Introduction

Taxing the flow of foreign capital into U.S. asset markets can greatly empower workers and consumer households globally. It can do this by correcting a global imbalance in savings that handicaps aggregate demand and is created by growing class inequalities abroad, which are then displaced into the United States. This tax is done best through an International Customs Union of at least a few willing states (U.S., U.K., Canada, Australia etc) to maintain current accounts surpluses within a narrow band. It can also be done less well with a U.S.-only Market Access Charge (MAC) passed by Congress, and least effectively but still meaningfully well through unilateral U.S. presidential action (Fed/OCC regulations, CFIUS-style review, tighter Treasury International Capital reporting). These tools are narrow applications of a broader tax concept, the financial transaction tax (FTT), once advocated by John Maynard Keynes, James Tobin, and left-Keynesians. 

Such taxes have occupied a marginal role in democratic socialist policy circles compared to wealth and income taxes. Outside of organizations embedded in the alter-globalization movement such as ATTAC or Bernie Sanders' Inclusive Prosperity Act bills (2015, 2017 and 2019), financial transaction taxes are not discussed much on the left. Understanding their benefits means integrating forty years of trade theory, capital flows, national accounting, and exchange-rate dynamics—a daunting synthesis. That's what I intend to do here. In this blog post, I explain what the savings imbalance is, as diagnosed by its most lucid contemporary analysts (Matthew Klein and Michael Pettis), how FTTs correct it, and then I position the tax within the broader democratic socialist toolkit. Klein and Pettis wrote a good book, but ultimately their solution is insufficient. Capital controls are necessary but will have to be paired with other policies (high wage floors, progressive income and wealth taxes, worker codetermination, public investment) to avoid an investment collapse or wage-price spiral and permanently shift the balance of class power.

First, A Better Version of Imperialism

One way to develop an intuition about the contemporary global imbalance is to return to classic models of imperialism. The most accessible, 'folk' version of imperialism, as I call it, imagines the elites of a powerful state in the center of the global economy like the United States or the British Empire greedily taking a raw resource in some poor, colonized periphery that is in high demand. That resource might be slaves, gold, rubber, arable land, or petroleum. In Trump's words, we should "take the oil" from Venezuela. This version, with its emphasis on taking or seizing some valuable input in the production process, might apply somewhat in the context of the early modern past or some raw commodity-producing countries today. But classic Marxists and liberal economists writing on imperialism in the early 20th century—Rosa Luxemburg, J. A. Hobson, Vladimir Lenin, up to Michał Kalecki and John Maynard Keynes—were concerned with a slightly different problem: capitalist elites engage in imperialist expansion not to take things from the periphery as much as off-load things to it. In particular, they are trying to offload their excess financial savings and produced goods.

The reason is that under capitalism, firms in a domestic economy compete against one another for market share to survive and accumulate profits for their owners. As a firm, one way to compete is to reduce your production costs to the lowest possible level. To reduce fixed costs, you might scale production upwards to spread the fixed costs over the greatest possible units of output. Meanwhile, the largest variable cost is often human labor. To reduce variable labor costs, you might automate production to replace workers with less expensive machines, or engage in overt labor suppression like slavery, debt peonage or union-busting. You may even favor some level of unemployment and precarity in your potential workforce (a 'reserve army of labor') so you can replace workers easily and prevent them from leveraging outside options to bargain for higher wages. If all firms do this, it puts downward pressure on wages. If they all scale production, it leads to a latent oversupply of goods (a 'general glut') that cannot find a market. 

Now as an individual firm owner, you also want consumers with income so you can sell the most of your products or services. The problem is, consumers are also workers. In the capitalist economy, consuming households are overwhelmingly composed of wage-workers or family members dependent on their relatives' wage labor. They can only consume what they accumulate in income (they could go into debt and borrow, but only if lenders trust them to repay, and this only extends aggregate demand so far). Now if only your firm engages in wage suppression, but the rest of the firms in the economy pay their workers generously, this is not a problem, because you can sell to the other worker-consumers who have income. But if every firm engages in wage-repression, then total, aggregate wage-income falls, so aggregate demand falls, total sales fall, production capacity is underutilized, and ultimately total profits fall. Worker households under-consume relative to what they could consume if they were paid better. Michał Kalecki called this a "paradox of costs", a wage-based analogue of Keynes' paradox of thrift (itself an example of the prisoner's dilemma model in game theory).  

