Math Question

Here’s a question for all of you financial types out there. How large a tax on trades on the NYSE would it take to kill the stock market? I think it would take a lot less than some people appear to be assuming. A lot of trades these days are very short term trades with extremely small margins.

I haven’t looked lately but I think the daily trading volume is something like $200 billion.

12 comments… add one
  • Guarneri Link

    Pfft. Who cares? Think of the social justice! And the, uh, er, well, votes.

  • steve Link

    Would it matter if these short terms trades went away? Put another way, what evidence do have that the stock market has worked better in any way since they were started?


  • It would certainly matter to someone. And it would affect how much revenue could be realized from the tax. 10% of zero is zero.

  • Gray Shambler Link

    There are those who use computer programs to skim the “froth” off of the daily trading variance. Slowing down the trades would help.
    Me, anyway (:.

  • steve Link

    OK, forget I asked the first question. What about the second. I have a hard time believing that a tax would hurt the function of the stock market. Besides, by my recent readings it looks like HFT is way down. A tax on regular trades might mean some stockbrokers would need to trade down to a Lexus. The pain!


  • Guarneri Link

    Maybe we should go back to computers with card readers, eh steve? Or destroy printing presses in favor of legions of trained pens men.

    The real point is it’s not for you to say. More quickly paring down arbitrages may not be the most noble activity in the world, but that doesn’t make it a taxing opportunity. I don’t think rap music advances society, but it doesn’t mean I should tax away the industry’s profits.

  • Steve Link

    Maybe we should go back to not rewarding the financial sector for behaviors that only benefits them when we have to bail them out when they screw up. You are, of course, not able to show that the market actually works better with HFT. Anyway, thanks for the laugh suggesting that HFT is the innovative equivalent of the printing press.


  • I don’t think the problem is that we shouldn’t reward them “for behaviors that only benefits” but that we shouldn’t bail them out. We need to allow them to fail. That’s how capitalism is supposed to work.

    With all of the admiration of Sweden being expressed, people seem to have forgotten that the Swedes let Saab fail.

  • CuriousOnlooker Link

    The question is what is covered in such a tax (and the rate)

    Stocks only — probably a limited effect and easy to work around (with derivatives).
    Stocks / ETFs / Mutual funds — larger effect (ETFs and mutual funds raise the question of double taxation)
    Stocks / ETFs / Mutual funds and derivatives — effects would be much larger and hard to forecast

    I believe the UK, HK, and Japan have stamp duty on shares

  • steve Link

    ” but that we shouldn’t bail them out.”

    We shouldn’t make policy based on stuff that won’t really happen, or at least try to account for reality. The finance sector, the banks, have always found ways to destroy economies. They usually get bailed out or find some way through political connections to come out fairly unscathed. Now that wealth inequality is so high, the finance sector is wealthier and more powerful than ever. If we can get some tiny fraction back from them is that really so awful? If HFT has real value to anyone it will still go on, just with the people doing it earning slightly less. They downgrade from the Bentley to the 911. If it really has no value other than one more way for the finance sector to make money by moving it around, then it might go away, but I dont see much loss. Other than that we are losing the rest innovation since the printing press!


  • We shouldn’t make policy based on stuff that won’t really happen

    You mean like all of the things being proposed by the Democratic candidates for president?

    The essence of this question revolves around just that issue. Presently, I don’t believe anybody has any idea of how much revenue is likely to be realized from a trading transaction tax (the “stamp tax” mentioned by CuriousOnlooker, above). But they’re committing money they’ll probably never see rather than making realistic projections of revenue and figuring out how to allocate it among the dozen or so priorities they’ve identified.

  • steve Link

    Fair enough, though I would point out that with bankers this is a problem that is hundreds of years old.

    OT- Cowen links to paper that goes over what I was talking about on how to evaluate medical care. Eggleston, amount others, has been working on this but it is difficult to tease out and his work also uses mortality numbers too often.


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