The power is in the microcosm

In 1990, the world was on the threshold of globalisation.
  The value of all goods and services produced worldwide at that time was about 22 trillion dollars (USD). Shares and bonds were traded to the tune of USD 9 trillion annually, over-the-counter financial derivatives for about USD 2 trillion, and the volume of foreign exchange transactions amounted to USD 147 trillion. Almost 30 years later, in 2018, the value of all goods and services produced was USD 75 trillion. In the same year, shares or bonds were traded for USD 162 trillion, foreign exchange for USD 602 trillion and financial derivatives (over-the-counter) for a staggering USD 1250 trillion. A nearly three-and-a-half-fold increase in real economic output in a good thirty years is thus offset by an almost twenty-fold increase in stock and bond trading. Moreover, today, 800 times more financial derivatives (including foreign currency options) are traded than in 1990. What the financial markets have achieved is called exponential growth. Compared to this, the real economy has literally fallen by the wayside in terms of growth.
  Of course, not everything that caused the exorbitant growth on the financial markets in the last three decades is of a purely speculative nature. The advancing international division of labour and the resulting increase in cross-border flows of goods and services also automatically lead to more transactions on the foreign exchange markets and an increased need for forward and hedging transactions with derivative financial instruments. But the market for financial derivatives has taken off to such an extent that only one conclusion remains: The majority of what is traded today in derivative products has little or nothing to do with the real economy. Globalisation and the fact that capital is the “fastest and most mobile” factor of production compared to immobile land and the rather sluggish factor labour have also contributed to the world’s prosperity. But mainly they have given rise to the biggest casino in the history of the world, where the wildest bets are made and those who have or to whom it is given play for stakes that are x-times the real economic output, i.e. the wages and profits.
  With the exception of Corona, all recessions since the nineties have been triggered by speculation-related financial market crashes and not by “classic” economic overheating, as our parents may still have known it. In the age of globalisation, the financial markets degenerated into a hotbed of economic instability because quick profits were placed above the well-being of the community, money was no longer invested but often only speculated with – with manifold multipliers. In view of the figures presented here, I have been asking myself for some time why global tax practice still “only” taps into the real economy instead of helping itself to where the real money flows. And in view of the growing debt burden of the industrialised nations, I ask myself why they have been discussing a financial market transaction tax only half-heartedly for years, if at all.
  We Swiss are a bit further ahead, thanks to direct democracy, and have the so-called micro-tax initiative. It is undoubtedly revolutionary, so revolutionary that it will probably fail because it comes too early and mobilises the usual federal defensive reflexes, especially when it really comes to going it alone. The business lobby, the Federal Council and some “renowned” professors more or less dismiss the undertaking as a “fart”. Personally, however, I have some sympathy for the idea. In terms of tax theory, it is more efficient to tap a large substrate such as financial market transactions with a small rate than a small substrate such as income and profits with a large rate. This is actually scientifically beyond question. If this huge substrate also grows exponentially, it could well form the new tax base of the future. So why not think about it?
  If, for example, Switzerland was to tax the CHF 40 trillion in payment flows subject to SIC (Swiss Interbanking Clearing) at just 0.05 %, this would generate almost CHF 20 billion in tax revenue, almost as much as the entire value-added tax today. Private households would be noticeably relieved by the abolition of VAT, and the micro-tax would not hurt them very much. Why then do so many nevertheless dismiss the undertaking as a crackpot idea? Quite a number of innovations of the last centuries were or are Swiss Made. While others were waffling and debating, we were putting it into practice. The financial market transaction tax will come sooner or later, that’s out of the question for me, because the debts of the states are exploding and their tax sources are drying up. Joe Biden wants to make companies pay more, the EU wants to make internet companies pay more, China wants to make its citizens pay more, everyone is desperately looking for new potential sources of revenue, but always on the same ground. Why not look in the casino? Yesterday, Bitcoin was traded for almost 48 billion USD, Tether for 113 billion USD – that is more than twice the market capitalisation of this cryptocurrency – and Ethereum for 40 billion USD – without any real economic motive, pure speculation. Half a per cent of that alone would be a good 500 million USD, every day, and there are even more cryptocurrencies, not to mention billions of other financial market transactions. Krethi and Plethi could probably get over a small obulus on it, financial hyenas anyway. There would even be something left over to relieve the tax burden on those who have borne the brunt of it for generations. So, the idea of a micro-tax is not that stupid at all.  •

Source: Raiffeisen Economic Research of 26 May 2021

(Translation Current Concerns)