In addition, income in the capitalist economy is greatly concentrated among a few rich people, successful firms, and their banks. These actors could mobilize their savings to invest in further productive capacity, but the profitability of that is constrained by what the market can take. If your factory can only reach 70% capacity anyway, why burn money on another factory? Of course, if all firms coordinate to raise wages and invest in new capacity simultaneously, aggregate wage income would rise, aggregate demand would rise, and productive capacity utilization would also rise. But this is exactly the coordination problem that markets can't overcome, according to underconsumptionists. Furthermore, raising wages above the labor market rate is already a strictly dominated strategy in the Nash equilibrium, as outlined above; regardless of what your competitors do, it's always better for your firm to suppress wages. The reasoning is symmetric for all your competitors. The government can try to step in and solve this dilemma for the capitalists, by attempting to sustain full employment that tightens the labor market and puts upward pressure on wages, but Kalecki (1943) argues that capitalists often resist full-employment policy because it reduces the control they have on workers. 

What does this model have to do with imperialism? According to J.A. Hobson's account (later taken up and modified by Lenin), the captive markets of colonies become the release valve for the chronic surplus of output and savings that domestic wage-suppressed consumption can't absorb. Rich savers look abroad for opportunities for profitable sales, investment, and speculation. Here are some examples: for years, the bus companies in Hong Kong had to import their vehicles from a British company called Leyland. India used to have an advanced textile sector, but the British flooded the market with their cheaper textiles so that by 1834, William Bentick, the Governor General of India, would remark that "The bones of the cotton weavers are bleaching the plains of India" (Marx cites this line in Capital Volume 1). Gunboats forced open closed national markets in Japan and China. In the American Thirteen Colonies, British mercantilists prevented colonists from creating tariff walls that could shield their own industrialization from competing British imports. Elsewhere British, German, French, and Dutch savings flowed abroad through the rapid financing of railroads, ports, roads, or new plantations (in Malaysia, South Africa, Argentina, India, Brazil, Egypt, Levant, etc). 

Violent conquest then followed to protect the interests of European investors and merchants against threats. In Hobson's words, the wealthy “place larger and larger portions of their economic resources outside the area of their present political domain, and then stimulate a policy of political expansion so as to take in the new areas." Hobson's culprit, in other words, for imperial expansion is the "large surplus savings in the hands of a plutocracy" who accumulate "an excess of consuming power which they cannot use." This "surplus capital which cannot find sound investments within the country" is generated by the inequality of investable income. This is actually good news. It means that taxing the rich, or at least expanding aggregate demand of the domestic market, can help absorb the glut and undermine the impulse to search abroad. As Hobson wrote in 1902, "The home markets are capable of indefinite expansion" if "the income, or power to demand commodities, is properly distributed" among the domestic populace. "There is no necessity to open up new foreign markets" as long as "whatever is produced in England can be consumed in England."

Understanding the Current Savings Imbalance

Matthew Klein and Michael Pettis are American macroeconomic analysts who wrote a book Trade Wars Are Class Wars (Yale University Press, 2020) that enriches and updates this story for the 21st century. It's based on the insight that a savings glut driven by extreme income inequality need not just be a story confined to old-school imperialism. Savings do not only accumulate in the Global North and destabilize the Global South; they can also flow between wealthy countries. In the 1920s for example, the United States became the exporter of capital, which flowed into war-torn Germany and restructured reparations payments under the Dawes Plan. This stabilized the German currency and ended hyper-inflation (when this capital inflow dried up during the Great Depression, Germany defaulted on its debt in 1931, paving the way for an even deeper economic crisis and Nazi takeover).  More recently, the United States has become the global sink of foreign capital flows, which they argue has destabilized it and by implication, the rest of the world. 

