On the feral side of finance
Sir, – Fintan O’Toole argues for the mooted business transaction tax (Opinion, January 17th). This awful idea was conceived by the same technocrats who have consistently misdiagnosed Europe’s problems, and who are protesting so volubly at the recent Standard & Poor’s downgrade of the EFSF. The downgrade was a warning that Brussels will only prolong the pain by strangling the business sector. That Ireland escaped the downgrade isn’t accidental; in standing with David Cameron to resist the Tobinistas, the Taoiseach is acting with foresight and courage.
Mr O’Toole shows no understanding that a robust financial sector might help Ireland to weather the storm, and emerge from it sooner. Indeed, it becomes clear that he lives in a bleak world where an industry’s merit is measured only by how much it contributes to the State; he grudgingly admits the IFSC is an important national asset, but only because it pays over €2 billion in taxes.
Despite this, the IFSC is diagnosed incurably feral. And the evidence? He mutters darkly about securitisation and shadow banking systems, and stops just short of blaming it for the Lehman collapse. The innuendo is balanced with just enough caveats to disguise a high-minded animus towards the sordid business of business generally (“Most of what it does is perfectly legitimate . . .”, “I’m not suggesting that any of this is unlawful”). In the end the objection boils down to two points: “it’s very hard to understand . . .” and “it is virtually unregulated. If those two things don’t ring a bell, you haven’t been paying attention to the origins of the financial crisis”.
How many times must this statist canard be repeated? A rash of worldwide mal-investments caused the current crises; loose regulation didn’t help, but the chief villain of this drama is the State and its disastrous intervention at the start and end of the bubble. No market, no matter how tyrannically regulated, can act sensibly when flooded with easy credit by central banks. After the crash, further State intervention, in the form of belated regulation or populist taxes, is not only useless but harmful; free markets regulate themselves mercilessly by the failure of bad companies. When that correction is postponed we get deepening recessions. The moral hazard created by State bailouts makes nonsense of State regulation past and future.
How tragic that Europe’s response to the current crises, just as China and India are throwing off the shackles of a moribund socialism, is greater centralisation and tax-funded expansion of the state.
The result is that western Europe’s share of world GDP, which has declined from 36 per cent in 1974 to 24 per cent today, will continue to drop. What is truly feral here is the chilling hostility to free markets, a hostility Mr O’Toole echoes too complacently. – Yours, etc,