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The Tobin tax is not a revenue raising instrument but a financial speculation froth removing mechanism.

The EU budget should be funded from trade imbalances. Keynes envisioned charging interest on both positive and negative trade balances. For instance, imagine if interest were charged on both the positive and negative values in the upper-left chart of Wolf's FT piece:



Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Thu Jun 2nd, 2011 at 11:45:27 AM EST
[ Parent ]
I don't see a chart with trade balances?

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Thu Jun 2nd, 2011 at 01:02:51 PM EST
[ Parent ]
Gah, wrong chart:

The top left is not trade balances. But imagine that teh ECB charged interest to the national central banks on their net balances, both positive and negative, and then transferred the proceeds to the "EU finance minister" for funding of an industrial policy component of the structural funds.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Thu Jun 2nd, 2011 at 01:34:03 PM EST
[ Parent ]
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Thu Jun 2nd, 2011 at 01:44:13 PM EST
[ Parent ]
imagine that the ECB charged interest to the national central banks on their net balances, both positive and negative, and then transferred the proceeds to the "EU finance minister" for funding of an industrial policy component of the structural funds.

That's a cross-subsidy. Mind you, a cross subsidy in which activities we don't like are going to pay for activities we do like. But still a cross subsidy, which means that if you're doing it right it's a funding source that will shrink over time.

So that implies that the European federal budget will be tasked with no expensive policy aside from killing trade imbalances.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Jun 2nd, 2011 at 03:02:08 PM EST
[ Parent ]
Or else its a self liquidating fund which liquidates itself in the unlikely event of it achieving its objective, which is zero trade imbalances, and increases the larger those trade imbalances become - as it should do.

The problem is that it is difficult to plan for long term infrastructural projects if you don't know what your income is going to be - however if those infrastructural projects are designed to help overcome structural imbalances, the need for them will diminish as they achieve their objectives. In practice some kind of hedging or smoothing strategy will have to be employed to reduce the uncertainty of income relative to the certainty of committed expenditure on formally approved projects/programmes.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Thu Jun 2nd, 2011 at 03:40:02 PM EST
[ Parent ]
The existing structural funds fund infrastructure. This is for industry.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Thu Jun 2nd, 2011 at 03:43:46 PM EST
[ Parent ]
In which case the need to support industrial activity in a trade deficit region should decline as it achieves a trade balance and thus, rightly, the supports should decline.

For the EU to develop susch a policy, three heresies have to be embraced:

  1. All trade imbalances within the Eurozone are a bad thing and should be discouraged by differential taxation and reduced through differentiation expenditure.

  2. The EU should actively promote economic equality in all regions within the Eurozone

  3. Optimised capacity utilisation = full employment should be a primary goal of economic policy and not some kind of residual remainder effect or collateral damage of "correct policies".


Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Thu Jun 2nd, 2011 at 03:53:12 PM EST
[ Parent ]
In which case the need to support industrial activity in a trade deficit region should decline as it achieves a trade balance and thus, rightly, the supports should decline.

Indeed.

But that is only one role of a traditional federal administration.

The federal European level may wish to also have a policy on health care, income equality, homelessness, transportation, armaments, pensions and so on and so forth. Such policies cannot be sustainably funded out of cross-subsidies. So if you make "[t]he EU budget should be funded [exclusively] from trade imbalances," then you are implying certain things about the scope and nature of the European federal bureaucracy.

I'll reserve judgement on whether these implications are good or bad, but they are there and should be kept in mind.

All trade imbalances within the Eurozone are a bad thing and should be discouraged by differential taxation and reduced through differentiation expenditure.

Well, technically speaking it's only trade imbalances in excess of sustainable growth in the actual ability of a country to honour hard-currency obligations that's unsustainable. The system is not so fragile that it will blow up unless you go all the way to zero.

The EU should actively promote economic equality in all regions within the Eurozone

At a countries level, at least. As noted above, while a policy like this promotes intra-country income equality, it is not by itself sufficient to achieve it (nor is it the point of the policy).

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Jun 2nd, 2011 at 04:16:02 PM EST
[ Parent ]
What we're discussion here is specifically and only how an EU finance Ministry should be funded if it is to be effective in ameliorating structural imbalances within the Union at a trade level.

However if you concede the principle that all EU regions should harmonise/converge to some form of equality, that brings all sorts of other policy and service areas into play.  

We are so far off even trying to achieve equality at any level, I would settle for an EU Finance Ministry funded by a tax on trade imbalances and promoting greater economic equality at a macro level as a first step.

A Common EU public health service?  Yes, we can dream.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Thu Jun 2nd, 2011 at 04:35:44 PM EST
[ Parent ]

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