Forget the Tobin tax: there is abetter way to curb finance

Citi chief economist Willem Buiter has been one of the skeptics towards official policy over the course of the Eurozone crisis.

French President Nicolas Sarkozy is once again setting himself up to look like a fool, this time over his pledge to implement a tax on all financial transactions, popularly referred to as the "Tobin Tax". Just days after pledging to proceed with a tax on all financial transaction tax in France if the rest of the Europe would not go along, he walked away from the "Tobin Tax" idea completely after receiving pressure from French banks.

UNVEILING the European Union budget for 2014 to 2020 yesterday, the European Commission president, José Manuel Barroso, pleaded with member states not to react in a Pavlovian manner to proposed spending increases. Surveying this morning’s British newspapers, Mr Barroso will be disappointed. The budget has received a predictably hostile response.

A number of readers wrote me this morning and asked what I thought of Paul Krugman's column today.  Krugman writes:

In a move sure to raise the ire of French President Nicolas Sarkozy, British Prime Minister David Cameron says French banks would come to Britain to avoid tax. In comments aimed squarely at Nicolas Sarkozy after the French president reportedly criticised British industry, Cameron said the concept of the tax at a time of economic difficulty was "mad" and "extraordinary".

Citi chief economist Willem Buiter – who has maintained a pretty bearish tack on the euro zone throughout the euro crisis that has plagued the continent in recent years – is out with his latest missive.

There is massive theoretical as well as actual real life evidence that financial transaction taxes will backfire, but that never stops politicians hell-bent on plowing ahead with "it's different this time" horrendous ideas.