These global capital flows come from three main sources. The first and biggest source is large, export-oriented economies such as Germany, Taiwan, Japan, and particularly China. Their growth models suppress wage growth and run unnecessarily weak welfare regimes, which shifts income to high-saving entities, such as firms, rich households and regional governments, at the expense of workers. This high inequality registers as a glut of savings among firms and states with limited capacity to spend compared to households. Among household consumers and workers, it shows up as lower consumption and lower real wage growth. 

For China, this surplus was not an accident but the intentional result of industrial policy: state-directed investment, regional competition, phased import substitution. From the 1980s to 2012, real household income in China did grow (7% average a year), but growth in productivity was even higher. China's government diverted the difference into its high-performing firms and state institutions. This happened through a few mechanisms, one being a negative real interest rate, which essentially taxed net-savers (households) and subsidized borrowers (businesses and the government). Undervaluing the currency worked similarly. For a poor China at the time of Mao's death, this massive centralized investment process was a growth engine; China posted the highest investment share of GDP in the world and grew rapidly. In a single generation, a billion people left rural poverty. It was exactly what a development theorist like Alexander Gershenkron prescribed for poor, investment-starved countries. But eventually, China reached the point where inadequate demand from wage-suppressed households was dragging growth. In March 2007, premier of the State Council Wen Jiabao gave a speech recognizing this and promised a rebalance. It didn't happen, in part because China's regional elites were loathe to reform. 

In Germany, a different process unfolded after the fall of the Berlin Wall, in which the initial extension of the welfare regime to East Germany, done in part to reduce East-to-West migration, was undermined by a Southwestern elite based in Frankfurt, Stuttgart, and Munich. This elite and their parties demanded welfare cuts because they did not want to subsidize east Germans. Schröder and the Social Democrats obliged, and their so-called 'Hartz reforms' in the early 2000s reduced union coverage from 80% to 45%, repressed real wages, and boosted profits. The threat of relocation to post-Soviet Czechia, Poland, etc also kept wages low.  Where China compensated for weak wages with massive public investment in infrastructure, Germany's investment share of GDP collapsed; business investment contracted after the tech bubble burst in 2000. Public infrastructure spending collapsed due to reunification debt and later the 2009 debt brake. 

Also unlike China, Germany's position in the eurozone meant it could not use currency manipulation or negative real interest rates. So it adjusted through fiscal austerity. Aggregate demand collapsed; construction activity fell by 23% between 2000 and 2006. Public investment in Germany has been negative on a net basis (after depreciation) since 1988. Household consumption fell. But profits soared: "By 2007, the capital share [of net value added by nonfinancial businesses] had increased to 36 percent [up from 25 percent in the mid 1990s]...About two-thirds of the total increase in Germany's national income between 2000 and 2007 came from the rapid growth of capital income, rather than from rising employee compensation." By 2014, the top 10% of German households took an even greater share of the income distribution than they did during the 1871–1913 industrialization period. 

Despite their different routes, the common thread is that both Germany and China accumulated a large savings glut that wage-suppressed consumer demand could not absorb. Similar stories could be told for Japan, Taiwan, and South Korea.  Because savings had nowhere to go domestically, they flowed abroad. In the Eurozone, German banks would lend to Spanish, Greek, and Irish borrowers, inflating housing bubbles and inflaming sovereign debt crises. But the greatest absorber of foreign capital is and remains the United States, especially its bonds. The U.S. is attractive to foreign investors because American assets are the safest, deepest, most traded, and most liquid in the world. This is thanks in part to the dominance of the U.S. dollar, the open capital account, and large domestic capital market. The U.S. stock market also generates the highest yields in the world, in part because American elites have restructured firms for shareholder primacy and built huge barriers around these income streams. Britain, Canada, and Australia play a smaller, but similar role as a sink for the global savings glut. Moreover for exporters, buying U.S. assets (especially its bonds) helps maintain their currency pegs and accumulate reserves. By the 2000s, the largest foreign buyers of U.S. Treasuries were central banks of export-surplus countries.  

