Tobin tax disturbs the purchasing power parity condition!

British prime minister Gordon Brown is proposing to put such a notorious economic policy into practice. This economic policy is "Tobin tax" which is levied on trade of currency across borders. This aim is to avoid an excess flow of international financial transactions which have caused the current financial crisis. He seems to be highly sceptical about liberal international system as he suspects the liberalised system has a high risk to encourage a bubble burst of financial market. However, Tobin tax also involves the high risk of disturbing the purchasing power parity (PPP) condition.

British Conservative party knows the monetary policy is effective and claims a more proactive and responsible central bank!

Tory's manifest about the central bank's policy reform is good and wise. The central bank should hold more power over financial market and become more proactive toward the economic situation!

Majority of economists Labour party tend to underestimate the power of monetary policy. The labour party has allowed Bank of England, the British central bank, to be independent from the political body since 1997 in order to imitate the style of European Central Bank. This means that Bank of England puts its own policies into practice regardless of the fiscal policy operated by the government. The advantage of this reform in 1997 is that the central bank can be pragmatic to operate their monetary policy. This implies that the policy is no longer disturbed by the idealistic policies claimed by the political party which always proposes the non-pragmatic policy only attracts mass. However, the disadvantage of the reform in 1997 is that the monetary policy operated by a central bank is dis-harmonised with the fiscal policy operated by a government. Labourite monetary policy is just extremely irresponsible, and causes the dis-harmony between fiscal and monetary policy units!

The failure of British Labour party is that this party has underestimated the significance of monetary policy and the responsibility of Bank of England for the financial market situation. The current financial crises are caused by the lack of responsibility of the central bank. Labour only considers the financial market stability is dependent on the fiscal policy (tax and national debt). Labour has rarely focused on the microeconomic level of financial market. The fiscal policy can control the volume of activities in the macroeconomic level. But, the important role of financial market is to analyse how the cash flows and to lead the flow of cash does not cause the trigger of financial crises. The monetary policy in the labour regime has not been able to restrict the monetary transaction taken place by Private financial institutes whose business performances are quite questionable and unstable.

The labour only considers to restrict the unstable monetary transaction by imposing extra regulations and taxes, but this causes the restriction of our glorious free market system! The financial market is already the most regulated market in all over the world. The reason why the financial market can cause such crises currently going in the world is that it is more likely to be expanded much faster than other sorts of markets. Furthermore, the financial market is quite flexible to manipulate the tax and regulation system so that a new tax and a new regulation are less effective on the financial market and discard the equity and the individual liberty in the market system.

The best way to avoid the bad cash flows without discarding equity and the individual liberty is to allow the central bank to hold the power to decide which financial institutes and private companies are eligible to lend money. The currently going financial crises are based on the failure to invest the money to the stable and responsible institutes. Bank of England does not have a greater power to decide to invest to the institutes.

Labour, the British totalitarian party, only tries to use the big government policy to censor the financial activities and even nationalise private sectors! This allows Labour to make Britain as a totalitarian nation!

In contrast, Tory (British Conservative party), the classical liberalist party, claims the best way is to avoid imposing the excess censorship in the economic activities in order to defend equity and the individual liberty. If Bank of England is enabled to act independently and hold much stronger power, it will be able to stabilise British macroeconomic circumstances without imposing the excess censorship and the nationalisation. It is important to remember that Federal Reserve Bank, the US central bank, is in fact a private financial institute (not officially a public sector). As Federal Reserve Bank act in a role of private business, it concerns about the risk and return of investment to the market. Tory wants Bank of England to act almost like Federal Reserve Bank. Although Bank of England will not be privatised, it should act very cautiously as much as private banks do. Bank of England has invested any British financial institutions without considering risk and return from the investment too loosely. Bank of England might have thought that investing and stimulating the economic activity of any sectors encourages the British economic growth, which fulfils the national interest. Nonetheless, Bank of England ought to remember the proverb "Be cruel to be kind". Bank of England should learn from the private banks which are quite selective to invest to the others. Banks' priority is to make a sufficient amount of profit from the investment and avoid the risk of investment as much as possible. Bank of England has been too ignorant about this philosophy of investment as it has been a public sector since the after the WW2. The central bank should not be the socialist bank, it should also have a strong capitalist mind!

