LONDON -- The decision by European economy and finance ministers in Liege on Sept. 23 to commission a study of the effect of "Tobin-style" taxes on currency transactions indicates a new and surprising high-water mark of support for taxation on speculative capital flows.
James Tobin, a Nobel Prize winner in economics, initially proposed such a tax to "throw sand under the wheels of international finance" and prevent the financial system from being hurt by its own excesses. He proposed that any funds raised be credited to the World Bank.
Recent modifications have captured and transformed the proposal almost beyond recognition. The Tobin tax has been presented by the antiglobalization movement as a foolproof way to stem speculative capital flows, suppress exchange-rate fluctuations and avert crises while simultaneously providing hundreds of billions of euros to alleviate Third World poverty and, perhaps, even turn back the tide of globalization itself. All rather exaggerated claims.