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Thursday, May 13, 2010


The stock market plummet

Last week, the stock market shocked everyone by dropping a thousand points in a half an hour. The first fingers pointed at the entirely improbable typo (you couldn't really sell a "billion" shares instead of a "million" shares because there aren't a billion shares of any one company in existence), and now, a week later, we're told that the powers that be still don't know what actually happened. Most fingers now seem to point to "high-frequency trading" (i.e., automated computer trading), but what to do about it? Read this sample proposal by one Senator and you'll see that there's still a lot of head scratching, proposals for various kinds of oversight and limitations, etc., etc.

But the truth is, there is a very simple solution to this problem, it's just one that people like the Senator and others in Washington aren't mentioning. What is the supposed purpose of the stock market? It's to provide a vehicle for investing in companies. It's not to provide an alternative to Las Vegas, particularly an alternative where billion-dollar corporations are simultaneously stacking the deck and playing the game. So what's the solution? The transaction tax. Some percentage of every stock market transaction paid as a tax. If you were actually buying stock to "invest" in a company, you'd pay that tax once a year, or once a decade, and you wouldn't notice it. But if you were buying a million shares of stock to sell five minutes later, then you'd take the hit. And, almost certainly, change your behavior as well.

Is this an alternative to public ownership of the means of production (i.e., socialism)? Of course not. But it is a simple step that can be taken to reduce the power of the financial billionaires, the people who add absolutely nothing to society (and, as is increasingly obvious, actually do much worse than nothing). And it is telling that, while a handful of the most progressive Democrats have actually advocated such a thing, that proposal has never come close to being seriously considered by those in actual power.

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