The main objection to a Tobin tax, however, is that it will not work. Taxes that do not work are worse than a waste of time. They have a cost, if only by diverting the energies of public servants into impracticable byways and clever bankers into tax avoidance schemes, with no compensating benefit in financial stability. The tax will not work because it is impossible to administer. Traders in, say, London could evade it by booking the transaction in other financial centres that are not covered by the tax. To be effective, the tax would have to be implemented globally.
That is unlikely but not impossible. Perhaps the catastrophic experience of the credit crisis might create agreement among governments. Perhaps all the main financial centres would sign up to the tax. But that still leaves the offshore financial centres. It is difficult to see what possible incentive they would have to implement a tax when it would plainly be in their financial interest to attract business from international banks.
Bad taxes can have far-reaching consequences. One of the reasons that London is so prominent a financial centre dates back to US regulations adopted in the 1960s that limited the amount of interest that banks could pay on deposits. US banks moved to London to get round them, and the huge eurobond market developed as a result.