scale of
[00:15:24] government spending and the issue that creates with the scale of money creation but what about you
[00:15:28] know if you've got money sitting for a long time I mean it's okay for transactions for
[00:15:32] you know people who are using participating in the economy on a daily basis but I've got a
[00:15:38] swag of cash I'm sitting somewhere I've got a sitting in a house for example and I'm watching
[00:15:42] that house increase in value and it goes from being worth one million to being worth 10 million
[00:15:49] I sell it I pay 0.3 tax on that 10 million property so it's it's not helping with that
[00:15:55] that that wealth divide if someone isn't involved in transactions that's right and that
[00:15:59] is the reason the gazellean idea would be probably a compliment to this concept because
[00:16:04] the idea of the gazellean was to actually tax the money you're not using that stays in your
[00:16:08] account or it says and you know you're not being circulated as it was with the gazellean physical
[00:16:12] currency if it stays in your account then it depreciates and that's the that's the other
[00:16:18] way to avoid you know you don't think you just have the transaction cash you also need to have
[00:16:23] something like what you'd call a hoarding tax where and again people are always going to be
[00:16:30] trying to evade this is one of the attractions of bitcoin something that's literally always
[00:16:34] almost always appreciates or buying shares and so on and so forth money and this comes down to
[00:16:39] the nature of money we often talk about you see the definition of money in textbooks it says it's a
[00:16:44] means of account a means of exchange and a store of value and as Keynes wrote beautifully in the
[00:16:51] great general theory and a paper in 37 also called the general theory of employment he says
[00:16:58] we saw what we're told without a smile on the face but what only in in only in a lunatic asylum would
[00:17:06] somebody hold money as a source of value because a store of value because everything else is supposed
[00:17:11] to rise in money in value whereas money remains constant so his point was that the store of
[00:17:16] value component of the standard definition of money is wrong okay it is a misnomer to see
[00:17:23] it as a way of accumulation because if you simply accumulate money itself without buying
[00:17:28] other assets with it or without starting a business and so on then it just it's barren it doesn't give
[00:17:33] you any return so what people are always looking for is a financial asset which is like that a rise
[00:17:38] in value could rise in value so they turn their money into shares or other other forms of equity
[00:17:43] so but but you in this way you get hit but your shares and get hit by a transaction tax
[00:17:50] but property wouldn't because you're not you know you're not involved in that day-to-day transaction
[00:17:56] but this this is whether like they're getting we're now getting into the broad realm of taxes
[00:18:00] and that's the Georgian argument you should tax land yeah well that was a second half of my sentence
[00:18:05] thank you for finishing off my sentences but the problem with that then is because he's like
[00:18:10] what can I expect it's and I've been doing this for too long haven't we so the but if you had
[00:18:15] the both of you put your socks out so do you know we don't want to follow this so we've got a
[00:18:26] transaction tax day-to-day and then we've got a land tax to stop people the day problem with that is
[00:18:33] as you've just described if you say well okay you're going to get taxed on land as well so if
[00:18:37] your land increases you're going to be paying more tax based on your wealth then just as
[00:18:41] you said that money will then go somewhere else and it'll go on to bitcoin or some other tool
[00:18:48] that is a substitute for property which is a something where you know wealth is accumulated
[00:18:54] sits there and you know people speculate up to the hilt and everyone else is doing the same
[00:18:59] because they want to see the the money increase I don't know whether they can beat that approach
[00:19:05] that's just the way money flows that's one again again one advantage of the odd river
[00:19:10] transaction tax because any of these financial transactions is if you sell your property to try
[00:19:15] to evade paying the extra tax on the extra value it probably takes none the less but anyway
[00:19:22] you then have another you've got everything you're converting every transaction
[00:19:25] is going to be clipped to some degree and it would still I mean you think about the
[00:19:30] scale it's necessary the 0.3 percent per transaction is quite low but the number of
[00:19:36] times that supplied over transactions multiplies whereas vat is done in such a way that it's only
[00:19:42] allegedly only imposed once but it but it but it but I sell but I sell a house for three million
[00:19:47] and I pay 0.3 percent on that transaction I buy bitcoin or whatever else comes along to
[00:19:54] try and avoid land tax I pay 0.3 percent in on that transaction for that three million that
[00:20:00] three million sits there suddenly becomes six million I take it out and still only paying
[00:20:03] 0.3 percent so there's a danger that it's going to force an accumulation of assets
