The musings of a Philadelphia Physician who has served the community for six decades

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New Revenue Sources for Health Savings (and Retirement) Accounts
New topic 2016-06-23 22:23:35 description

Introduction: Surviving Health Costs to Retire: Health (and Retirement) Savings Accounts
New topic 2016-03-08 22:42:53 description

...Ratification, Bill of Rights and Other Amendments
The 1787 Constitution lacked a Bill of Rights. Few except Madison himself were opposed to adding one, but many other delegates would have failed election without promising it. Negotiations at the Convention had proved so excitingly innovative that time ran out before the Convention had to adjourn with only a promise of a Bill of Rights, first thing. Almost immediately, political America was thrown into a year of state ratification conventions. Massachusetts initiated the concept of ratifying the Constitution, attached with eight or nine amendment proposals for the Bill of Rights. When the First Congress finally convened, it faced almost two hundred proposed amendments, and Madison made sure he was chairman of a committee to deal with them. Practically alone he pared them down to a succinct twelve which survived as the first order of business of the new Congress. Almost unnoticed, he made a deal with Oliver Ellsworth the leader of the Senate, to pass the Bill of Rights in exchange for passing the Senate's Judiciary Act in the House of Representatives. Out of this combined beginning, the power and scope of the Judiciary Branch was born. But while that is a subject for later chapters, Madison never achieved a more skillful moment in his political life, than this pivotal one.

Right Angle Club: 2016
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Medicare Caused Long Retirements, Which Now Compete for the Same Funds

It is time to return to insurance design, concentrating on re-fitting the design to emerging realities. An important consideration is whether the system may have grown so complex it would require lifetime health insurance processes to have a major administrative corporation take them over. Two ways to do this suggest themselves. One would be to consolidate the whole industry, with one corporate administrative arm assuming the payment tasks for everybody. That hardly seems appropriate for a health complex which is already too big, but it underlies most current proposals. In a sense, it is a throw-back to the days when only a big company or a big government could afford to have a computer. The other idea, based on the similarity to whole-life insurance, proposes a giant company or government department to concentrate on the finance, but to do it for everyone. Unfortunately, no company has proposed itself for the job. But it might be suitable for an insurance company, a medical school, a computer company, or a medical society. All of these organizations have toyed with the idea, but none has actually advanced itself for it.

The proposal made here is a confederation of otherwise unconnected organizations, feeding into a common channel of Health Savings Accounts owned by individual patients. One lifetime account per individual, which serves as a transfer system for the various balances of a single person. There could be many networks as long as their balances were uniformly transferable and they each linked to a transferable retirement fund and a transferable investment fund. They might be very large, but they would remain quite simple individually. Their purpose would be to transfer credits of the owner to debits of the same owner, with the balance ultimately coming to rest in his retirement account, creating a common incentive to be medically frugal. They would maintain adequate records, an information source, and a designated representative.

This particular feature has a political element. The American public thinks it is getting a bargain with Medicare, somehow getting a dollar of healthcare for fifty cents, and therefore a treasure they are unwilling to surrender. In all probability, no organization except the government could participate with a deficit, which is what this is. Somehow, legal protections against the debts of organizations which participate in the confederation must be established for the individual patients, even though they continue to provide benefits at a loss.

Contingency Fund. We propose to complete the Medicare revenue issue by adding to a contingency fund, essentially substituting a subsidy of $100 at birth for a deficit sixty times as large at age 65. I(t may turn out to need more or less up front.) How fast it would actually grow in the intervening 65 years would become evident before then, and appropriate adjustments could be made, but the person or agency who makes them should be specified..

Last Years Approach. If that approach covers Medicare, it does not also cover retirement, and probably should not cover it until things stabilize. However, it is intended that Medicare surplus would help fund retirement, so the front-end contribution to the contingency fund should be adjusted after experience. Additional revenue is generated for Medicare by using the Last Years of Life, which is intended as its eventual substitute, as described in detail in other sections. In view of those plans it seems better to keep them separate. Medicare has urgent bills which must be paid, and Last Year coverage is as yet only a concept. Nevertheless, Last Year Coverage is intended to save money, and thus to generate funds for retirement, eventually.

