Obama leads with inspiring state of union speech;European central bank embraces QE

The President of the United States delivered an excellent inspiring progressive speech on the road forward. He proposed a number of progressive policy reforms aimed at diminishing inequality by modestly increasing capital gains taxation rates from 23 to 28 % restoring the rate they were at during the Reagan era and reinvesting the revenues into better child care, free tuition for two years of community college and other benefits aimed at the hard pressed American middle class. The Republican majority in the House and Senate may well seek to frustrate the achievement of these reforms but there is a chance that some of them will be partly enacted because of their widespread popularity and because some Republicans looking forward to the next election will be pragmatic enough to support these popular measures. The speech was optimistic about future prosperity, turning the corner on the recession and expanding the horizon of reform. It undoubtedly stirred the hearts of liberal supporters of the Democratic party as well as speaking directly to the populist resentment of glaring ineqality that has been laid bare in the aftermath of the recession. According to a report published by Oxfam prior to the Davos meetings the top 1% of wealth holders own 54 % of wealth as compared to the 46 % owned by the bottom 99 %. The wealth of the richest 80 people in the world doubled between 2009 and 2014 while the wealth of the bottom half fell.In 2010 388 billionaires equalled the wealth of the bottom half now it is just 80 billionaires.

On the European front there are some very positive developments. The head of the European central bank has announced a substantial programme of quantitative easing which over the period March to September 2016 will involve the monthly purchase of 60 billion euros worth of assets including national government bonds, European debt instruments and other assets. Overall the program is expected to total over a trillion euros. Given the size of the Eurozone with a GDP of 12.75 trillion , a debt to GDP ratio of 91 %, an outstanding debt of 11.6 trillion , M1 equal to 5.8 trillion and M2 equal to 9.6 trillion the program is substantial and should help keeep interest rates low and stimulate the economy particularly if it is accompanied by fiscal stimulus.One of the potential weaknesses of the program is the fact that except for 20 % of the purchases which will flow to mutualized European debt instruments national governments and their central banks will be responsible for all purchases and any defaults that might occur so mutual burden sharing will be limited.In addition Greece will not be eligible to have some of its debt included until June because of the on going conditions of its loans from the IMF and EU. This may well be a condition for renegotiation if the as expected Syriza wins the election there. Nevertheless the ECB initiative is an important step forward in the right direction. In Greece with the election only days away Syriza continues to hold a narrow lead in the polls and looks poised to win a plurality of the seats in the Parliament but fall short of a majority. So these will be very interesting days ahead in Europe.


About haroldchorneyeconomist

I am Professor of political economy at Concordia university in Montréal, Québec, Canada. I received my B.A.Hons (econ.&poli sci) from the University of Manitoba. I also completed my M.A. degree in economics there. Went on to spend two years at the London School of Economics as a Ph.D. student in economics and then completed my Ph.D. in political economy at the University of Toronto. Was named a John W.Dafoe fellow, a CMHC fellow and a Canada Council fellow. I also was named a Woodrow Wilson fellow in 1968 after completing my first class honours undergraduate degree. Worked as an economist in the area of education, labour economics and as the senior economist with the Manitoba Housing and Renewal Corporation for the Government of Manitoba from 1972 to 1978. I also have worked as an economic consultant for MDT socio-economic consultants and have been consulted on urban planning, health policy, linguistic duality and public sector finance questions by the governments of Manitoba, Saskatchewan,the cities of Regina and Saskatoon, Ontario and the Federal government of Canada. I have also been consulted by senior leaders of the British Labour party, MPs from the Progressive Conservative party, the Liberal party and the New Democrats on economic policy questions. Members of the Government of France under the Presidency of Francois Mitterand discussed my work on public sector deficits. I have also run for elected office at the municipal level. I first began to write about quantitative easing as a useful policy option during the early 1980s.
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