[00:20:09] and really slow down the money supply yeah that's what the velocity of money yeah and that and that
[00:20:14] again is one of the problems again about saving money when you're trying to save money you
[00:20:20] know what you're doing is you're slowing down the rate of turnover of money you can't create
[00:20:23] it individually so if you if individuals try to save more each individual is slowing down
[00:20:30] the rate of turnover of the economy and that was what gazelle's idea was addressed out to try
[00:20:34] to reverse that problem so there is no easy way to do this and you really would need to have a
[00:20:41] you know a battery of ideas in place to try to bring it in and it may well be you have
[00:20:46] unintended consequences yeah well they're almost there are always unintended consequences
[00:20:51] well let's look at some more of those when we come back after the break because I think
[00:20:54] there's probably probably a million of them I think is a good idea but it's whether
[00:20:57] it's an idea that can be done soloist in an isolation in one country as well which is another
[00:21:01] question so we'll look at that when we come back on the debunking economics podcast it's me and Steve
[00:21:05] back in a second if there's one thing that my family and friends know me for it's being an
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[00:22:33] well this week we're looking at the idea uh from Edgar Feige uh from Columbia University well
[00:22:39] that's where he studied anyway about the idea of an automated payment transaction tax the
[00:22:45] simplicity of the fact that every single transaction on your bank has a what could be
[00:22:50] just as low as 0.3 tax but that would apply to every single uh transaction so actually
[00:22:56] steve it wouldn't just be bank transactions would it it would have to be there embedded into the
[00:23:01] into the finance system because I pay money for my bank account into you know a share fund
[00:23:08] a share portfolio so do I pay the the fund manager 0.3 percent on the whole transaction
[00:23:14] and then he pays 0.3 percent on every single movement he makes on a daily basis I guess that's
[00:23:20] the way it would work and it's going to hit algorithms hard isn't it's going to hit high
[00:23:25] frequency trading yeah well this was which is an idea that was put for days ago by James
[00:23:30] Tobin one of the more progressive neoclassical economists and he argued that you'd use the
[00:23:35] transaction tax to slow down financial speculation and and that's you know the idea was to
[00:23:41] actually have a dramatically impact upon the level of speculation by putting a small tax
[00:23:46] what do you call putting sands in the grain putting grains of sand in the wheels of finance and like
[00:23:52] that you know has always been a good idea and you can tell her good and idea is by the extent
[00:23:56] to which the finance sector is fought against it this would actually make it automatic and that
[00:24:01] of course would mean that it's far less attractive to be you know day trading may disappear
[00:24:06] I'd be so sorry to see that go which you know I love the idea of whatever the asset class
[00:24:14] it would trade well I don't know two or three times a day like you know like nine o'clock two o'clock
[00:24:18] five o'clock or something like that and you know you put your bids in you you put your top rate
[00:24:25] your bottom rate and you know that transaction it all happens at a set time so you've got several
[00:24:31] hours to think about it you can have a long lunch whether you decide whether you're going to buy
[00:24:34] those shares or not and you get rid of all of those you know a lot of that speculation I think would
[00:24:40] disappear. Well they also like even like high frequency trading for example and I know from
[00:24:45] personal contact with people involved in this industry that it's basically it's front running
[00:24:51] but the front running getting an absolutely tiny amount of going out because you know what the bid
[00:24:56] by the buy by the buy sell spread is you know the order spread and etc etc and you get in there
[00:25:02] with the transaction speed that would eliminate that particular source. Which would be good wouldn't it
[00:25:07] because I see you know and you know I do the podcast for the for the bank and we're talking
[00:25:11] about you know data releases every day and how much that drives the market and very often a report
[00:25:16] might come out and there's a headline figure and there's an immediate you know might be a surprise
[00:25:20] and there's an immediate response in the markets in whatever way in in bond yields or in
[00:25:25] in currency exchange or whatever there's an you know that immediate response because people
[00:25:30] have just seen the headline and then they read the detail and they go ah okay well that's a bit
[00:25:34] different you know behind you know these numbers make a bit more sense and all of a sudden there's
[00:25:38] a bounce back and there's people who go well they're probably as a bounce back or I've read it
[00:25:41] first or whatever you've got actually people until you see get the response you've even
[00:25:46] got people you know paying vast amounts of money to get faster data links so that they can get
[00:25:50] this information a fraction of a second faster than everybody else. It's all going well.
