Too Little, Too Late?

The European Central Bank finally announced today a 1.1 trillion euro program of quantitative easing (buying private bonds in addition to government bonds). It may not be enough, and the ECB won’t be getting much additional (fiscal) help from European governments.

Though ECB president Mario Draghi famously promised two years ago that the body he leads would do “whatever it takes” to save the euro, the consensus seems to be that today’s announcement comes too late to prevent a prolonged period of trouble for Europeans. Even this larger-than-expected round of QE will be hard-pressed to stave off the clear and present deflationary danger that necessitated it.

Of course, though the new monetary measures may fall short of alleviating that danger, European governments aren’t likely to budge from their hard line against fiscal intervention. Angela Merkel recently came out in favor of economic distres…er, pressure. And today Draghi himself said, “It would be a big mistake if countries were to consider that the presence of this program might be an incentive to fiscal expansion.” That’s despite historically low borrowing costs and high unemployment in large swathes of Europe.

We Americans should be careful about throwing stones, though. In a similar position for the last few years, we’ve also been relying on unorthodox monetary policy instead of fiscal stimulus. And as far as I know, the Europeans don’t even have the benefit of regular bridge collapses to point them toward a potential use of stimulus funds.

The two big problems with using QE instead of fiscal measures to revive consumption/inflation at the “zero lower bound” are that 1) it’s inefficient, and 2) it tends to exacerbate inequality.

They’re related problems. Since QE usually involves a central bank pumping money into the economy by buying private bonds from large corporations, the immediate beneficiaries are the wealthy (as this famous-but-not-terribly-nuanced video demonstrates). Hence its inefficiency; the wealthy are much less likely to spend additional income than the poor. It should already be clear now why it promotes inequality, unless you’re still practicing voodoo after all these years.

But for now quantitative easing is Draghi’s only viable option in Europe. The reason liberal economists like Paul Krugman support QE, despite its flaws, is that it’s probably better than nothing. Let’s hope so, for the Continent’s sake.

Oh, and speaking of Professor Krugman, here’s Draghi’s blunt reasoning for warning against fiscal measures: they “would undermine confidence.” Expecting a Confidence Fairy blog post in 3…2…1…

Wait…Our Prosperity?!?!

Yesterday, I clicked hopefully on a link reading “Obama and Cameron: Prosperity Is Key To Defeating Terrorism.” President Barack Obama and UK Prime Minister David Cameron had penned a coöp-ed in the Times (UK). The piece is headlined “We won’t let the voice of freedom be muzzled,” which is an interesting choice from a president often accused of cracking down on press freedoms and a prime minister who is currently calling for an end to privacy on the internet. But more interesting to me was the subtitle:

“Safeguarding our way of life depends on economic strength and standing up to terrorism and international aggression.”

Though the second half is standard-issue meaningless tough talk, that “economic strength” set my heart aflutter. Had these two powerful world leaders finally concluded that Islamic terrorism’s primary cause was neither violence inherent to Islam nor barbarism native to Middle Easterners but the region’s explosive mixture of poverty, hopelessness, and youth unemployment? Would we be cutting spending on our mind-bogglingly massive defense budget and battling future terrorism by reinvesting it in a global pro-education, anti-poverty fund?

No, of course not. Here’s what they actually wrote: “We reaffirm our belief that our ability to defend our freedoms is rooted in our economic strength.”

In other words, we need to focus on making sure our own wealthy nations stay wealthy so we can keep pouring money into whack-a-mole military solutions.


A Tale of Two .01 Percents

The past year, everyone has been talking about the rise of inequality in the world, and in the United States, over the past few decades. In 2015, the richest .01 percent of Americans own over 11 percent of the country’s wealth.

But another .01 percent has been in the news today, although I haven’t seen the number put in such terms, as guns (~33,000) are likely to have recently surpassed automobiles (~32,000) in number of Americans killed per year. 33,000 is, of course, slightly more than .01 percent of 320,000,000, the population of the United States.

It’s obviously not a coincidence of any statistical significance, but it’s still interesting to note that America is either violent enough or unequal enough (or both) that the same number of people are shot to death yearly as own more than a tenth of the country’s wealth.