Two Alternative Channels

Before moving to the effects of this distortion, it's worth considering two other major sources of capital inflows. The first are the oil-exporting Gulf monarchies (Saudi Arabia, Kuwait, Qatar, UAE) along with Norway. In the 1970s, the oil exporters were swimming in dollars (petroleum was and is still priced in dollars) and could not absorb the surplus domestically. They deposited their windfall in US bonds and other dollar-denominated assets. Much of this happened in European locales such as the City of London (so-called 'Eurodollars'), which then showed up in a successive lending-debt crises in Latin America. 

This petrodollar system that cycled oil revenue into U.S. treasury bonds is largely extinct today (although Norway remains a significant purchaser of American bonds, at least up to September 2026). Current oil exporter investment in the U.S. is nowadays mediated by sovereign wealth funds, and is more diversified into real estate, direct investment, and private equity than treasury bonds. Gulf monarchies have also tried to plow their excess capital into domestic mega-projects like Neom. And, unlike China or Germany, which create surpluses as structural features of their growth models, global oil prices fluctuate with great volatility, making petrodollar inflows episodic. It's perhaps for these reasons that the oil exporters are de-emphasized in Klein and Pettis' account. However they remain a significant pocket of global wealth that is diverted, one way or another, into the United States.

The third source of capital inflows are tax havens. The use of offshore tax havens has grown dramatically since the 1970s as capital became more mobile and financialized. Capitalists lobbied to dismantle restrictions in the U.S. tax code (one important section, subpart F of the Internal Revenue Code, was mostly neutralized in 1996), and drove a race to the bottom among the tax haven jurisdictions. The volume of profit shifting here is staggering. "About 40 percent of all profits earned by multinational corporations outside their home markets are shifted from high-tax jurisdictions, such as China, France, Germany, Japan, and the United States, into low-tax jurisdictions, such as the Cayman Islands, Ireland, and Singapore." Among U.S. corporations, more than $300 billion annually are booked in tax havens like Ireland or the Caribbean. More recent analysis of administrative data on high-earners in Norway and Sweden shows that even in Scandinavia with its class-egalitarian reputation, ultra-rich individuals use personal holding companies (often opened from tax havens like Luxembourg) to significantly shift income around progressive taxes.

The reason this matters for inflows is that strangely, much of this profit and income-shifting is ultimately repatriated, routed around the high taxes but then put back into safe, American investments. Apple Inc for example uses an Irish tax haven, and its 2017 annual report admits that "most of its financial assets are 'held by foreign subsidiaries' yet invested in dollar-denominated holdings.'" Same for Microsoft. This flow shows up in Treasury data as "foreign" purchases of U.S. assets but is actually just American corporate wealth pretending to be foreign. Shifting profits offshore to avoid taxes only to buy U.S. assets again means that profits which would have been skimmed off as public tax revenue are now booked as bonds, stocks, and real estate. Similarly with rich people's income. This is a form of class redistribution upward to the rich and to corporations, which, as noted, are entities with limited potential to raise aggregate demand compared to households and national governments investing in public goods.

The Distortionary Effects

Whether it's exporters suppressing wages (China, Germany), or corporations shifting profits (tax havens), or petro-states spending resource rents (Gulf, Norway), Klein and Pettis argue there's a common thread. All three sources channel capital into the United States. In response, US households, businesses, and the government have to adjust. This is at core the forcing of a national accounting identity; a current account deficit must be financed by a capital account surplus. Foreign capital inflows and trade deficits are two sides of the same accounting coin, and the balance of payments must sum to zero.

So how do we adjust? Capital inflows suppress U.S. interest rates which raises public debt and debt-financed private consumption. It also inflates the value of the U.S. dollar and asset prices (especially housing). If not otherwise absorbed, it leads to unemployment and under-capacity. Klein and Pettis' narrative thus reverses a common causal story of mainstream economists, who say that excess U.S. government spending causes budget deficits which causes a current account deficit. Instead, Pettis and Klein argue that foreigners inject capital into the US, enabling public borrowing and consumption. A trade deficit results.