[00:25:54] Anybody hasn't you haven't seen it go I think it's called an honorable gentleman
[00:26:01] and go and see that no parrots sorry no it's a Eddie Murphy movie involving a brother
[00:26:10] couple of brothers who make a one dollar bet with each other while at the same time they
[00:26:14] control the market for trading places that's trading places have a look at that movie it's
[00:26:20] fabulous on that whole issue of tiny movements and I have one little anecdote one of my sisters
[00:26:25] was working as a secretary in a finance company at one stage and she was because she's you know
[00:26:33] it was just a part-time job so it's somebody with an honours degree typing away and she asked
[00:26:38] one of the traders what do you think is going to happen with the inflation numbers
[00:26:43] the movement today in some particular index and the answer she got was I don't care so long
[00:26:47] as it's big and my sister's instant gut reaction was that's immoral well it is yeah what you've got
[00:26:54] is something which is driven by gambling you want you want to you don't care what the number is as long
[00:26:59] as it's a big change what people expect if we get plenty of volume of transactions and on goes the
[00:27:04] madness of the finance sector so anything that will eliminate that would be a good idea and
[00:27:08] it's interesting how many people are in support of that idea actually um obviously not as you say
[00:27:12] the banks in fact there was a survey done I mean some people call it the Robin Hood tax don't they
[00:27:20] attacks on every single financial transaction whether stocks bonds currency exchanges commodities
[00:27:26] futures options any financial instrument you pay a tax on that transaction there's somebody
[00:27:32] campaigning for that and I can't remember the full story on this but they did an online
[00:27:36] survey to find out how many people supported the idea and it came out roughly balanced
[00:27:40] but when they did the analysis they found that half of those people voting all came from one server
[00:27:48] in in one merchant bank funny enough so but the people who support the idea angela merkel
[00:27:56] and nicola sarcozy the former french president george charas warren buffett
[00:28:03] and so there's some people with money who you know who like this idea because it will
[00:28:07] stop algorithmic trading it will stop all this speculation and so it's just a shame it's it's not
[00:28:14] happening because that seems like a no-brainer you know take half of this transaction tax idea and
[00:28:18] just apply it to the finance sector yeah yeah and like the question is how do you phase these
[00:28:22] sorts of things in if you wanted to phase in a complete change of the income system
[00:28:27] politically it's it's it's it's just a nightmare I can't see it actually ever being achieved
[00:28:31] but you could try something of this nature on the finance sector but of course there you
[00:28:35] what you're going to get is as you said from one server everybody in finance uniting against it
[00:28:40] because there goes the the honeypot and like I've you know the scale of it is something which most
[00:28:46] people have no real consciousness of my favorite into personal example apart from knowing the
[00:28:52] company that does high-frequency trading and knowing the scale of their operation and and
[00:28:58] the technology they're putting and take advantage of it all of which is just crazy the the intriguing
[00:29:05] element was meeting up with a woman who was wife of a friend who worked in finance and
[00:29:12] she explained she she left to go become a school teacher because she became
[00:29:16] sick of what she was doing in finance and she then explained that her paycheck as a teacher
[00:29:21] was one 30th what her salary was in the finance sector so that's like 750 000 pounds a year
[00:29:29] rather than 25 but she said that's before the bonus which normally doubled the salary
[00:29:35] incredible amounts of money being wasted on financial frivolity and of course that's
[00:29:40] they're going to fight tooth and nail to a stop it coming in so back to dr faggy's idea you know
[00:29:45] of taking this further into into a transaction tax I mean we've already highlighted one issue that
[00:29:51] you know what does it do for people who are going to sit on wealth you'd need some sort of
[00:29:54] wealth tax to to sit alongside it but also i'm just wondering whether you know on the business
[00:30:00] side a business is going to get taxed less because a lot of these transactions are actually
[00:30:06] consumer transactions rather than business transactions and smaller businesses might behave more like
[00:30:12] individuals whereas big businesses will try and avoid these transaction taxes just by bringing
[00:30:20] more services in house so more vertical integration so there's less transactions happening outside
[00:30:25] the business that is actually a damn good idea frankly now this has been quite intriguing
[00:30:29] I've seen people are finally realizing what the horizontal integration at the last 40 or 50 years