At the moment, it appears that terminal illness can last four years, a process which might be thought of as "breaking the seal of health". In any event, half of Medicare expenditure occurs in the last four years of life, leaving quite a surplus when the other sixteen years of cost are redistributed.. You might start with the last year and and add earlier years as experience grows, or you might start with four years on a smaller population. In any event, the "accordion" effect is available for transition use. And when we get to adding children, the accordion can be used from both ends at once.

The reader will note that refinancing Medicare is treated as a stand-alone problem, and there is little doubt smaller problems are easier to deal with. The government is unique in having lower borrowing costs and greater credit, so it could finance a huge program like Medicare, and still support deficits for quite a long time. Unfortunately, this attitude will eventually lead to getting in so deep you can never get out. Both the contingency fund and the Last Years of Life program could supply funds and linkages that would greatly ease the dilemma, thus speeding up resolution to do something sooner. And while the government can theoretically do what it pleases, the fact is it would take so much effort to overcome resistance, inferior approaches might more likely be resorted to.

Secondly, it could be imagined a giant life insurance company, recognizing the potential size of the market as well as its similarities to whole-life insurance, could offer to solve the customer's administrative issues, and make transfers within divisions that would be difficult between companies. It might well be a financial success, but companies usually prefer to buy out a pioneer rather than pioneer, themselves. The start-up costs could be huge, since it would take years to show an overall profit. Any business plan to show a profit needs to negotiate around the fundamental motive of saving money for the customer, and all the regulatory obstacles might be attached rather than avoided.

So, finally, the suggested approach is that of a confederation, linked together financially through individual Health and Retirement Savings Accounts. That tends to mean a certain amount of resistance from existing financial firms, who would prefer to lodge profitability in their area, rather than see finance become a loss-leader. That isn't an absolutely necessary outcome, but the possibility can't very well be excluded.

Adding Features to Health Savings Accounts for Seemingly Unrelated Purposes.

Government programs tend to have a "one size fits all" quality to them, growing in part from the Constitutional requirement for equal justice under the law.

This homogeneous similarity js exaggerated by the way legislation is created. Each Congressman represents nearly a million constituents, far too many to be running for re-election every two years and having time left to legislate. The laws are consequently too general, are revisited too infrequently, and leave too much to the Judicial branch and the administrative agencies to settle. Congress increasingly resembles a Board of Directors, rather than the source of legislation, but lacking the power to pick the President. For this reason, you regularly hear the British parliamentary system praised, since the Prime Minister is chosen by the parliamentary ruling party. My own feeling is Congressmen are not able to devote sufficient time to the job of legislating mainly because they spend so much time on the telephone, soliciting election funds. Let's examine some issues which are not urgent, but eventually must be settled by these harried law-makers.

We have stumbled onto the clear linkage between paying for healthcare, and subsequently paying for the extended retirement which is mainly a result of improving that care. Although the cost of healthcare is a national concern, extended longevity has proved to be four or five times as expensive, expressed as a lump sum at age 65. That's because a retirement fund is a constantly wasting asset, whereas Medicare is only spent when you get sick. Furthermore, retirement will soon last a third of a lifetime, so open-endedly it is awkward to suggest a price on it for everyone. Consequently, everyone, even people who are quite rich, is afraid to spend retirement funds for fear they may not suffice for a particularly expensive terminal episode. Homogeneous nations like the Scandinavians seem willing to carry equal retirement to a national level, for the same reason socialism is more popular there. A homogeneous people are more willing to trust each other to "re-insure" them in unpredictable circumstances

But Socialism is unpopular here if carried beyond mere subsistence, because of its tendency to reduce work incentives. For example, raising the retirement age might ease financial strains, but many people just want to quit work at the age of fifty, while others see no reason to retire at all. Unfortunately, workaholics resent the suggestion their extra income should support others who prefer to quit work. The difficulty is magnified by supporting thirty million people who are plainly unable to work, plus at least an equal number who hate the kind of work they do. The outcome is a diverse nation seeming resistant to providing a government pension which guarantees much more than survival. Observers legitimately object we don't know how long people will be capable of living, and that's quite true.

