'Rainy Day' Bailout Fund?

Have bailouts become such a part of our culture that we now introduce taxes that exist for no other reason than to fund them? Talk about the ultimate case of moral hazard.

Once again politicians have hijacked economic policy and are trying to use it for political gains. In the UK, politicians including Gordon Brown, want to create a fund that will be held until the next bailout is required. Where will the money for this fund come from? From the Tobin Tax.

The Tobin Tax, an idea from economist James Tobin, seeks to impose a small tax on currency exchange, with the idea of reducing instability caused by speculation. This article isn't about the merits or economic sense of the Tobin Tax, but to get an idea of it, see Greg Mankiw's view or Aswath Damodaran's view on the subject.

When economists propose excise taxes, which is what the Tobin Tax is, the goal is not to raise revenue as with conventional taxes. Rather, the goal of an excise tax is to alter behavior. Economists don’t care what the money goes to, although in this case Tobin wanted the money to go towards helping economic development in third world countries.

The point is, it’s not the goal of an excise tax to raise revenue to achieve some political end. But, politicians will be politicians and I guess it’s reasonable to expect them to always have a political end in mind.

What’s scary about this is that they want to collect the money generated by the Tobin Tax and use it to fund future bailouts.

From the Forbes article:

“The Group of 20 emerging and developed economies has asked the International Monetary Fund to look at ways banks could help pay for taxpayer bailouts, such as a 'Tobin Tax' on transactions or a levy towards a global fund.”

Have we really come to rely that much on government assistance? Are we getting to the point that the essence and beauty of the free market – that failing companies die out, thus ensuring a competitive, cheap, high quality marketplace – is soon to be something of the past?

When businesses cease to be competitive and instead become subsidized by the state, that’s when we make the transition from capitalism to socialism. In contrast to Karl Marx, it seems the dawn of socialism won’t come from a massive workers’ revolt, but rather by a slow creep that nary a soul sees coming – until it’s too late.