[00:30:34] has done now we all know you made a particular level of services so one company takes over all of
[00:30:38] retail you let's call it amazon for example versus vertical integration we do everything
[00:30:44] internally and in fact that the the horizontal integration has destroyed the manufacturing
[00:30:49] capability of america because you outsource everything this is partly where bowing's problems
[00:30:54] have come from because it's outsourced everything to reduce the labor cost that was
[00:30:57] frankly what outsourcing was really about and they therefore lose the internal skill base
[00:31:03] and now we've got planes dropping out of the sky so you know the old saying if it's going
[00:31:08] if it's i'm not going if it's not going now if it's going i'm not going it's becoming the
[00:31:14] phrase and that is a sign of the in effect the impact of the taxation system we have now
[00:31:21] there's not the only motive by any means but if you have a taxation system which
[00:31:28] lets people do as many transactions as they like then you can get the the financial obsession can
[00:31:33] take over how you run a company and it becomes finance that drives manufacturing rather than
[00:31:38] vice versa and then it ends you up in hell which is where we are now yeah and it's a lot less
[00:31:44] fast by the way if you go with airbus uh just finding the finding the european argument
[00:31:50] you made that up or you've just done it just now is racking my brain i was half listening to what
[00:31:55] you were saying be honest okay so uh but i mean that's as fast to fly airbus okay but the um but
[00:32:02] you'd be a bit of market that one to airbus before something like you are exactly no just one of the
[00:32:06] gems uh that you get listening to this podcast just spread the word uh we'll give you advertising
[00:32:11] slogans and economic advice so but i mean okay great to have vertical integration not so great for
[00:32:17] small business that uh wants to supply to business you know you'll it it's there's a
[00:32:23] danger isn't that it's going to cause this more accumulation of businesses more that vertical
[00:32:28] integration is great for those businesses but not great for everybody else who wants to supply to
[00:32:32] them no i think it actually could be easier for the smaller businesses because i mean i haven't had
[00:32:36] to fill out a what i call in in australia a business activity statement of bas uh but the
[00:32:41] amount of bureaucracy involved in the taxation system is huge as you were saying earlier
[00:32:45] yeah um so if you if you could reduce just every transaction gets hit it's just you know
[00:32:52] it's what you have to accept if you're going to go into business you're going to be losing
[00:32:55] 0.3 percent in every transaction big deal uh it's better than having to have it in devoted
[00:33:00] accountants and trying to work ahead and manipulate the tax code which is what
[00:33:04] can be a huge part of the activities of companies now is around uh you know minimizing their
[00:33:08] tax liability rather than producing goods and services but the government of course uses
[00:33:13] as well tax to try and modify our behavior now some people might say well they shouldn't be
[00:33:19] doing that you know so we shouldn't have a sugar tax there should be uh i shouldn't have got a
[00:33:23] tax benefit for buying an electric vehicle which i've just in you know enjoyed uh you know that
[00:33:28] this idea that tax is used for government policy to try and change the way we behave
[00:33:34] you wouldn't be able to do that with this sort of tax well the only one that i like is the
[00:33:38] is that and it we did wasn't taxation that changed behavior on smoking it was
[00:33:43] bans on it being done in public places so i don't know how particularly affected those
[00:33:48] behavior modification elements were including taxes on alcohol and so on all this stuff is often
[00:33:54] used to fiddle the tax books by the government rather than actually being particularly effective
[00:33:59] so i wouldn't be sorry to see that disappear either the only thing i don't like about is the
[00:34:03] pauline hansson thought it was a good idea and for those who don't know pauline hansson's
[00:34:06] has gone crazy uh is she right wing i don't know she's got the anyway she's a populist
[00:34:14] politician from queensland not that smart uh but she did latch on to this idea didn't she uh 10 or 15
[00:34:21] years ago yeah well you know you can't choose your bedfellows sometimes that's all you gotta say about
[00:34:26] it so can you see any that's all she deserves me i would love to see whether dr faggy when he came
[00:34:32] across this 0.3 percent i'd love to see the income distribution though on that i can't help
[00:34:37] feeling that it is not a particularly um progressive tax i feel as though wealthy people are you know
[00:34:46] unless you have no in in in fact there is going to be behavioral modification in one way because
[00:34:52] that as you say 0.3 percent you wouldn't even you look at the vat it's 20 percent look at the