If that's the case, there will always be a divergence in the luxury of retirements, and therefore a constant propaganda war between fairness to the poor and fairness to their more visibly successful competitors. At least for a very long time to come, the amount available for individual pensions at retirement age will be a scorecard for a successful life. Both public boasting and envious criticism should be discouraged, but its lifelong incentive to be frugal must not be ignored. If we can manage this paradox, the incentive can be used as a constant reminder that what you frittered away as a youth, might have been used to improve your retirement. At the very least, the public should be reminded that government debt lowers long-term interest rates, in order to stimulate short-term growth of the economy. To paraphrase John Keynes, "In the long run, we are all retired." Eventually, we must all live on what we saved, and the debts we agreed to must be repaid.

Therefore, unifying the finances of all medical care and retirement at any age is a powerful incentive to be medically frugal. There is general agreement that medical costs have risen so fast because there is nothing else to spend the money on, except frivolous medical care. As we said earlier in the book, there is reason to suppose the success of Health Savings Accounts lies in the powerful incentive provided by retirement needs offered as an alternative. The roll-over of an HSA into an Ira provides the alternative, and the tax deduction for health provides a preferred, but not mandatory, outlet. It, one by one, other funding sources for healthcare flow into an HSA, healthcare at all ages is provided with an incentive to be frugal. Health insurance of one form or another may resist an HSA alternative, but if we are correct, the market will force it. Because medical care seems destined to concentrate in elderly people, it seems most urgent to provide this incentive to Medicare, first. Of all places, Medicare is the least desirable place to be employing deficit financing, pay-as-you-go financing, or other mechanisms to make it appear to be free. Because of stretched finances, one logical place to begin is to pay a bounty into his HSA for subnormal spending during the previous year.

Flexibility is also an incentive for almost any program. We have mentioned several ways to enhance the revenue of Medicare, and there seems no reason to force the choices. The transition period from Medicare as we know it is likely to be a long one, and family circumstances may change several times during the phase-in. If the individual can contribute to the contingency fund, or to the Last Year of Life fund, make choices for reduced benefits for early retirement and anything else anyone can suggest, the bookkeeping may be more complicated, but the attractiveness of Medicare will be enhanced. Particular attention might be paid to individual's ability to apportion the distribution of his nest-egg at the time of retirement, and later on until he writes his last will and testament. There will be an irresistible tendency to overestimate personal retirement needs, in order to avoid exhausting them too soon, and it should be relied upon. On the other hand, these requirements are often abruptly changed by illness, or death of a spouse. There might be several contingency funds, with different rules for invading them. And there should be a mandatory minimum gift to a grandchild, as opposed to or in conjunction with more general inheritance considerations. These warnings are issued in full knowledge that most people cannot see so far ahead, and most people will remain a long way from achieving their goals.

With such general conclusions in mind, it seems inadvisable to limit choices without good cause, or provide for handling exceptional cases without the approval of some sort. Failure to do so might lead to forcing some people to reject a job opportunity, or to buy insurance they do not need. Or to encourage inflation to minimize the unfairness to a surviving spouse to force reduction of his/her lifestyle. For the first few decades at least, constraining the choices at certain critical points should operate on a sort of common-law or Court of Equity process, as the issues gradually surface, and are slowly resolved. The country is growing increasingly restless about the intervention of administrative agencies without adequate oversight by the court system.

Marriage Laws. Broken marriages, whether broken by death or design, are too common to justify anticipating their future direction. A lawyer dominated legislature must recognize the danger of too much power in the hands of the trial bar when dealing with life-long savings of either party, or both, or prior expenditures of the couple for health purposes. Or unanticipated contingencies which occur after the separation of a couple. It will be a long time before we have settled what is best to do about serial marriages of homosexuals, or marriages of intersex couples, or no marriages at all. The courts dealing with lifetime health and retirement funds should at least have an outlet for the special insights their role provides.

Special Treatment of the Handicapped. Not only do handicapped people of all varieties have increased healthcare expenses, they have special laws dealing with their problems which may conflict with what is generally best to do about lifetime health and retirement funds. It is unwise to freeze the rules before the exceptions become evident.

Foreign Citizens and Conflicts Between States. It is comparatively common for citizens who were foreign-born, to retire to the nation of their birth because it is cheaper to live there. They become subject to devaluations of the foreign currency, and prey to agents who purport to help them, just as residents of different state jurisdictions become subject to conflicting mandates.