You can trace each of these damaging effects in turn. For example, a strong dollar as well as a strong British pound, is good for American-British tourists spending abroad, and it's great for the City of London, Wall Street, 401k pensioners, and other capital owners, who also benefit from near-endless global demand for U.S. securities. But a strong currency undermines American-British workers, farmers, and businesses in export-oriented sectors, such as the industrial heartland of the Big Three auto companies. The auto companies themselves are global multinational corporations that can compensate partially by shifting production offshore to remain competitive, but their workers aren't going to move to Mexico with them.

With cheap money available, American households and businesses also borrow more and spend more than they earn. This is our exorbitant privilege which allows the U.S. government to accumulate debt (now $40 trillion) at low interest rates, reduce the price volatility of its foreign trade, and spend beyond its fiscal capacity at a scale unparalleled in the history of the world. For example, the U.S. financed three wars in Iraq, Afghanistan, and now Iran while also cutting taxes on the rich and middle class in 2001, 2003, 2010, 2012, 2018, 2025.

But cheap debt comes at the cost of destroying productive capacity that could otherwise earn, rather than debt-finance its consumption. In housing, the lower interest rate environment also enabled irresponsible lending. It primed demand for junk, mortgage-backed securities and inflated asset bubbles by making mortgages cheaper. Of course, their argument shouldn't be overstated here; foreign capital inflows in the United States were not a decisive factor in the 2007-2010 sub-prime mortgage boom that triggered the Global Recession. A whole host of American factors (Glass-Steagall and Gramm-Leach-Bliley deregulation, rating agency fraud, predatory lending, etc) deserve more blame. But, it's reasonable to say that foreign capital inflows created a more permissive interest rate environment and inflamed the magnitude and contagion risks of the bubble.

Capital Mobility as a Constraint on Domestic Policy

Though often called an 'exorbitant privilege,' this arrangement functions more as an exorbitant burden for workers. It prevents the United States from solving its own inequality problem through domestic policy. Pettis and Klein argue that the U.S. is not flooded with capital inflows because it needs investment; American companies sit on vast hoards of cash and refuse to invest in more production, even despite near-zero interest rates. Rather, capital floods into the U.S. because the rest of the world has nowhere else to put excess savings; this is an inevitable byproduct of wage suppression and inequality elsewhere. This situation puts constraints on standard adjustment mechanisms. In traditional trade theory, investor-driven capital flows chase the best returns but are eventually choked off by a stronger dollar, which progressively reduces how much foreign investors can buy in the United States with their own currencies. The exchange rate does most of the adjustment work. But Klein and Pettis argue much of the actual capital flowing into the U.S. is driven by different motives entirely. Foreign central banks accumulate dollar reserves as a safety hedge against crisis, while foreign governments deliberately suppress their own currencies to protect an export-led growth model. That kind of demand is much less sensitive to price.  

Standard fiscal and tax levers also don't work well. If the U.S. government attempted to pass laws to raise wages or redistribute income from the rich while global capital channels remain open, capital would simply flee elsewhere, seeking cheaper labor and higher returns. Higher domestic wages would erode into higher imports and capital outflows; so workers wouldn't gain more purchasing power. Companies would shift production to lower-wage and lower-tax jurisdictions, and U.S. unemployment would rise. Unlike a closed capital account like China's, where raising wages and strengthening unions could durably improve the position of workers, the U.S. cannot insulate itself from global wage competition as long as capital can move. The global savings glut pits capital mobility against all workers, but especially Americans.

How to Fix It: Impeding Capital Movement

To overcome this trap, the Klein-Pettis analysis militates for a coordinated global rebalancing of the current accounts: either a customs union constraining current accounts reminiscent of Keynes' moribund Bancor proposal, or (less ideally) unilateral capital controls that prevent excess savings from fleeing foreign countries and entering the United States. This would force surplus countries to redistribute internally, and it would enable deficit countries to raise wages against the threat of a capital strike. Without such coordination, the structural position of the United States as the world's absorber of excess savings means that American workers are trapped in a zero-sum competition with wage-suppressed workers of surplus countries—a competition they cannot win alone.

