The musings of a physician who served the community for over six decades
367 Topics
Downtown A discussion about downtown area in Philadelphia and connections from today with its historical past.
West of Broad A collection of articles about the area west of Broad Street, Philadelphia, Pennsylvania.
Delaware (State of) Originally the "lower counties" of Pennsylvania, and thus one of three Quaker colonies founded by William Penn, Delaware has developed its own set of traditions and history.
Religious Philadelphia William Penn wanted a colony with religious freedom. A considerable number, if not the majority, of American religious denominations were founded in this city. The main misconception about religious Philadelphia is that it is Quaker-dominated. But the broader misconception is that it is not Quaker-dominated.
Particular Sights to See:Center City Taxi drivers tell tourists that Center City is a "shining city on a hill". During the Industrial Era, the city almost urbanized out to the county line, and then retreated. Right now, the urban center is surrounded by a semi-deserted ring of former factories.
Philadelphia's Middle Urban Ring Philadelphia grew rapidly for seventy years after the Civil War, then gradually lost population. Skyscrapers drain population upwards, suburbs beckon outwards. The result: a ring around center city, mixed prosperous and dilapidated. Future in doubt.
Historical Motor Excursion North of Philadelphia The narrow waist of New Jersey was the upper border of William Penn's vast land holdings, and the outer edge of Quaker influence. In 1776-77, Lord Howe made this strip the main highway of his attempt to subjugate the Colonies.
Land Tour Around Delaware Bay Start in Philadelphia, take two days to tour around Delaware Bay. Down the New Jersey side to Cape May, ferry over to Lewes, tour up to Dover and New Castle, visit Winterthur, Longwood Gardens, Brandywine Battlefield and art museum, then back to Philadelphia. Try it!
Tourist Trips Around Philadelphia and the Quaker Colonies The states of Pennsylvania, Delaware, and southern New Jersey all belonged to William Penn the Quaker. He was the largest private landholder in American history. Using explicit directions, comprehensive touring of the Quaker Colonies takes seven full days. Local residents would need a couple dozen one-day trips to get up to speed.
Touring Philadelphia's Western Regions Philadelpia County had two hundred farms in 1950, but is now thickly settled in all directions. Western regions along the Schuylkill are still spread out somewhat; with many historic estates.
Up the King's High Way New Jersey has a narrow waistline, with New York harbor at one end, and Delaware Bay on the other. Traffic and history travelled the Kings Highway along this path between New York and Philadelphia.
Arch Street: from Sixth to Second When the large meeting house at Fourth and Arch was built, many Quakers moved their houses to the area. At that time, "North of Market" implied the Quaker region of town.
Up Market Street to Sixth and Walnut Millions of eye patients have been asked to read the passage from Franklin's autobiography, "I walked up Market Street, etc." which is commonly printed on eye-test cards. Here's your chance to do it.
Sixth and Walnut over to Broad and Sansom In 1751, the Pennsylvania Hospital at 8th and Spruce was 'way out in the country. Now it is in the center of a city, but the area still remains dominated by medical institutions.
Montgomery and Bucks Counties The Philadelphia metropolitan region has five Pennsylvania counties, four New Jersey counties, one northern county in the state of Delaware. Here are the four Pennsylvania suburban ones.
Northern Overland Escape Path of the Philadelphia Tories 1 of 1 (16) Grievances provoking the American Revolutionary War left many Philadelphians unprovoked. Loyalists often fled to Canada, especially Kingston, Ontario. Decades later the flow of dissidents reversed, Canadian anti-royalists taking refuge south of the border.
City Hall to Chestnut Hill There are lots of ways to go from City Hall to Chestnut Hill, including the train from Suburban Station, or from 11th and Market. This tour imagines your driving your car out the Ben Franklin Parkway to Kelly Drive, and then up the Wissahickon.
Philadelphia Reflections is a history of the area around Philadelphia, PA
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Philadelphia Revelations
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George R. Fisher, III, M.D.
Obituary
George R. Fisher, III, M.D.
Age: 97 of Philadelphia, formerly of Haddonfield
Dr. George Ross Fisher of Philadelphia died on March 9, 2023, surrounded by his loving family.
Born in 1925 in Erie, Pennsylvania, to two teachers, George and Margaret Fisher, he grew up in Pittsburgh, later attending The Lawrenceville School and Yale University (graduating early because of the war). He was very proud of the fact that he was the only person who ever graduated from Yale with a Bachelor of Science in English Literature. He attended Columbia University’s College of Physicians and Surgeons where he met the love of his life, fellow medical student, and future renowned Philadelphia radiologist Mary Stuart Blakely. While dating, they entertained themselves by dressing up in evening attire and crashing fancy Manhattan weddings. They married in 1950 and were each other’s true loves, mutual admirers, and life partners until Mary Stuart passed away in 2006. A Columbia faculty member wrote of him, “This young man’s personality is way off the beaten track, and cannot be evaluated by the customary methods.”
