TODAY IN HISTORY
January 27, 1927 - February 5, 2021
Today is Thursday, Feb. 25, the 56th day of 2021.
Today’s highlight in history
On Feb. 25, 1986, President Ferdinand Marcos fled the Philippines after 20 years of rule in the wake of a tainted election; Corazon Aquino assumed the presidency.
On this date
In 1793, President George Washington held the first Cabinet meeting on record at his Mount Vernon home; attending were Secretary of State Thomas Jefferson, Treasury Secretary Alexander Hamilton, Secretary of War Henry Knox and Attorney General Edmund Randolph.
In 1901, U.S. Steel Corp. was incorporated by J.P. Morgan.
In 1913, the 16th Amendment to the U.S. Constitution, giving Congress the power to levy and collect income taxes, was declared in effect by Secretary of State Philander Chase Knox.
In 1919, Oregon became the first state to tax gasoline, at 1 cent per gallon.
In 1950, “Your Show of Shows,” starring Sid Caesar, Imogene Coca, Carl Reiner and Howard
Morris, debuted on NBC.
In 1964, Muhammad Ali (then known as Cassius Clay) became world heavyweight boxing champion as he defeated Sonny Liston in Miami Beach.
In 1983, playwright Tennessee Williams was found dead in his New York hotel suite; he was 71.
In 1991, during the Persian Gulf War, 28 Americans were killed when an Iraqi Scud missile hit a U.S. barracks in Dhahran, Saudi Arabia.
In 1994, American-born Jewish settler Baruch Goldstein opened fire with an automatic rifle inside the Tomb of the Patriarchs in the West Bank, killing 29 Muslims before he was beaten to death by worshipers.
Ten years ago: The Obama White House broke decades of tradition, naming Jeremy Bernard the first man to ever serve as social secretary in the female-dominated East Wing.
Today’s birthdays
Actor Ann McCrea is 90. Actor Tom Courtenay is 84. Journalist Bob Schieffer is 84. Actor Diane Baker is 83. Actor Karen Grassle is 79. Former talk show host Sally Jessy Raphael is 79. Former pro wrestler Ric Flair is 72. Comedian Carrot Top is 56. Model Veronica Webb is 56. Actor Tea Leoni is
55. Actor Sean Astin is 50. Singer Julio Iglesias Jr. is 48. Comedian Chelsea Handler is
46. Actor Rashida Jones is 45. Actor Jameela Jamil is 35.
SAN DIEGO — Mimi passed away in her home at the age of 94 from kidney cancer. Born to George and Mildred Thompson, she was raised in National City, a Sweetwater High alum, class of ’45. Mimi married her high school sweetheart Joseph Ramos Jr., and had two children; Mitchell and Lori. With a knack for golf as a member of the San Diego Country Club on Tuesdays, ladies’ day, Mimi achieved what most golfers only dream of, she sank a hole-in-one. She was a stay-at-home Mom until her children were grown. She then enjoyed being a receptionist at Cory’s of Beverly Hills and later at Neiman Marcus Salon receiving the moniker “Mimi Marcus”. Her love for dancing began during
WWII at the local USO and, much later, she loved swing dancing to the Big Bands on Saturday nights in Mission Valley. Mimi was always the life of the party and was loved by all for her wit and kind heart. Survived by her daughter Lori, she has left a space too big to fill.
President Joe Biden’s top legislative priority goes by two names: “COVID relief ” and “stimulus.” The two terms help reporters and politicians avoid repetition, but they also point to the two main purposes the bill is supposed to serve.
It would, among other things, send $1,400 checks to most households. That can be defended as relief: It helps people who have been harmed by the economic fallout of the pandemic. It can also be defended as a stimulus: Recipients will spend some of the money, and their purchases will boost the economy.
Critics of the bill as a form of stimulus mostly say it would be too stimulative. The economy, they say, won’t need federal help as more and more of us get vaccinated, and a big stimulus bill will leave the nation with too much debt and too much inflation.
I don’t share the worry about inflation. Market indicators of expected inflation, adjusted for some measurement issues, currently suggest that it is going to run well below the Federal Reserve’s 2 percent target during the next five years.
My concern about spending federal money for the purpose of stimulus is different: I think it’s unlikely to have much stimulative effect. It will increase the federal debt without leaving the economy appreciably bigger than it would have been without the bill.
The case for fiscal stimulus relies heavily on models suggesting that when an economy is operating below its potential, government spending can close the gap. The models also suggest that too much spending can cause the economy to “overheat.”
Much of the debate has concerned how far we are from reaching the economy’s full potential, and which of these results is therefore more likely. But the models don’t take adequate account of how fiscal and monetary policy interact.
Consider one scenario: Congress, moved by Biden’s warning that previous stimulus measures have been too small, expands the bill from its current $1.9 trillion to $3 trillion and passes it. Expected annual inflation jumps, for the first time in decades, above 3 percent.
The cries that the Fed must act to stop overheating get louder. The Fed, which wanted inflation to rise but not this rapidly, responds by raising interest rates faster than it would have done without the huge stimulus bill and the spike in inflation expectations. Those expectations then drop back down.
In that case, the Fed would have undone at least a significant fraction of the stimulative effect of the bill. It would have counteracted the stimulus not out of a deliberate aim to subvert it, but out of a desire to keep inflation under control. If it overreacted, the Fed could more than completely counteract the stimulative effect of the bill: It could throw the economy into a recession it would not otherwise have entered.
Or consider another scenario: Congress passes a large stimulus bill, but expected inflation doesn’t rise much, because markets assume that the Fed would act to keep it in check. Household and business decisions about consumption and investment reflect the expectation that the economy isn’t going to get much hotter. Total spending levels don’t rise much, that is, in response to the bill.
In this case, too, the stimulative effect would be weak. The composition of the economy might be significantly affected: By spending money on certain
Will a federal stimulus package actually stimulate the economy?
things, Congress can direct resources toward some sectors of the economy and away from others. If Congress decided to spend all the money in North Dakota, the state would have a boom at the expense of other places. Federal debt projections would look more ominous. But the economy wouldn’t have expanded much overall.
Several conclusions follow from these thought experiments.
First, any stimulative effect of increased federal spending depends on how the central bank reacts to changing economic conditions and how businesses and households expect it to react.
Second, because of this, fiscal stimulus will have a smaller positive effect — possibly one quite a bit smaller, and possibly even a negative one.
Third, increased expectations for inflation and for total levels of spending in the economy would expand the economy even if accomplished through means other than a stimulus bill.
Taken together, these points don’t obliterate the case for the legislation before Congress. Spending money to speed the pace of vaccination will likely help the economy, just not via the route of putting dollars in people’s pockets.
But if fiscal stimulus leads to a significant degree of monetary offset, it shrinks the case for that legislation — and suggests that the legislation itself should shrink, too.