Don’t Vote for a Free Lunch!

Invoking the name of Robin Hood (Britain’s famous bandit who, according to the legend, “robbed from the rich to give to the poor”) aid lobby groups, celebrities and philanthrocapitalists such as film maker Richard Curtis, have launched a high-profile campaign for a new tax on banks to fill the gaping hole in the public finances. Not only will this tax give the bankers the bashing that the public is crying out for, they claim, it will also provide hundreds of billions of pounds a year to fight poverty and climate change. “Not complicated. Just brilliant” is the slogan. If only that were true.

Certainly, the idea is elegantly simple: a small 0.05% tax on the banks’ speculative shifting of capital around the world will free up huge sums of money for the fight against poverty and climate change. And the only people who will have to pay will be the banks – which will thus be unable to pay their employees such obscenely large bonuses. What’s not to love? It’s like free money, only better, given the added feel-good element of banker bashing! No wonder people are signing up in droves – a poll on the campaign website says that supporters outnumber opponents ten to one.

The campaign for the Robin Hood Tax reunites the dream team that successfully bullied the G8 into big aid pledges in 2005 – Bono’s lobbying organisation, One, the British Government (which first tried floating the tax idea to the G20, which was unenthusiastic, before turning to lobbying), with endorsements from philanthrocapitalists such as Warren Buffett and George Soros.

Yet, a ‘tiny’ tax that yields such huge sums sounds suspiciously like turning lead into gold, or some other fiscal alchemy.

So who will actually pick up the bill for this new tax? The banks, say the campaigners, by eating into their profits. ‘Good’, we hear you say. Except that the banks, in all probability, will just pass the costs on to consumers, so we will pay the tax, not the banks. And, on the other hand, if profits did fall, that would hit bank shareholders, who include many ordinary citizens, through their (already diminished) pension funds.

The tax would also make it more expensive for banks to move money around. Again, a good thing, you might think: when the idea for this tax was first floated in the 1970s by the Nobel Prize winning economist James Tobin, he saw it less as a fundraising tool and more as a way to ‘throw sand in the wheels’ of financial speculation. That is why Joseph Stiglitz, another Nobel Prize winning economist is supporting the tax. Yet no evidence is presented by the Robin Hood advocates that their tax will make the financial system safer and, while it is faddish to see flows of capital as merely negative speculation, there is a decent case to be made that the free movement of capital is an essential part of the global economy. Taxing these transactions, without clear evidence that it can be done safely, risks throwing sand in the wheels of global prosperity, which would be bad for all of us, especially those on the fringes of the financial system – the poor. The potential risks and costs need to be debated properly, not wished away.

The One/Make Poverty History campaign of 2005 was, as we describe in the book, a great example of high-leverage philanthropy, as philanthrocapitalists allied themselves with celanthropists and activist campaigning groups to champion more public spending on aid. In doing so, it gave ordinary people an opportunity show that they wanted more of their taxes spent on helping the poor (and, by extension, less on other things like schools, roads and guns). It improved the public decision making process. The Robin Hood campaign, by contrast, is encouraging people to vote for a free lunch – the one thing that economics has proved does not exist. Not complicated. Not brilliant. Not honest.