The list of potential conflicts is very long, and these are only examples of it. The basic point is that a mechanism should be created to deal with long term exceptions to laws which envisioned a shorter horizon and fewer linkages..

The Nature of Ownership Relationships

It does seems appropriate to limit the actively managed portfolio of an HSA to health-related corporations, but it raises suspicions about motives. You want to stick with what you know, but you don't want to raise anti-trust concerns. There is a rather long history of medical organizations starting hospitals, drug stores and the like when there was no one else to do it. Eventually, however, competition did present itself along with arguments of conflict of interest, and rather forcefully. Since the purpose of this enlarged and actively managed portfolio would be to manage the shares rather than the business, it probably could be done if care were taken.

Furthermore, the range of businesses which would qualify as health related is extremely varied. Over the past century, we have seen Medical Societies own malpractice insurance companies, medical journals, post-graduate educational tape recordings, health insurance companies, and hospitals and rehabilitation centers. Even more enticing are drug companies and medical device makers. Among all this variety could probably be found choices which avoid legal criticisms, but still serve the essential purpose of choosing superior investment vehicles. This is a vital central point, and we will return to it in later chapters. After all, members of almost any professional field would be likely to predict winners and losers in related industries with more accuracy than the public would, and therefore experience better performance in its choices. That would be particularly true when companies remain relatively small, unattractive to professional portfolio managers. And it's entirely different from buyer collusion to suppress producer prices of companies they control, but that distinction must be kept clear from the outset. Small companies grow, merge, and assume new characteristics over time, so a track record of selling profitable portfolio members who wander from original purposes, provides additional protection from this sort of suspicion.

At this early point of discussion, it should be recalled there is nothing magic about the level of interest rates, which in a general sense determine the returns of the stock market. Interest rates reflect the relative scarcity or abundance of money in the economy, and are sometimes spoken of as the rental cost of money. Since governments control the supply of money, central banks tend to modify interest rates in order to stimulate or restrain the economy, as well as to reduce the cost of governmental borrowing. The consequence is a rather permanent inclination for interest rates to be held lower than they would be without government control, and a latent hostility of government to activities, such as this one, to derive a source of income from investment. The situation is further complicated by the increasingly important role of foreign governments, who sometimes make it difficult for the central bank to raise rates, even when it wants to. This oversimplification leads to the need for HSA managers to be measured by total return, not dividends, and common stock rather than bonds. Splendid returns can sometimes be produced at the time of reversals by doing otherwise, but can safely be shunned by maintaining a many-year horizon of complacency.

In all this potential complexity of starting an untried idea, it seems likely some laws must be changed. Not only must a selection be made of the most congenial legal environment (state or federal), but in the huge welter of existing regulation, it may well be the case that some existing law conflicts inadvertantly, and a political argument must be made to adjust the blockade, or at least to make it clear no attempt was intended to circumvent the unintended awkwardness. We start with whether the various pieces of this approach might be combined into an umbrella corporation. The closest approach to such a corporation might be a whole-life insurance company, although we do not claim the similarity is perfect. It will require two chapters to cover this approach, one to examine the similarities, the other to devise solutions for the dissimilarities.

Three Segments of Lifetime Healthcare, Starting With Medicare

The Affordable Care Act was announced as mandating health insurance for everyone, but about thirty million people were specifically excluded. The healthcare problems of seven million prison inmates, eight million unemployables, and eleven million illegal immigrants were too specialized to be included in a program which hoped to be one-size fits all. Quite properly, outliers would be better handled by special programs, designed for their special needs.

The Affordable Care Act is now central to Administration attention, and Medicare is deemed too hot to handle in an election campaign. We elect here to discuss Medicare, retirement, childhood, and how to unify--pretty much all that's left. That avoids direct confrontation, but it prepares for the day when ACA is either confirmed or abandoned. It's no secret in our scheme, all of lifetime healthcare seems appropriately connected financially to a single lifetime Health Savings Account, one per person. We'll return to that after we first discuss the dependencies of retirement and of childhood. Those are not easy questions. Medicare is not only a political hot potato, it comes at the end of life after savings have stopped accumulating to pay for it. Moreover, it is unique that retirement usually begins about the same time as Medicare. Childhood comes at the beginning of life, before there has been much chance to pre-pay it. That makes such a radical difference, they almost seem to be different programs.