[00:34:58] transaction as 0.3 you're not going to worry about it so it's going to be less of a worry for
[00:35:02] individual consumers but what's the part that's going to hit by far as the finance sector
[00:35:06] because there are so many transactions that are involved in finance you know clipping pieces of
[00:35:12] paper and passing on to the next person in a in a money a money laundering scheme uh you're not
[00:35:17] going to want to do that anymore so it will have a huge behavioral impact upon the finance sector
[00:35:21] which i think is a bloody good thing yeah it is okay so all of those transactions disappear
[00:35:25] then you have to start putting the transaction tax up from everyone else from perhaps 0.3 percent
[00:35:30] 4 percent that's part of the so if you succeed if that has a desirable impact of reducing
[00:35:36] the level of transaction in the finance sector you may be forced to raise the rate elsewhere
[00:35:40] true and then you start to get the imbalance happening because then you start to say well
[00:35:45] okay now everyone's paying four percent on every transaction the stuff you buy has been through
[00:35:50] five levels or whatever so you're back to paying 20 you know whatever the aggregate of
[00:35:55] that is over 20 percent as a cost of you know added to the cost of what you're buying
[00:36:01] whereas you know and so that becomes again potentially a disproportionate tax on people
[00:36:06] on lower incomes i don't i don't again it depends on how many transactions different
[00:36:11] social classes get involved in fundamentally people who work as they've just got
[00:36:16] two major transactions they get money in from their salary and they they shop
[00:36:21] yeah that's what they're buying how many it's not there them is it it's the stuff they buy it's
[00:36:26] how many steps has been involved and then that comes with the vertical versus horizontal integration
[00:36:30] which is another thing that sort of tax returns in the right direction going back to vertical
[00:36:33] integration rather than horizontal so uh yeah i mean there you would have a if it worked
[00:36:39] you would have to have a huge impact overall even though it's so small because to make up for
[00:36:44] the same impact if you want to have taxation which they like comes at a 30 percent government
[00:36:48] spending is 33 percent of GDP then you need overall those transactions are some to 30 percent which is
[00:36:57] it's it's still going to have a large impact and it would be you know that you could model this to
[00:37:02] some degree and have some sort of idea of what the hate for is likely to be eliminated by it and
[00:37:06] so on and see what the consequences are but it would be a hell of a task bringing in this in
[00:37:12] properly without totally disturbing the system in the process yeah i said that it's one of those
[00:37:17] things where sounds like a great idea but there are unintended consequences and what are those very
[00:37:24] difficult to tell but you can't phase it in that easily unless you did finance sector first than
[00:37:28] everyone else after but they they are two very different things and then do you do it just in
[00:37:33] one country if you do it just in one country uh then every business is going to say well okay
[00:37:38] we've got lots of transactions involved in what we produce we don't want to pay the
[00:37:42] aggregate of all of those in the UK or in the US wherever you are let's outsource it all to somewhere
[00:37:49] where there's no transaction tax and you hit with that problem or or the or the opposite comes for
[00:37:54] it because you get rid of a whole lot of deadwood in terms of administration you don't need to
[00:37:58] tax officers anymore you don't need to tax department anymore relatively speaking so it
[00:38:04] could actually be a bonus to say this is an easier way to do business and i'm i am of the
[00:38:09] opinion certainly that i've now got the attitude that mmt has the taxation is not there to raise
[00:38:14] revenue for the government it's to take money out of circulation that's created it's to maintain
[00:38:19] a positive balance in the treasuries account at the central bank uh then you you lose the
[00:38:25] moral imperative for for taxation and you come down to what is the more effective way to
[00:38:30] implement it to minimize the impact of government money creation and this this sounds you know
[00:38:36] to me very appealing but if you want to you have to phase it in so if you started off initially
[00:38:41] you might start with a transaction tax of say 0.1 percent with income tax and then as you increase
[00:38:48] the transaction tax you reduce the income tax i'm feeling that to be politically fairly popular
[00:38:53] for anybody brave enough to give it a try although you know to do it you'd be i mean this is
[00:38:57] would be an argument for digital currencies outright wouldn't it and you and people don't
[00:39:02] like that idea it's just feels as though there's too much control within the government i mean and
