Here’s a letter to the Wall Street Journal:
Ralph Nader’s call for an additional tax on gains earned through “financial speculation” swirls with comical irrelevancies (So what that this tax is supported by the group “National Nurses United”?) and failures to deal with fundamental objections to such a tax (“Time for a Tax on Speculation,” Nov. 2).
The principal objection to the tax that Mr. Nader and the nurses demand is not that it will harm small investors. Rather, the chief objection is that, by preventing asset prices from reflecting as fully and as quickly as possible the collective judgment of investors, this tax will ensure that inefficient uses of capital persist longer than otherwise. Asset prices will take longer to reveal unwise business decisions – as well as, by the way, take longer to reveal unwise government policies. Capital owners and policymakers, therefore, will be less disciplined. Over time, living standards will be lower for everyone.
This argument against the tax does not rest upon any presumed ‘perfection’ of capital markets or flawless rationality of investors. Instead, it rests upon the modest proposition that the more prices are distorted by taxes the less reliably, in general, they serve as trustworthy signals of underlying market realities.
Sincerely,
Donald J. Boudreaux