We begin with the far end of life, where most health cost concentrates, and paying for retirement is a parallel but growing issue. If one is to help pay for the other, they must, in the Medicare case, draw their funds from the same pool. That's Medicare, which most people don't want to change.

Medicare As a Financial Issue. Medicare is about half paid-for, half borrowed. According to Mrs. Sibelius, about half of Medicare expenditures are supported by the general fund, or general taxation. The general fund is in deficit, however, providing fairness to the description of Medicare as a fund borrowed from the Chinese, since China is the main purchaser of Treasury bonds in the ten-year range. The purchaser may change, but the deficit looks to be permanent. Until deficits are paid off, it will remain true that Medicare provides a dollar of care for fifty cents. That sounds wonderful, until it suddenly sounds terrible.

Actual cash revenue is roughly divided evenly between Medicare premiums paid by the beneficiaries, and pre-paid in advance as a payroll tax of 3% on workers below the Medicare age. (About half of this part comes directly from the employee, another half from the employer. We skip over the technicalities that some parts of the program are tied to one fund, other parts to another, and also some are subject to higher income tax). About a quarter of Medicare is paid in advance on a "pay-as-you-go" basis, which is to say they pay current costs of other people, they are not saved for the contributors to become beneficiaries. About another quarter is paid and spent by current beneficiaries. That is, about half of the deficit is pay as you go, another half is borrowed from foreigners; only a quarter of the budget is current revenue from the beneficiary age group. However, the payers of pay-as-you-go are about thirty years younger than the spenders of it. If we put the youngsters' cash to work for thirty years, what interest rate would it take to grow one dollar into three? The answer is about five to seven percent. For quick understanding, a few tools are needed:

Invest the Withholding Tax and Stop Borrowing for Medicare.You can either spend the revenue or save it, in pay/go, you spend it and it's gone. However, in pay/go you only need to pay it back once to get on a sounder footing, but then you are left with finding some way to pay the deficit half of the current budget --indefinitely. In this example, let's assume we could amortize the single-year cost of correcting pay/go. What's then left is paying three quarters of the ongoing cost with a quarter of it, invested in something safe for roughly thirty years. Could we do it? The answer is roughly yes, but it raises the political question of whether it's worth doing. The voting public would scarcely see a difference, and you would have launched a risky new venture of indefinite duration. The withholding tax and the Medicare premiums would remain the same, the benefits would be unchanged. Most accountants would say it was a desirable change to a more stable system, but many politicians would say it runs a risk without any contemplated political benefit. Everybody is correct; it isn't enough but it is something. It solves a definable portion of the problem, if we could find some way to supplement it. We have four suggestions:

Devise Some Way to Escrow Long-term Funding. New revenue ordinarily arrives as cash, and is invested in short-term loans until it is decided what to do with it. With thirty-day loans, or even overnight loans, you just have to wait a little, to regain cash status. But money market funds show us what can happen. If customers get into a sudden panic, they want their money back immediately. If it's already invested in thirty-year mortgages, the money market fund may go bankrupt unless someone "bails them out". Which is to say, loans them more money to supply some cash -- even though they have ample funds frozen in long term investments. If no one will do so, the creditors may shut them down and you have the beginning of a liquidity squeeze.

Because of this very real possibility, the longer the loan, the higher its interest rate, because the liquidity risk becomes protracted. That's bad if you are a borrower, but pleasant if you are a creditor. Therefore, if the Medicare withholding tax receipts flowed into a single-purpose account, creditors would be assured money could not be withdrawn before the stated time, and its rate of return would rise along with this new attractiveness. Just how much extra income would be provided is a little uncertain, because very few loans are currently for longer than thirty years. However, about forty-five years are potentially available between age 21 and 65, and educated guesses could be made. A one-or-two percent rise in income might change many calculations, not merely this one.

Find Ways to Extend the Years at Compound Interest. Since retirement is conventional at age 65, a fund for retirement will immediately start (at age 65) to dwindle until the date of death. But many people continue to work, or have other retirement funding sources. If they do not need the retirement surplus immediately, they should be permitted to leave it in the escrow fund, to prolong its term. This could be either fixed-term extensions or demand deposits, at the election of the depositor, and its election would make these funds preferable to retain, as compared with Social Security, for example.