The United States can try to impede capital unilaterally: a 2019 bill by Tammy Baldwin (D-WI) and Josh Hawley (R-MO) proposes charging foreigners a 'market access charge'  for buying U.S. assets. Admittedly, it has an odd cross-ideological coalition; its MAGA Republican supporters frame it as a national defense against foreign predation. But its mechanics are consistent with the Balance of Payment correction needed. Its tax on capital transactions would make it more expensive for foreigners to buy dollar-denominated assets and raise an estimated $100-460 billion annually. If the charge is high enough, demand for U.S. assets would fall, deflating the U.S. stock, bond, and real estate market as well as the dollar (relative to the yuan, the euro, and so on). These are the costs, but they are mostly borne by the rich and the U.S. treasury, which could no longer borrow as cheaply. A weaker dollar would mechanically make U.S. goods more competitive abroad and foreign (Chinese, German) goods more expensive. Higher interest rates would force class distributive choices on taxes given the high cost of servicing bonds. And most significantly, it would close a release valve for foreign excess savings, which could no longer reach the U.S. asset market as easily.

In foreign countries, the new domestic savings glut created by this charge could, left unmanaged, be painful. It could register as unsold inventory, idle factories, and rising unemployment in their export sectors. However it would also intensify class conflict and force foreign governments to adjust by boosting domestic demand to absorb what used to be exported. Raising the wage share of GDP (through stronger labor bargaining rights, better safety nets, higher minimum wages, higher dividends from state-owned firms paid to households) is one option to adjust, because workers (unlike wealthy savers) spend most of what they earn. Klein and Pettis specifically recommend this for China: reinvest in pensions and wages at the expense of business and state investment. This is basic Keynesianism: shifting income toward people who consume most of it raises aggregate demand. It's also a good tax-raising strategy because stimulating aggregate demand creates fiscal multipliers.

A more ideal solution is a customs union to coordinate current account policy among major economies together. This is Pettis' preferred solution: member states would agree to keep current accounts within a narrow band. This band would allow normal cyclical variations. Members would coordinate barriers against non-members, either in the form of tariffs or taxes on capital flows, that prevent the policy-driven imbalances of nonmembers from being externalized into the customs union. This would improve on unilateral U.S. taxes because it's more durable than a single MAC charge; it would be less likely to trigger retaliatory capital or bond market measures, and it would spread adjustment costs and political ownership of the policy across multiple governments. It would have better coverage; if only the U.S. restricts capital inflows to Wall Street, the world's excess savings won't necessarily flow toward domestic consumption in China or Germany. They might simply flow to the next most attractive destination: growing off-shore markets in London, Toronto, or Sydney, whose countries play a similar (but smaller) absorbing role. A customs union, made up of willing, capital-importer states with substantial market power would solve that. 

Unilateral Presidential Actions

Creating an international customs union or passing a foreign transaction tax in the United States would require a generational push globally or an act of Congress to be politically and legally durable. However, the U.S. executive does have some unilateral tools available for capital-inflow deterrents. These would be minor drags and not substantially rebalance the global economy, but are worth pursuing as a statement of intent. I consider three.

The first tool would direct U.S. bank regulators (the Federal Reserve and Office of the Comptroller of the Currency) to set higher rules for how much of a "safety cushion" in reserves that banks are required to hold against different kinds of liabilities. This is part of the same family of rules that came out of the post-2008 Basel international banking accords. It's already legal for regulators to treat funding sources differently: foreign-sourced deposits and borrowings can require higher capital charges than domestic ones, without any new statute. Similarly, the Fed runs a facility where foreign central banks can park dollars overnight in exchange for Treasury securities (the "repo facility"). Making the terms less attractive (lower interest paid, smaller limits) makes it less convenient for foreign central banks to stockpile dollars there. At the margin, this only nudges the cost of parking money in the U.S. banking system and doesn't touch foreign central banks or sovereign wealth funds when they buy Treasuries directly through primary dealers. It also doesn't affect foreign pension funds when they buy U.S. equities. But it's useful as a statement of intent.

