Every so often, the Wall Street Journal runs an op-ed from someone who is a full-throated advocate of the Mega-state. Yesterday, Ralph Nader contributed such a piece, arguing in favor of a tax on financial speculation. He said it would raise lots of money for the government and reduce what he regards as wasteful financial activity. Oh yes — and some activists like the idea, including a group of nurses.
Here is Don Boudreaux’s reply:
Editor, The Wall Street Journal 1211 6th Ave. New York, NY 10036 Dear Editor: Ralph Nader's call for an additional tax on gains earned through "financial speculation" swirls with comical irrelevancies (So what that this tax is supported by the group "National Nurses United"?) and failures to deal with fundamental objections to such a tax ("Time for a Tax on Speculaton," Nov. 2). The principal objection to the tax that Mr. Nader and the nurses demand is not that it will harm small investors. Rather, the chief objection is that, by preventing asset prices from reflecting as fully and as quickly as possible the collective judgment of investors, this tax will ensure that inefficient uses of capital persist longer than otherwise. Asset prices will take longer to reveal unwise business decisions - as well as, by the way, take longer to reveal unwise government policies. Capital owners and policymakers, therefore, will be less disciplined. Over time, living standards will be lower for everyone. This argument against the tax does not rest upon any presumed 'perfection' of capital markets or flawless rationality of investors. Instead, it rests upon the modest proposition that the more prices are distorted by taxes the less reliably, in general, they serve as trustworthy signals of underlying market realities. Sincerely, Donald J. Boudreaux Professor of Economics George Mason University