The open-endedness of retirement is always going to be a problem. If we speak in averages, they tend to mean half of the population will be dead, mid-way to the average. The unexpended surplus after their deaths will always be a source of contention, and there will be a struggle for it between heirs and longer-term survivors. If the compounding of unused income could continue for even five years after death, the extra revenue would be considerable.

Contingency Fund. The combination of compound interest turning favorable as you extend longevity, added to increasing longevity itself, leads to some surprising results if the argument is extended from the cradle to the grave. Everybody's eventually going to die, and relatively soon that's going to extend to essentially everybody dying after he reaches age ninety. One more fact, it helps doing compound interest in your head, to remember that money at seven percent will double in size after ten years. The means nine doublings in 90 years, or (2,4,8, 16, 32, 64, 128, 256, 512) or 500-fold increase over a lifetime. You might even stretch this to the limit of a perpetuity (one lifetime plus 21 years) to get a multiplication of the money to 2000 times. That is, a contingency fund of $2000 might be envisioned from the gift of $1 to a newborn. Since you know with absolute certainty that every newborn will die some day, a contingency fund of a million dollars per person is possible with a grant of $500 to everyone born in poverty, so long as you don't spend any of it for 111 years, providing you can get an average 7% return, and providing the government doesn't devise other uses for your money in the meantime. Incidentally, increasing public resistance to inflation is one of the hidden virtues of this proposal.

Instead of fanciful extrapolations, it is possible to say almost every working person could summon up $200 per child to provide supplements which would accomplish reasonable goals for lifetime healthcare, plus a somewhat more modest description of a comfortable retirement supplement to Social Security. And for those who are unable to support themselves for handicap reasons, the government might summon up the cost for indigents. In the long run, that would be a bargain for government. Since every child has two parents, that leaves a 100% cushion for under-estimates when we extend this idea to children. The problem is not arithmetic, it is public acceptance of the whole idea of individual long-term contingency fund, plus a way to store such a fund for centuries at a time, protecting it from pilfering by its custodians.

First and Last Years of Life Re-Insurance By far the best proposal for refinancing Medicare, however, is to phase in a re-structuring of funding for both children and elderly first, and then add in the rest of a lifespan, step by step. This might be a project under construction for many decades, but its first step would be to begin funding for the Last Four Years of Life, which happens to be the last step in refinancing Medicare. Since the reader may be unprepared for the topic, it is considered in a free-standing way, in the next section.

Two New Revenue Sources: Investments and Compound Interest

Two "new" revenue sources, which we need to discuss, are really quite old. But wide-spread use of third parties to pay medical bills diminished consumers' attention to their value. Patients become like Queen Victoria, indifferent to what it costs to run a household, even forgetting how to do it. We will fit some details into the discussion of Health and Retirement Savings Accounts, but they are capsulized here for descriptive convenience, in an era when personal management has largely moved from high schools to the curriculum of graduate business schools.

Compound Interest. Aristotle of ancient Athens complained it gets more expensive to repay debts, the longer you take to pay them off. That's the debtor's viewpoint, of course. The creditor's view of it is, the longer the better. But restated as a neutral mathematical comment, an essential feature of compound interest is that both principal and effective interest, rise over time. To repeat: income rates (and/or borrowing costs) from a debt rise with time. About half the capital of every major corporation consists of borrowed debt, so even owning common stock has some of the same qualities. Furthermore, this effect is seen sooner, with rises in nominal interest rates, even quite small ones. A graph of sample interest rates demonstrates this simple truth with more clarity:

* * * As a result of centuries of haggling and experimentation, most modern loans charge interest rates of 5-15%. It makes little difference whether this range of rates reflects the supply of money in the economy, or the vigor of the economy, or something else macroeconomic. So long as rates remain steady, or even if they are changing at a slow steady rate, borrowers and lenders can reach agreement and negotiate a long-term loan. If there is uncertainty about rates in general, they may rise precipitously, so all borrowers know to keep loans as short as possible, because creditors quickly raise rates when they must cover longer time periods. For centuries, nobody thought much about this invisible equilibrium, because life expectancy was stable at the Biblical threescore and ten -- and about twoscore in fact. But suddenly around 1900, life expectancy at birth did begin to rise, and starting in 1950 it entered a steep climb from forty-seven to eighty-four years. Thirty-year loans remained the extreme, however, because the risk of getting robbed in the meantime didn't seem to change, much. Stagecoach robberies went away, but inflation took their place. Underneath it all, governments preferred to expand the currency supply instead of raising rates, printing repayments rather than borrowing more. Interest rates are, as they say, volatile.

