by Jerome a Paris
Mon May 25th, 2009 at 06:04:11 AM EST
In an incredibly harsh article published Friday, Martin Wolf, senior editor of the Financial Times, provides both the ultimate indictment of the financial industry, and a simple solution to tame it: tax it:
The UK has a strategic nightmare: it has a strong comparative advantage in the world’s most irresponsible industry.
how should the country manage the cuckoo sitting in its nest?
The fiscal costs of this crisis will be comparable to those of a big war.
UK, as a country, the City of London and the broader financial industry bear much responsibility for this calamity.
Quite simply, the sector imposes massive negative externalities (or costs) on bystanders.
And the solution is simple:
So how should one manage a sector that produces such “bads”? The answer is: in the same way as any polluting activity. One taxes it.
He has further recommendations (a push for global regulation, internalisation of costs by the industry, a stop to listening ot industry lobbying, diversification away from the sector), but the gist is rather clear: finance is a potentially parasitic, easily toxic, activity which needs to be made to pay for the damage it can and does cause to the economy.
As I've noted repeatedly, high marginal taxes would additionnally significantly reduce the attractiveness of multi-million-euro incomes, and might push "talent" into other, more productive ventures than just making money...
But while Martin Wolf has step by step moved towards a position that we can easily endorse, it must be said that his position does not yet seem to be widely shared amongst the Serious People. Will he manage to move common wisdom, or will he be progressively ignored as Krugman, Stiglitz and others are nowadays - or simply labelled partisan?