Speaking of excessive risk-taking, Mark Thoma wants the financial industry to bear more of the costs for economic downturns:
I believe that far too much of the cost of the financial meltdown was imposed on working class households and far too little on the industry itself. Is there a way to change this? Can we shift more of the cost of financial meltdowns to the financial industry? Yes we can, and one way to do this is to implement a financial transactions tax.
I think that Dr. Thoma must have attended the same economics classes I did. He almost always thinks in terms of behavior modification via tax. I don’t think his tax will have the consequences he thinks they will. More likely the opposite.
After all, imagine that you were Goldman-Sachs, that the financial transaction tax had reduced your margins, but that you knew with a confidence based on experience that the federal government in one of its myriad forms would underwrite your losses. Wouldn’t that predispose you to making riskier investments rather than less risky ones?
We don’t need additional taxes or even additional laws to “shift more of the cost of financial meltdowns to the financial industry”. Enforcing the laws we have would be enough.