Nevertheless, a new opportunity was created by the expansion of longevity. Long-term investment was more profitable for everybody, since the upturn in interest rates was negligible for the first forty years of compound interest, but quite handsome, the longer you waited after that. Another way of expressing the same idea, is to say long-term investments got more attractive, without changing much otherwise. In practical terms, long term investing was getting more attractive, so buy-and-hold became a better strategy. The difference of a tenth of a percent means little in a ten-year loan, but it can create a stupendous profit in a ninety-year loan. One suspects the interest rate on a loan has more to do with the debtor's working life (the period available for confident repayment) than his life on earth. In this book we concentrate on the creditor, whose lifespan should not affect interest rates as much as it affects his opportunity to enjoy money if he has some of it.

Equity Index Investing. The stock of only one company (General Electric) was a member of the Dow-Jones Industrial Average a century ago. By definition, the DJII always contains thirty leading stocks; others have been replaced many times. It takes a long time to become a household name, and by the time an investor has heard the name, it is often ready to decline. Active investing, meaning sell one to buy another, was once quite necessary for success. Unless fading leaders are replaced by new leaders, the average would fall behind, but it is easy to see it has moved steadily upward.

A group of Princeton professors began to notice when buy-and-hold was applied to random stocks, it produced equally good results, once you subtracted the fees of the investment advisor. John Bogle started an investment company based on the idea of investing in indexes instead of individual stocks, which now contains trillions of dollars with an investment record to be proud of. Forming index funds composed of the 500 of the Standard and Poor list, or even all of the stocks listed on U.S. exchanges, you essentially buy the whole American economy when you buy an index fund. At the rate things are going, it should soon be possible to buy a single certificate representing all of the listed stocks in the world. You could put that certificate in a bank's safe deposit box and be your own custodian, except for the nuisance of tax withholding and similar paperwork.

If you are careful to avoid the spongers and the fly-by-nights, the investment world is rapidly changing, mostly for the better. To some extent this reflects a flight from the bond market which governments deal with, but most investors now think total market index funds are safer. "Passive" investing is certainly easier for the small investor to deal with, and investors are responding.

In a later chapter we will try to take advantage of one obvious flaw in such investing. If a single investment represents thousands of companies, investor control is diluted to meaninglessness.The only effective control over management resides in the shares which are not held by funds, and even there, more and more control rests with insiders and managers. The effect of such a trend is not merely that manager salaries are inflated, but the corporation becomes less responsive to the public. Its business plan is to make a profit, and that's all some of them do. Because of the corporate shield, many of them borrow too much, risk too much, and collapse too often, but managers can often walk away with riches. If Health and Retirement Savings Accounts really get popular (at last count, they only had thirty billion dollars invested), its counterweight should help restrain consumer prices.

HSAs collect money when it is not needed, spend it decades later when it is badly needed, and invest the money during the interval, tax-free. The longer the interval, the more it earns. And with careful application of the principles of compound interest and index investing, the earnings are considerably magnified. If your Christmas Savings Fund earns more money, it reduces the effective cost of what you buy. But if you are careless, investment fees and inflation will ruin everything. So that, in sum, is the message.

