Development economist Professor Erwin Bulte thinks a Robin Hood tax on speculative capital can be a means of raising cash to combat poverty or climate change, and it could also curb the herd behaviour of traders.
Erwin Bulte, a development economist at Wageningen University, finds it a sympathetic idea, not just because it provides resources for combating poverty or climate change or for nature conservation and agricultural research but also because it could discourage speculation. 'The big problems are caused by the herd mentality of traders and the resulting self-fulfilling prophecies. If capital sources suspect others are about to withdraw their cash - in other words demand loan repayments and not make any more loans - that can give rise to the fear that the other party will no longer be able to repay the current loans. If enough people think like that and everyone therefore tries to withdraw their money at the same time, you end up with precisely the phenomenon everyone was afraid of: a country that can no longer meet its commitments. The resulting panic not only damages financial trade but also has real costs for the real economy - remember the Asian crisis in the 1990s. It would be great if we could prevent this by discouraging high-frequency trading in speculative capital.' Bulte says the tax should not be so high that it discourages foreign investments, for example. Also, Bulte warns: 'people have been talking about this for a long time and there are powerful interests opposed to its introduction.'