Second, the president could interpret more broadly 'national security' in its CFIUS (Committee on Foreign Investment in the United States) interagency body, led by Treasury. CFIUS can block foreign investments in U.S. companies or divest completed acquisitions if they pose a national-security risk; they do this with Chinese firms trying to buy semiconductor technology or national shipping port operators. The President can block a transaction on the recommendation of the committee. No new law is needed to use it more aggressively within its current legal scope. Flagging more categories of foreign investment adds friction, delays, and uncertainty to foreign money trying to enter U.S. markets. It's a weaker tool with significant exposure to court veto if stretched too creatively, and will not block passive portfolio investment (like foreign pension fund buying shares of Apple on the open market) or a foreign central bank buying Treasury bonds, which drive the bulk of the imbalance in Klein and Pettis' account. But it's another signaling tool.

Third, is Treasury International Capital (TIC) reporting. The Treasury Department already requires stock brokers, banks, and large investors to regularly report their holdings of foreign securities and foreigners' holdings of U.S. securities. This is how the US government tracks who owns what across borders. It's a statistical reporting requirement, not meant to be a market-altering regulation. But it can deter capital-inflows if Treasury requires more granular, more frequent, or more burdensome reporting. For instance, Treasury could demand beneficial-ownership detail on foreign purchases above a threshold, or require pre-registration before certain large transactions. This doesn't cost the foreign buyer money directly, but it adds compliance costs, processing delays, and discomfort for investors (especially state actors) who prefer to move money quietly. The expected impact here is, again, small. It can easily be evaded, and large foreign holders of U.S. assets such as central banks, sovereign wealth funds, and big institutional investors employ compliance departments for exactly this kind of paperwork. But it serves as an irritant, increasing the transparency of foreign capital flows and generating more exposure to the problem. 

 
Capital Constraints in the Toolkit

Let's review how these capital deterrants like the customs union can empower workers. Abroad, constraining capital means that trade exporters like Germany and China are forced to deal with their surplus internally; it cannot be externalized. The Keynesian hope is that it does this by raising aggregate demand, household consumption, and imports, which all absorb investment. As Pettis and Klein say about China, "that means radically altering the distribution of wealth and income so that Chinese households can afford what they produce. What was taken from China's workers and retirees must be restored." They advocate hukou reform, higher dividends from state-owned enterprises, and easier unionization in China. Germany would also need to raise its wage share of GDP, cut taxes on workers, and boost pensions. This directly increases purchasing power for workers and eats into the surplus capital. The customs union would thus prevent capital flight from high-tax, high-wage countries, force wealthy Germans and Chinese to invest domestically at lower returns, enable higher taxation of wealth (as it can no longer shift abroad), and increase bargaining power of workers relative to capital owners.  Within the United States, a parallel process can ensue; a weaker dollar strengthens exports, capital becomes less mobile and can be taxed, and raising aggregate demand can stimulate earned (not debt-financed) consumption.

However, this is only one way a capital-exporting country could respond to the constraints of a customs union that just says "keep your current account in a narrow band" but remains agnostic how adjustment happens. The current account identity is equal to National Savings (S) minus National Investment (I). A surplus country has S > I domestically and exports the difference. But what if Germany balanced its current account without raising wages at all? If elites do not allow higher wages, eventually adjustment would occur through contracting aggregate output itself, since a collapsing economy mechanically shrinks S and I together and drags the current account down. Without coordinated expansionary policies elsewhere, capital controls risk forcing adjustment through deflation, as nearly happened in the Eurozone periphery after 2010. In Greece, Spain, and Portugal, governments lacked the means to stimulate demand. Total public and private spending contracted, GDP collapsed, unemployment rose to 25%+, and imports also shrank as fewer people could afford them. The current account "improved" on paper, but through recession, not through export growth or productivity gains. This deflationary concern is flanked by an inflationary one. What if the customs union succeeds in forcing a higher wage-share of GDP in China, but Chinese companies in non-tradable services (such as healthcare, education, eldercare) respond to rising wages by raising prices, triggering a wage-price inflation spiral? 