All in all, Tory knows that monetary policy has much higher responsiveness to the macroeconomic situation than Labour. Indeed this is a damn good move that Tory offers a more sovereign power to the monetary policy unit. It shall enable the macroeconomic climate to be more stabilised without a totalitarian government's censorship, unlike the labourite fiscal policy.

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Tragedy of global economy, this is not the problem of market economy (capitalism)!

The fundamental cause of ongoing global financial crisis is not because of the nature of market (capitalism); this was induced by the fact that many countries actually abandoned the basic principle of market mechanism!

The US treasury decided to purchase the bad debts incurred by troublesome assets which will be unsaleable in 10 years time. It has been increasing tax on innocent citizens and spoiling those who are mostly responsible for the cause of financial crisis. The UK and other European countries excessively rely on nationalising institutions under fear of bankruptcy, which is the same mistake Japan did in 1990s.

Allowing troublesome financial institutes exist is rather dangerous than bankruptcy. The bankruptcy rehabilitation policy would not enable the financial market to be recapitalised and just perpetuate the economic down turn in the long run. Also, rise in income tax burden for this project disturbs equity of individuals. The reduction of income by further tax increase has a larger effect than the fiscal stimulus for purchasing these assets.

Against Commom Monetary Union

The Euro (€), the currency used in the European Monetary Union (EMU), has been harshly criticised by means of unstability in controlling the business cycle. It is technically impossible to stabilise the business cycle without establishing a common federal government handling the common fiscal policy among nations using the common monetary policy.

I am not particularly member of British Conservative party but tend to have a lot of mimilar points of view. I am the person who tends to be popular among individuals from either British Conservatives or British Communists, which are the only parties strongly contradicting European Union and its common currency. The idea of adopting common currency without under a strong common federal governments's controlship is disguisting as bad as sleeping with a ugly and stupid lady. The idea of this kinda common currency is an awkward polyandry!! Now, I would rather prefer going together with one nice wife Sterling (£) if I were a British, Yen (\) as I am Japanese, etc. These currency £ and \ are mature enough to be a proper partner, and I like occasionary going to date with different ladies, which means other currencies, in a temporary time period, which implies I go travelling and have business with other countries. However, € is a totally bitich! Neither appropriate to be a wife, nor even to be a mistress!!


Speaking of a system of the European Central Bank (ECB) at Frankfurt, it takes an enormous time to change the interest rate and the money supply because it needs votes from all representives from each EMU member countries. All European regions have a different business cycle so that it would be better to settle their own central bank to be flexible with controlling their own independent interest rate and money supply. However, the interest rate the ECB decides is a compromise between all EMU regions! Therefore, altough some regiouns may have required the lower rate to stimulate their economic activity and other regions may have required the higher rate to calm down the inflation. In fact, Irish economy is still suffering from the excess economic burst and struggling with the huge price inflation whilst France and Germany are irritated with stagnated economic sitimulus.

Only the way, these EMU economic regions have been able to rationally control their business cycle is the national debt. However, incurring national debt has been restricted since the Maastricht Treaty required all European nations, including non-EMU ones such as Britain and Sweden, not to make their budget deficit level exceeding 3% of their GDP level. The Maastricht Treat thus disables to stimulate economic activity during the recession period. This is because the ECB and the European Central Government at Brussel is afraid of bearing some countries become selfish to incur an excess amount of national debt. The selfish act of some nations will cause the difficulties to control the price inflation of € and the exchange rate of € with other currencies. An excess incurrence of debt requires either to transfer the tax revenue from other countries' budget to these deficit countries or to act the Seigniorage-effect, which implies the action to induce a high price inflation to reduce the value to national debt. Nevertheless, it has been argued that the ECB is rather selfish because the ECB retards the economic growth in some nations by following their own ideology. The ironice facts are that neither the ECB nor Brussel has a strong enforcement to transfer the tax revenue to deficit countries and the Seigniorage-effect is notoriously risky enought to disturb all EU regions' economy.


