The value of that speculative froth in the financial markets

We all recall that demand for a Financial Transactions Tax. Too much is spent in the speculative end of the financial markets, doing nothing but bet on prices, and that activity should all be directed to something productive. So, tax the markets so much that the speculation disappears:

The low-cost airline easyJet has revealed a 70% slide in profits because of soaring fuel costs and later bookings as a result of the conflict in Iran, only weeks after it agreed to a £5.7bn takeover.

The carrier reported a pre-tax profit of £85m between April and June compared with £286m during the same period a year earlier, as its fuel costs increased by £105m after the outbreak of hostilities in the Middle East in late February sent energy prices rocketing.

As we’ve pointed out before one part of that speculative froth is the futures markets. Which allow airlines, if they should so wish, to lock in prices of jet fuel to match the prices at which they sell tickets for future flights - and thus when they’ll use the fuel. Easyjet did, in the end, too little of this. This is one - it would be excessive to say only, but is one - of the reasons the company is now to be sold. They did not hedge their exposure in those lovely speculative futures markets, thus shifting the risk to the speculators.

It should be obvious that shifting risk to those who wish to pay with it - speculators - rather than leaving it with operating companies is an advance in society. For those who don’t grasp that as yet it is.

At least a part of the Easyjet story is an insufficiency of speculation in the financial markets. And why would we want a tax which made this more so for more people?

Tim Worstall