Dollar, Euro, or Ebcu?

The unaccountable power of credit-rating agencies has now come under attack from the EU's most powerful politician, Jose Manuel Barroso, the president of the European Commission. Clearly the speculation against national economies is dangerously destabilising for all the European economies, but behind this attack we may also see a glimpse of the struggle for currency hegemony between the dollar and the euro.

The political purpose behind the establishment of a European currency was to provide an alternative to the dollar, whose role as global trading currency enabled the US to fund its superpower military strength and its unsustainable lifestyle at the cost of the rest of the world's people. The credit-rating agencies, all based in the US, can turn market sentiment against the weaker European economies, thus undermining the currency they share. Hence Angela Merkel's suggestion that Europe needs to establish its own credit-rating agencies.

The European financial crisis is rapidly cycling out of control. We are moving beyond the dealings of young men sitting at computer screens and onto the streets. The anger between some Greek citizens and their government is matched by an anger between different European nations. The EU currency straitjacket is, as was predicted, leading to tension between the vastly different economies it forced together. In currency wars, as in military wars, it is the elites who make the decisions and divide up the spoils, while the poor pay the price.

Green economists have long argued for a political response to this crisis that opens up the question of how money is created. At the global level we suggest a neutral currency, which enables trade between countries without allowing this to accrue benefit to the country that controls the trading currency. If such a currency were linked to carbon dioxide emissions as an environment-backed currency unit (Ebcu) it could also ensure that the global economy stayed within planetary limits. Tweet

Robbin' Hoods or Tobin Taxes

The problem with simple and appealing ideas is that they are usually wrong. I really am not going to enjoy pouring cold water all over the idea of a 'Robin Hood Tax', especially since I am a person who shamelessly enjoys Richard Curtis's cheesey films - yes even The Boat That Rocked. The problem is that a good script, some decent acting, a rather trite idea and a good backing track works well in Hollywood; in the world of global economics things just are a bit more complicated than that.

First or all, the point of the Tobin Tax is not too siphon off a tiny proportion of the arbitrage profits from banking to help the world's poor. If it were, then surely our first complaint would be that the tiny rate of tax being talked about - whether the 0.5% proposed by Tobin or the much lower rate proposed by the campaign - is just absurdly, embarrassingly, insultingly small.

The Tax was in fact proposed as a penalty to discourage pernicious behaviour by financial investors. If all currency exchange transactions were charged a small rate of tax, the speed and quantity of such speculative transactions would be reduced. This would lead to more judicious operations of currency exchange markets, which could then fulfil their true role of sending signals about the relative strengths of different economies, rather than merely offering a gambling opportunity.

But surely we have moved beyond this since the debacled of the past 18 months? This tepid and timid demand is far short of what the people of the world require. Nothing short of a politically negotiated global agreement on an economy structured to serve people's needs will make up for the disasters we have suffered. Remember the Monty Python sketch of the burly king offering his son the view of his land through the castle window? Our inheritance is the whole world, not just the curtains.

How appropriate that we end back in the world that Robin Hood inhabited. In spite of our national myths, if Robin Hood existed at all he was a landowner, whose own father might perhaps have shown him the lands he would inherit from a lofty castle tower. His objection was not to unequal distribution of land or cash, but that his own power had been eroded by the social unrest of the crusades. The proto-redistribution Robin Hood may or may not have been involved with was only necessary because of the theft of land by the Norman barons.

I agree with the implication of Richard Curtis's short film that bankers use complexity to conceal what they do. But we should not adopt a simplistic response. A tiny tax is not sufficient; what we need is an economic system that enables justice. We should be calling for predistribution rather than redistribution, not only because this structure is unjust but also because it is dangerously unstable and ecologically destructive. Tweet

Tobin or Not Tobin

At first blush we may be surprised to hear Adair Turner, the closest thing to crumpet the City ever produced, supporting a tax which has long been proposed by those who oppose financial speculation, the casino economy, global capitalism and everything the City stands for. But if we dig a little deeper we begin to see that this may be a very cheap way out of a very deep hole for our sharp-suited adversaries.

James Tobin was far from being one of us, and in fact was rather offended that it was the anti-capitalists who picked up on and propagated his idea for a tax on currency speculation. Until he died in 2002, his had been a fairly typical career for an orthodox economist: teaching the bogus ‘science’ at Harvard and Yale, advising the government on same, a seat on the board of the Fed., and a ‘Nobel Prize’ for developing an econometric modelling technique. How disturbed he would be to find his idea working against everything he stood for from beyond the grave.

It should be made clear that the Tobin Tax, which would be levied on all international currency transactions, is proposed at a tiny rate. Tobin originally suggested 1% and even lower rates are now being bandied about. The fact that it is worth introducing a tax at this rate indicates the vast sums of money that move across the international currency exchanges every day. Taxing may extract some of that value to be invested in worthy projects, but relating the tax inversely to the length of time the investor holds their investment would do so more effectively. This principle could then be applied to investments in general, discouraging the short-termism and rapid movement of investment cash that so destabilises the real economy.

The Tobin Tax is Green Party policy and is a good step towards gaining some return from currency speculation for the public benefit. The fact that the financiers are so opposed inclines one to support. The idea for the tax grew out of the last financial crisis – when Nixon unilaterally dismantled the international financial architecture that had been agreed by a group of nations at Bretton Woods, following the Second World War. It may be part of the solution to the current crisis, but only in the context of a new international negotiation, and one in which all countries engage on equal terms. Tweet