A most interesting website, thank you. I really hope to visit Philadelphia one day, and I shall definitely consult your website. I came across this website after doing a search on Johannes Kelp / Kelpius. I had just listened to a song written about him called, 'Sighisoara' at Sighisoara is the place J Kelpius left for Philadelphia with 40 followers. Best Regards
Posted by: Pamela   |   Aug 20, 2015 11:04 AM
I'm overwhelmed. I'm thinking of a one-line poem by William Blake: "Enough or too much" " stragglers who live from 85 to 91." Sorry to be a burden, but soon to be 91 I can still go a couple of rounds without huffing and puffing. You remind me of Dr. Melvin Konner.... professor.... anthropologist..... physician.
Posted by: Martin   |   Sep 27, 2014 5:16 AM
I want to thank you for this wonderful resource. I find it fascinating. May I offer one correction? In the section "Rittenhouse Square Area" there is reference to the Van Rensselaer home at 18th and Walnut Streets and its having a brief fling as a club. I believe in 1942 to about 1974/5 the Penn Athletic Club was located in the mansion. The Penn AC was a good club, a good neighbor and a very good steward of the building - especially the interior. It's my understanding that very unfortunately later occupants gutted much of the very well-preserved original, or close to original, interiors. I suppose by today's standards the Van Rensselaer-Penn Athletic Club relationship could be described as a fairly long marriage. The City of Philadelphia played a large role in my life and that of my family, and your splendid website brings back many happy memories. For me and many others, however, there is also deep sadness concerning the decline of so much of the once great city and the loss of most of its once innumerable commercial institutions. Please keep-up your fine work. Your's is a first-class work.
Posted by: John D. Mealmaker   |   Aug 14, 2014 2:24 AM
Dr. Fisher, The name Philadelphia University was adopted in 1999, as you write, but the institution dates to 1884 and has been on School House Lane since the 1940s. It acquired the former properties of the Lankenau School and Ravenhill Academy, but it did not "merge" with either of them. I hope this helps when you update your site.
Posted by: David Breiner   |   Jun 11, 2014 10:05 PM
Hello Dr. Fisher, I was looking for an e-mail address and this is what I could find. I must tell you my Mother who you treated for years passed away last May. She was so ill with so many problems. I am sure you remember Peggy Marchesani. We often spoke of you and how much we missed you as our Dr. You also treated my daughter Michele who will be 40. I am living in the Doylestown area and have been seeing the Dr's there.. I just had my thyroid removed do to cancer. I have my fingers crossed they get the medicine right. I am not happy with my Endochronologist she refuses to give me Amour. I spoke with my Family Dr who said he will take care of it. I also discovered I have Hemachromatosisand two genetic components. I have a good Hematologist who is monitoring me closely. I must say you would find all of this challenging. Take care and I just wanted to convey this to you . You were way ahead of your time. Thank you, Joyce Gross
Posted by: Joyce Gross   |   Apr 4, 2014 2:06 AM
I come upon these articles from time to time and I always love them. Is the author still alive and available to talk with high school students? Larry Lawrence F. Filippone History Dept. The Lawrenceville School
Posted by: Lawrence Filippone   |   Mar 18, 2014 6:33 PM
Thank you for your articles, with a utilitarian interest, honestly, in your writing on the Wagner Free Institute of Science [partly at "" - with being happy to post that url but the software here not allowing for the full address:)!] I am researching the Institute, partly for an upcoming (and non-paid) presentation and wanted to ask if I might use your article's reproduction for the Thomas Sully portrait of William Wagner, with full credit. Thanks very much for any assistance you can offer here. Josh Silver Philadelphia
Posted by: Josh Silver   |   Jun 2, 2013 1:39 PM
Thank you for your articles, with a utilitarian interest, honestly, in your writing on the Wagner Free Institute of Science [partly at "" - with being happy to post that url but the software here not allowing for the full address:)!] I am researching the Institute, partly for an upcoming (and non-paid) presentation and wanted to ask if I might use your article's reproduction for the Thomas Sully portrait of William Wagner, with full credit. Thanks very much for any assistance you can offer here. Josh Silver Philadelphia
Posted by: Josh Silver   |   Jun 2, 2013 1:39 PM
George, Mary Laney passed away last November. I was one of her pall bearers. She had a bad last year. However, I am glad that you remembered her and her great work. I will post your report at St Christopher's and pass this along to her husband Earl. Best wishes Peter Hunt
Posted by: Peter Hunt   |   Mar 28, 2013 7:12 PM
Hello, my name is Martin. I came across [] and noticed a ton of great resources. I recently had the honor of becoming a part of a new non promotional project on We decided to put together a brief guide about cirrhosis, and the dangers of drinking. We have received a lot of positive feedback and I wanted to suggest that we get listed on the above mentioned page under The National Institutes of Health. Let me know what you think and if you have any further requirements or suggestions.
Posted by: Martin   |   Jan 1, 2013 8:51 AM
Posted by: SUSAN WILSON   |   Aug 12, 2012 12:49 AM

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