Capital Movements, Tobin Tax, and Permanent Fire Prevention: A Response to DeAngelis

With the liberalization of international financial markets in the past two decades, cross-border financial transactions have grown to epic proportions. This growth, DeAngelis (1999–2000) argues, has exposed “national economies to the whims of financial markets and security owners with no particular ‘national allegiance’. No government can afford to upset speculators with policies that are not compatible with the priorities of international capital”. DeAngelis claims that the result of this obsequious behavior by national governments has been to thwart Keynesian fiscal policy and to encourage the dismantling of each nation’s social safety net. DeAngelis insists that if governments are again to pursue socially desirable national public policies, then there is a need to constrain international capital flows. Unfortunately, DeAngelis states, “the two major proposals that address the problem of limiting capital mobility [the Tobin’s tax and Davidson’s clearing union plan] suffer from some major shortcoming”.