Which side will President Obama back in Toronto G-20 tax fight? 

You don’t have to walk around downtown Toronto, Canada for very long to pick up on the weird vibe that this week’s G-20 meeting has brought to town. Along the streets close to where the summit will take place, all you can see are long fences, motorcycle outriders, cops huddling together and caravans of black police mini-vans with tinted windows. If you look closely, on the rooftops of some buildings around the summit site, you can make out what look to be black-clad security officers.

If the heavy security presence disappeared, these streets would be almost totally empty, except for the occasional FedEx truck rushing to make a delivery. A few blocks from the summit location, things look more normal, but this only helps make the deserted streets close to the summit area more eerie.

Having done their best to take care of security outside the G-20 summit, the Canadian hosts are also busy building fences of a different kind inside the summit.  Canada is in a war of words with France, the UK and Germany, who will attend the summit and who want Canada to back their proposed tax on risky financial transactions.

Despite Canadian opposition to the idea, the Europeans plan to push the G-20 countries in Toronto to get behind this new tax. This fight is a replay in some ways of an earlier Canadian-European scrape over whether talk of a global bank tax should be on the G-20 agenda.

“Aha,” you’re thinking, “of course those tax-loving Europeans want President Obama, and the other G-20 leaders, to support yet another tax.” But before you condemn it, hear the idea out.

The common predicament facing the G-20 countries meeting in Toronto is that the global economy has not created many jobs in 2010. What is needed at the moment is a package of measures that can help create new jobs to replace those lost in the Great Recession.

That’s where a tax on risky transactions comes in. If such a tax could steer investors towards physical production of consumer goods (which mean more factory orders, more output and thus more jobs), and away from the kind of unproductive “financial engineering” that landed us in the current slump (and does not create many jobs, except for Powerpoint jockeys working at hedge funds), it would act as an economic shot in the arm for the G-20 countries.

A tax on risky transactions would help discourage activities of dubious economic value. For example, we don't need banks and other financial institutions turning out even more toxic financial assets, which would only create the need for additional taxpayer-funded bailouts down the line. Nor do we necessarily want banks heavily involved in facilitating unproductive bets on currency trading. We need them to focus on financing productive investments, like factories, infrastructure, etc.

"We are in an emergency. Great interests are in danger of being overwhelmed; we need some plank, something to lay hold on, to buoy us up and keep our heads above water, until more effectual and permanent provision for our safety can be made.” The great American statesman Daniel Webster spoke these words in 1834, during a time when the US faced very difficult economic circumstances.

If a tax on risky, unproductive financial transactions is one of those policy measures that will help the G-20 economies keep their heads above water long enough that we can all make it to shore, and escape the storm created by the Great Recession, let's grab on and start swimming to safety. 

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Neil Hrab

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