“High-frequency trading,” as practiced at Goldman Sachs, where you use super-fast computers to get a jump on deals, has come in for a lot of criticism lately reaching all the way up to Paul Krugman. I think these critiques are a bit off base. For one thing, no edge that Goldman has acquired based on using fast computers is going to stay in place for very long. For another thing, the “victims” here are just going to be other Wall Street types. Normal people have no business making investment decisions that depend on to-the-minute timing.
I think Krugman gets to the real crux of the matter when he just shifts to broader issues:
What should be done? Last week the House passed a bill setting rules for pay packages at a wide range of financial institutions. That would be a step in the right direction. But it really should be accompanied by much broader regulation of financial practices — and, I would argue, by higher tax rates on supersized incomes.
I have been honestly astounded by the extent to which there hasn’t been more discussion on this point. There’s no good reason that an income of $250,000 should be taxed at the same rate as an income of $2.5 million or $25 million or $250 million. And taxing super-rich people and using the money to build schools and hospitals and transportation infrastructure is, if slightly crude, a more workable method of trying to align the interests of the hyper-wealthy with those of the rest of us than is having various economists debate exactly which money-making activities out there are really socially valuable.
I’ve tried to emphasize the fact that to finance a really expansive welfare state you need a broader tax base than just “the top one percent.” But that’s no reason that the top 0.1 percent and 0.01 percent and 0.001 percent shouldn’t pay their share. There’s only so much money that can be raised from what is, at the end of the day, a very small number of people. But we should still be raising it!