[00:39:07] yet you know the government controls this coming we all have to pay income tax i mean we you can
[00:39:11] avoid it by breaking the law and maybe some people don't like the idea that this would
[00:39:16] you wouldn't be able to avoid this but somehow we do perhaps it just feels a bit big brother
[00:39:23] yeah well we live in a technologically dominated world so and politically dominated as well
[00:39:31] big brothers already here i think okay well yeah and and tinnium i talked about the idea
[00:39:35] about phasing it in but while reducing income tax i was thinking this is just an academic
[00:39:40] discussion it's it can't work in in practical terms but maybe it can and and the obvious place
[00:39:44] to start obviously would be uh to start with a a transaction tax for the finance sector
[00:39:50] yeah which you can argue is under taxed at the moment and therefore deserves to be a target
[00:39:54] but then of course you then see what the impact is and it could be pretty pretty
[00:39:58] basically hand out the popcorn to the into the manufacturing sector to see what happens to the
[00:40:02] financial sector all right well okay fantastic idea dr feige but i'm not going to hold my breath
[00:40:10] in our lifetime but who knows i mean the world is surprised us hasn't it and there's certainly
[00:40:16] you just look at the way governments are funded right now and the the need for and they do need
[00:40:21] i mean getting back to how we started this discussion they still need to raise tax revenue
[00:40:26] they can't just create all money because it would flood the the country with money
[00:40:32] there's still got to be an element of taxation and this would be quite a smart way
[00:40:37] of giving the government that control so not only would we lose people working in the tax
[00:40:41] office who wouldn't need many people working in the central bank if indeed we needed a central
[00:40:46] bank at all i won't go there just yet right now look good before we go a couple of messages
[00:40:51] did say that we've got and it's just starting to get a bit more feedback lately this comes from
[00:40:55] simon jackson he commented on facebook uh i am picking up on my comment about the japanese
[00:41:01] still being very productive even though the economy is in a bit of a quagmire he says
[00:41:06] japan is not at all productive these days it's ranked 30th out of 38 oecd countries
[00:41:10] and most of the unproductive people are sitting in government offices doing busy work
[00:41:14] and making trouble for business people like me i doubt paying down private debt will do much
[00:41:19] to free any domestic animal spirits within japan the domestic economy is too timid to try new things
[00:41:24] japan japan's technology reached its peak with a bullet train back in 64 was that when it started
[00:41:30] wow that was quite that was very uh forward thinking wasn't it back then and it's gone
[00:41:35] backwards or at least sideways ever since i'm surprised the country hasn't collapsed
[00:41:39] but don't have much confidence in what will happen after the last of the show uh
[00:41:43] era people pass i'm pretty sure there isn't a kz plan for handling population
[00:41:48] but hope there is one thanks again very much for the podcast and this from rachel i'm not a student
[00:41:54] of economics and thus i do struggle to understand the more complex theories well hopefully
[00:41:58] you've understood today's rachel i think it was quite straightforward today i've observed that the
[00:42:02] more complex the issue the more excited and thus animated and fast talking steve becomes
[00:42:09] making it even harder to grasp the concepts anyhow enjoying this because you're getting i'm
[00:42:13] getting the crit rather than you well this one yeah no rachel yeah but the other one was
[00:42:17] having a go at me you don't know about japan i know i know yeah this anyway that is not why
[00:42:21] i'm writing to you but sometimes be mindful of it what i really want to know is are there any
[00:42:26] countries who do or have followed steve's theories models of managing an economy that's from rachel
[00:42:33] well i guess it depends on what theory that we're talking about doesn't it really but
[00:42:37] maybe i guess it's um i think we might find something that's ungoverned on europe and i
[00:42:42] mean that i'm in the moon of shepard not the country not sure anyone lives there that follows my
[00:42:47] ideas it's you know i'm going to spend my life in the wilderness it seems right well there we are
[00:42:53] i'll be there with you um and some of the time unless it's a bit uncomfortable in which case i might
[00:42:58] uh did just to say you and keep out of the lead a happy life all right anyway thanks rachel
[00:43:04] hopefully you understood today and uh yes steve's gonna calm down from now on i think
[00:43:08] you were fairly calm today steve you didn't get too excited so uh that is not good for you at your age
[00:43:13] so uh not sure we'll catch you again next week thanks for listening in everyone we'll see you next
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