So what's your idea on how to address this structural problem?
First of all I am not an economist or a financial expert, just a layman trying to grapple with a serious difficulty. Obviously, this is not an easy problem to address because if it was easy to correct, then it would not have become a serious problem and could have been dealt with long ago. Thirty years ago, it probably wasn't, or at least not nearly as serious as it is now. The question is how do we encourage investment into job producing activities, and not just jobs in the financial sector. How do we begin to shift investment from some sort of financial business to businesses that provide products and services that ordinary people use and create jobs in America in manufacturing and services?
What could you do? Here are a few possibilities, although there must be others. 1. Levy a tax on financial services to discourage more investment into that area? 2. Lessen the tax on manufacturing and non-financial service businesses? 3. President and civic leaders could encourage investors to invest in areas that create more jobs in America? 4. Reduce workers benefits and relax environmental regulations in the manufacturing sector in order to make these types of businesses more profitable, and thereby encourage investment into this area? 5. Build tariff walls to protect and encourage domestic manufacturing? 6. Put an end to the off-shore tax loophole?
Of these, 3 is a nice idea but unlikely to produce much result, 4 would raise such resistance that there is little likelihood that it could be successfully implemented, 5 would probably be impossible under the current international trade system. I am all for 6 but it wont necessarily create any jobs in the US.
That leaves us with 1 and 2. Unfortunately neither would probably be very successful alone. So, my suggestion would be a combination of the two. All financial services would be assessed a 0.1 of 1% (one tenth of one percent) tax on all financial transactions. The tax to be paid by the recipient of the money. In the case of international transference of money, the tax would be paid in the US by either the US payer - in case of transferring money abroad - or by the US recipient of the funds in case they were arriving here from elsewhere. The money collected from this tax on financial transactions would be put aside in a separate fund, somewhat like Social Security or the Highway Fund, which would then be used to assist new firms in the manufacturing and non-financial services sector by reducing the taxes and obligations of the new firms enough to make investment in them become competitive with investment in financial services.
Potential problems:
1. I have no idea what international agreements might get in the way of such a scheme.
2. Financial services businesses would scream bloody murder. But if you want money, you have to go to the places where the money is, and right now that's often financial services. These businesses are rather powerful though, and they will resist. I would point out that the tax is not very large, less than what banks often charge their clients for financial transactions.
3. Flight of capital would be encouraged. Maybe? On the other hand you might not be in such a hurry to take your investment money out of the country if you had to pay a tax when you did, and even worse, you had to pay a tax when you brought it back. You might be encouraged to invest domestically, if you have new opportunities available in the US that due their reduced tax burden offer returns competitive with investment opportunities abroad.
4. It might not be so easy to separate financial services from other business activities. I think, however, that one could certainly try, and the task is not entirely impossible.
I'm sure such a scheme could be much better fine tuned by economists and financial experts. And, I am certain that many additional criticisms could also be raised.
I do think that we have a very serious structural problem in the Western economies. I also believe that the politicians are reluctant to face it, and therefore, they often content themselves with non-solutions such as raising the taxes on the rich, which does little to create jobs but might make poor people feel better, or cutting taxes to encourage investment, which does little to strengthen the economy through job creation, if the current imbalance between investment in financial services and manufacturing and other services is not somehow simultaneously alleviated. We need to find a way to get our politicians to start addressing this structural problem in the Western economy.