There are those who believe markets are kept liquid by speculators. I have deferred to them, with doubts, but the quantification of liquidity proved indeterminate. I have always believed we should tax short term capital gains at the full rate, but long term gains not at all, precisely to discourage excessive speculation. The Tobin tax goes further, perhaps too far. Bob Haugen has shown volatility coincident with crises. Some say that decimalisation has produced volatility, that we would be better if we only had one, not two, decimal points. Mundell argued it was currency volatility which caused the recent crises, but because he believes in a single global currency. Efficient markets do not believe speculators know anything, but that they accelerate price discovery, the same way turbulent flow accelerates chemical mixing. Lastly, we have to realise that the greatest cause of volatility is the institutional investors, pensions and universities, who are the same ones complaining the most about shorttermism. They have people who sit around full time managing money who feel they are not doing their job if they do not take advantage of every little change, precisely because they manage such large amounts that the little differences are substantial. These are the people who parcel out their money to hedge funds in hopes of greater returns. Seed venture capital for startups vanished precisely because these large funds believed the small ventures too troublesome to manage, and preferred the larger economies of short term gains.
- = - Vasos Panagiotopoulos, Columbia'81+, Reagan, Mozart, Pindus, BioStrategist