Asked why his signature on US currency differed from the usual way he had been signing his name, Secretary of the Treasury Timothy Geithner explained that it had to be legible.
Geithner’s Currency Signature
With most people assuming that President Obama’s Chief of Staff, Jacob Lew, will replace Geithner, concern has developed over Lew’s signature (below).
Reading about Geithner and Lew, I started thinking about Alexander Hamilton. Much worse than the fiscal cliff and the debt ceiling debate, the huge Revolutionary War debt was Treasury Secretary Alexander Hamilton’s top priority. To guarantee that the US could borrow money at reasonable rates, he knew he had to fund its current obligations. And yet, in 1790, with receipts of only $1.6 million, the US owed $74 million. So Hamilton said, let’s use the money we have now to pay what we owe to Europeans. Then, to fund the domestic part of the debt, we can give people new bonds that mature decades from now.
However, if the new domestic bonds returned 4% annually, he had to be sure the US paid the interest that was due. Hamilton worried Congress could battle interminably, refuse to pay interest, and destroy our public credit. As he expressed it, “Had a single session of Congress passed…without some adequate provision for the debt the most injurious consequences were to have been expected.”
Economic growth and deft political negotiation solved Hamilton’s problem. In 1790, the debt to receipts ratio was 46 to 1. By 1794, it was 15 to 1. Robust economic growth and skilled political negotation would help us now, too.
Sources and resources: I got big smiles from The Washington Postarticle on Jacob Lew’s signature and enjoyed marketplace.org’sinterview with Secretary Geithner about his handwriting. If you are curious about all other Treasury Secretary signatures, you can look here. But for an excellent book on the origins of the US economy and the source of my Hamilton quotes and details, I recommend, The Founders and Finance by Harvard professor Thomas K. McCraw.
Our story starts during the 1970s when you could fly from New York to Washington, D.C. on the Eastern shuttle. Eastern left hourly (!) and guaranteed a seat to everyone who showed up for the flight. Imagine, coffee cup in hand, business people rushing to the gate at the last minute knowing they would be in Washington D.C. soon. A full plane meant that Eastern had to use its back-up, even for just one seat.
The Eastern shuttle couldn’t exist after airline deregulation in 1978. Not only had the government given Eastern a monopoly but also it ensured its profits by coordinating fare hikes and cost increases. Labor was well-paid, passengers were coddled, and interstate routes were mandated by the federal government. Frequently almost empty, the direct nonstop flight between Peoria, Illinois and LaGuardia in NYC was ideal for me to visit my husband’s family. The downside? Passengers paid a lot more and land, labor and capital were inefficiently used.
Fast forward to 2012.
Moving along the Northeast Corridor between NY and Washington, D.C., travelers look for value and speed. Before 2001, Delta and US Air were favored. Afterwards though, with minimal security delays, Amtrak’s trains became preferable. As one person said, “It’s easier. I don’t have to take my shoes off…” and travel time equalizes between the train and the plane after airport security, wait times and delays. Finally, we shouldn’t forget the bargain buses with fares ranging from $1 to $40 a ticket that are making the market even more interesting.
So yes, Amtrak is a formidable competitor in the Northeast Corridor. However, even with a $1.3 billion subsidy from government, Amtrak loses money. With the airlines and bus companies privately owned, should Amtrak get this boost from government? As an Economist blogger suggests, shouldn’t we be debating “the right balance of public- and private-sector involvement in these sorts of enterprises?”
Thanks to the NY Times for many of my facts in its article on the competition among planes, trains and buses.For anyone who want to engage in a funding Amtrak debate, this lengthy Freakonomicspost is ideal for facts and ideas. And additional facts about Amtrak are here.
On Friday, we might have a funding gap. With no up-to-date appropriations, agencies providing nonessential services from the federal government will have to stop. But what is “nonessential?”
A recent congressional research paper says we can look back to 1995 for an answer. In the health category, the National Institutes of Health did not accept new patients for clinical research. Many application reviews, ranging from firearm requests to passports and visas were postponed. National parks and monuments were closed. Federal contractors might be unpaid.
On the other hand, national security, benefits that are not annually funded, emergency medical care, disaster response, border protection…you see the basic idea…these continue.
Finally, who is explicitly “excepted?” The list includes the President and members of Congress.
And, we are prepared. Each year, federal agencies are asked to submit shutdown plans.
The Economic Lesson
The spending, taxing, and borrowing overseen by the President and the Congress is called fiscal policy.
While a funding gap might be the immediate fiscal controversy, within weeks, the Congress will also have to raise the debt ceiling.