Any response Greg? Harry?
Paul
In answer to your comments Paul--
1. No, I don't have as much time to read nearly as much stuff as I'd like; and in that universe you've fared fairly well, since I've not only read you but assigned you (PKMT). Since you are competing on the curriculum, in my classes, not against other post-WWII Keynesians but other political economic theorists including Weber, Marx, Smith, and the like, this is rather more flattering than it might be to get a space on an advanced economics syllabus. As for the other works in your opus I will do what I can, but it's just not going to happen that I will read the entire Davidson opus. My world includes books on the Balkans, Chechnya, and the slave markets of the Roman Empire. Yours does not. I do not avoid your work out of laziness and have spent too much time in too many libraries to take too many cheap shots about the fact that I'm not running after every Davidson footnote.
2. I did read your pkt piece on volatility and posted those comments some months ago; but there was never a response.
3. I agree that the issues of volatility should not necessarily be confused with volume. But I am somewhat confounded. The housing market clearly has volatility, but it isn't of the minute to minute variety. It could be argued that that matters. I think it probably does matter. People try to "hang on" to houses long after they would have dumped equivalent amounts of stock. One can certainly infer from the GT that that would be good thing.
Alternatively, one could say that the high Tobin tax for real estate transactions (they're not specifically Tobin taxes, but any transaction fee will do, right?) does not decrease volatility. My answer is: I don't know. What does trouble me however is this. Consider two markets, I and II. Market I has TWO transactions, at prices A and B:
I. A, B
Market II has TWENTY Transactions, starting at A and ending *at the same price* B:
II. A xxxxxxxxxxxxxxxxxx B (x=many small incremental transactions that end at B).
Now, assuming the Tobin tax reduces the *number* of transactions, it is possible we would classify universe I as *more volatile* because we get the *same movement* over TWO transactions instead of twenty. But it might be the case that the financial disruptions of market universe I is more stable (institutionally speaking) because, for example, transaction costs limit transactions to twice a month, whereas the same price movement over twenty transactions in the same period. It would matter whether we consider volatility an "over time" problem or an "over # of transactions" problem. In the real world, for example, when things are slowed down, there is an opportunity for institutions to react by covering margins, getting extra resources, and so on. When they have to make decisions in an hour, things can get very bad very quickly.
In any case it occurs to me that an operant definition of price volatility might be difficult to arrive at, and that until one has done that, one would be hard pressed to say whether a Tobin tax was good or bad. Because definitionally the issue is trying to reduce the "panic element" of trading through some simple quantitative technique. But that goal might be elusive, or, as you ahve argued the cure would not work.
I find that hard to believe, however. When real estate markets crash over months and years whole bailout apparatuses are organized for the banks that hold the mortgages and this must be a qualitatively different kind of crisis than a stock market crash that forces everyone to try to cover margins in days or hours. There would have to be some qualitative differences.
That said, one could say that the size of a Tobin tax that would "work" to make financial markets look more like real estate markets would be impossible to implement, and that tiny Tobin taxes exacerbate rather than eliminate volatility. Don't know.
-- Gregory P. Nowell Associate Professor Department of Political Science, Milne 100 State University of New York 135 Western Ave. Albany, New York 12222
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