Keynes partly anticipated this at Bretton Woods. He foresaw that without a specific mechanism, the burden of balance-of-payments adjustment would fall disproportionately on deficit countries through contraction because surplus countries have no comparable pressure to expand. His Bancor plan tried to fix this with specific penalties on surplus countries: interest charges or forcing currency revaluation on countries running large, persistent surpluses. Similarly, a customs union of the 21st century could not remain agnostic about the direction of adjustment. It would have to combine penalties on surplus countries with a set of supports to override entrenched elite resistance on the direction of adjustment: 1) mandatory wage floors or union coordination across member countries; 2) public investment in productive capacity (to prevent investment collapse) and public services (to prevent wage-price spirals in non-tradeables); 3) wealth taxes and progressive taxation to fund that public investment.

Finally, there's taxing capital transactions domestically. A naïve reading of Klein-Pettis would conclude that the United States has become the victim of foreign predation. But the core claim is just that inequality generates savings in excess of what domestic consumption can absorb, and that those savings then require someone to take them on loan. Foreign capital inflows are just one version of that, but there's a domestic analogue with identical logic that Klein-Pettis ignore—concentrated U.S. wealth generates a savings pool that needs an outlet, and federal deficits (plus household debt) absorb it. Contrary to popular belief, most U.S. debt is held domestically: about 76% of the $40 trillion in national debt is owned by American institutions, government entities, and individual citizens. So the same deleterious effects (debt-financed spending, asset bubbles) take root outside of the balance of payments context. Close the external channel entirely and you'd still have a domestic savings glut, funded by debt, and still rooted in suppressed wages.

There is thus a strong, pro-worker case for a generalized financial transaction tax (FTT) within the United States. Equity ownership is heavily concentrated at the top, a transaction tax falls disproportionately on wealthy holders, and low-frequency investors (including most 401k holders) would pay very little since the tax is per-transaction and quite low (0.5 percent of stock trades, 0.005 percent for derivatives transactions in the Sanders proposal). Revenue estimates for the Sanders proposal would nevertheless raise $2.4 trillion over a decade. That revenue could help fund public investment programs needed to prime aggregate demand and further decommodify healthcare, childcare, eldercare, and housing. Doing that alone can empower workers. When your health insurance doesn't depend on your job, your leverage over your boss grows. 

However an FTT is also poorly targeted at wage suppression. It taxes stock turnover and hits hardest on high-frequency trading activity. But the financial practices most to blame for the falling labor share aren't high-turnover algorithmic trading. If your dad got fired from his job at the factory because of some financier, it was probably not because of day trading but some other financial mechanism: leveraged buyouts, debt-financed buybacks, dividend recapitalization, private equity. If a PE firm buys a company once, loads it with debt, cuts headcount, and sells in five years, it pays FTT only twice. Moreover, the FTT design can be a problem; Sweden imposed an FTT in 1984 and then saw a large share of Swedish equity trading and bond trading migrate to London. Revenue disappointed initial hopes, and it was repealed in 1991. The contrast is UK's stamp duty—it's roughly 0.5% on share transfers, has raised billions annually for decades, and works because it's tied to legal registration of ownership. You cannot get valid title to a British company share without paying it. This suggests that if an FTT is to function as a capital control, it must be embedded in settlement and ownership infrastructure, rather than applied as a freestanding tax.

For these reasons, durably shifting the balance of class power in the economy will require far more than the Klein-Pettis proposal on capital controls. Capital controls alone cannot rebalance power. A U.S. executive should also be trying to open corporate executive boards to worker codetermination (Elizabeth Warren's Accountable Capitalism Act) and repeal SEC's 1982 safe harbor rule, which has allowed stock buybacks at the tune of $1.5 trillion per year. That rule can be repealed through SEC rule-making; no statute passed by Congress would be required. PE firms could also be held jointly liable for portfolio company debts (Warren and Baldwin's Stop Wall Street Looting Act), which could destroy their power. Capital gains could be taxed at the same rate as wage labor income (while raising far more revenue than FTTs) and PRO Act-style reforms could pave the way to sectoral bargaining. This last one is the most direct route for increasing the wage share: simply make it easier for workers to organize.

An FTT designed like the UK stamp duty is thus just one tool among many in the democratic socialist toolkit to move us closer to a society where private banking, speculation, and credit is not just marginal to a productive, efficient economy, but is unnecessary.