If they want to keep the EMU and aspire to create the Euroland which is something like the United States of America (USA), the EU must have a strong dictatorial federal authority. This federal authority can be formed by a strong leadership which is enought to overwhelm all regions of the EU to corporate together and admit a supranational authority to lead all European nations which still strongly tend to stick to their own identity and sovereinity. The reason why the USA is relatively stable to control over its business cycle is an existence of the federal government which is able to distribute the central tax to the different economic situations, and all states share the common identity as a part of USA civilisation. Nonetheless, European nations are too stubborn to abandon their proud and independent identity so that the European-constitution, which has beem regarded as the first step to form the European federation, was rejected. In order to stabilise the current EU economic situation, it inevitably requires to expect an incredibly strong dictator who may overwhelm and enforce all European nations and citizens to admit their supranational authority to share the same indentity such as Naporeon Bonaparte tried to do.


Furthermore, this idealistic common monetary union tends to contradicts the proactivism in fiscal policy and Adam Smith's absolute advantage theory in trade. Many people tend to misunderstand that the moneralist point of view is merely a right-wing ideology. Nonetheless, the EU is more likely to be a social democratic club. Therefore, EU nations prefer high government expenditure in public expenditure but abondan the fiscal political responsibility. All in all, the EU should be called the left-wing monetarist! The EU officals seem to believe that as all European nations naturally become corporated, not by any enforcement, the business cycle will be eventually stabilised without the strong dictatorial federal government. From Keynesian point of view, this is highly odious monetarist ideology which totally neglects the risk of assymetric shock in business cycles. Furthermore, from Benthamite (Utilitarian/Libertarian) point of view, the EU's leftwing monetarist ideology invades the individual liberty for both people and states! Individuals living among European regions should have kept their own currency in order to determine their preference of money supply.


It has been highly emphasised that the fiscal policy is highly more valuable than the monetary policy to control the business cycle. The control of the business cycle is necesarry to secure the economic and social stability in a region. Keynesian economists claim that the monetaly policy at the recession time period hardly works due to the pessimism of people's expectation for the future investment, and then tax cut and/or operating public projects is more likely to stimulate economic activity. In return to incurring national debt instead of cutting tax and spending for public projects, it is supposed to raise tax burden to redeem the national dept. Whilst Neoclassical theorists and Monetarists contradict this Keynesian proactive fiscal policy with the theory Recardian-equivalence. Recardian equivalence mentions that people may expect to save their income to prepare for paying the expected future tax rise even though it is in the recession time period. However, it has been argued that Recardian equivalence ignores the fact there may be many individuals cannnot even afford to save their income, and if it were possible to induce a higher price inflation in any way possible individuals able to afford saving would spend more. The common monetary policy and the Maastricht Treaty disrupt the rational proactive fiscal policy following the Keynesian principle, and seem to blindly believe the monetarist and Ricardian principles. I would like to say that the EU must realistically focus on the catastrophy occuring in Ireland!

On the other hand, the EU believe the specialisation of industries among European nations create the strong economic growth enought to defeat the US economy. I have been laughing about such idealistic leftwing cruds saying such a thing! The USA has a federal government wich can distribute their tax and government expenditure across all over the states. Therefore, it has enabled to specialise industiries among states and tackle with the assymetiric shock among each business cycle. For example, Detroid can be specialied for making cars whilst California can be specialised making rice. The USA can tackle with an occational rice famine in California with tranfering the tax from Detroid, if the demand for its car industry is high enough, to eliminate the budget deficit in California. The pro-EMU European economists tend to regard it does not matter whether the security against the assymetic shock is assured or not!

On top of this aspect, the over-specialisation of industries is based on the theory of "relative-advantage" in trade. For example, suppose that Germany can produce 10 cars and 10 potatos whereas Rumania can produce 3 cars and 4 potatos in their production possibility frontier (PPF). The relative advantage theory recommends Germany should be specialised with its car industry whereas Rumania should be specialised with potato farm. However, this may cause Rumania to lack enough food to feed its own people because of the very high inflation which disables Rumanians to affor their own potato. The relative advantage theory totally ignores the capacity of land, capital, and knowledge level. The theory of absolute advantage in trade, mentioned by Adam Smith, claims that, in this example case, Germany can only export both products to Rumania because Germany is capable to produce the excess amount of these goods. On the other hand, it is never prodictable that Germany can keep producing the excess amount of cars. Japan may defeat Germany by competition in car industry, and this event may reduce the total revenue of German car industry. Therefore, all economic regions need its own both monetary and fiscal policy or a strong supranational federal government to insure for any sort of sudden change in the market.

Economic Political Spectrum Part 4: Spectrum by nations