After training at the Pennsylvania Hospital in Philadelphia where he was Chief Resident in Medicine, and spending a year at the NIH, he opened a practice in Endocrinology on Spruce Street where he practiced for sixty years. He also consulted regularly for the employees of Strawbridge and Clothier as well as the Hospital for the Mentally Retarded at Stockley, Delaware. He was beloved by his patients, his guiding philosophy being the adage, “Listen to your patient – he’s telling you his diagnosis.” His patients also told him their stories which gave him an education in all things Philadelphia, the city he passionately loved and which he went on to chronicle in this online blog. Many of these blogs were adapted into a history-oriented tour book, Philadelphia Revelations: Twenty Tours of the Delaware Valley.
He was a true Renaissance Man, interested in everything and everyone, remembering everything he read or heard in complete detail, and endowed with a penetrating intellect which cut to the heart of whatever was being discussed, whether it be medicine, history, literature, economics, investments, politics, science or even lawn care for his home in Haddonfield, NJ where he and his wife raised their four children. He was an “early adopter.” Memories of his children from the 1960s include being taken to visit his colleagues working on the UNIVAC computer at Penn; the air-mail version of the London Economist on the dining room table; and his work on developing a proprietary medical office software using Fortran. His dedication to patients and to his profession extended to his many years representing Pennsylvania to the American Medical Association.
After retiring from his practice in 2003, he started his pioneering “just-in-time” Ross & Perry publishing company, which printed more than 300 new and reprint titles, ranging from Flight Manual for the SR-71 Blackbird Spy Plane (his best seller!) to Terse Verse, a collection of a hundred mostly humorous haikus. He authored four books. In 2013 at age 88, he ran as a Republican for New Jersey Assemblyman for the 6th district (he lost).
A gregarious extrovert, he loved meeting his fellow Philadelphians well into his nineties at the Shakespeare Society, the Global Interdependence Center, the College of Physicians, the Right Angle Club, the Union League, the Haddonfield 65 Club, and the Franklin Inn. He faithfully attended Quaker Meeting in Haddonfield NJ for over 60 years. Later in life he was fortunate to be joined in his life, travels, and adventures by his dear friend Dr. Janice Gordon.
He passed away peacefully, held in the Light and surrounded by his family as they sang to him and read aloud the love letters that he and his wife penned throughout their courtship. In addition to his children – George, Miriam, Margaret, and Stuart – he leaves his three children-in-law, eight grandchildren, three great-grandchildren, and his younger brother, John.
A memorial service, followed by a reception, will be held at the Friends Meeting in Haddonfield New Jersey on April 1 at one in the afternoon. Memorial contributions may be sent to Haddonfield Friends Meeting, 47 Friends Avenue, Haddonfield, NJ 08033.
In such circumstances, banks could be expected to start holding back. But no, there was too much even cheaper money available for banks to borrow, leverage up with more borrowing, and re-lend to homeowners. It got to the point where a dollar of the bank's own money supported thirty dollars of loans to customers, and homeowners still lined up for more. The solution to the conundrum was suddenly clear: too much cheap money was in circulation, and it was coming from China and the Middle East. Because the prices of houses were going up steadily, banks took a chance on the plain fact that thirty-to-one announces that a loss of house value of 3% means the mortgage is losing money. A couple of other ugly facts are somewhat less obvious: when interest rates go up, the value of the loan goes down. Secondly, when banks reduce their thirty-to-one borrowing to a safer twenty-to-one, the de-leveraging raises interest rates still more, lowering home values still more. A downward spiral can easily get started. Historically, banks were protected by the homeowner's down payment; down payments had become minimal. Adjustable rate mortgages were now popular, a process of shifting the risk of interest fluctuations from the bank to the homeowner, as the homeowner would soon learn if interest rates rose.
We faced a big problem caused by too much cheap money, and we struggled to save the situation -- by injecting more cheap money.
Time passed, abnormally low-interest rates had persisted after Greenspan's public mutterings. The weak point was the home mortgage, exactly where risky loans are artificially encouraged by implied congressional protection. Reluctant to see foreclosures, politicians stood ready to command mortgages to walk on water. Although it was pretty evident that lending standards were lax, the differing degrees of risk were not reflected in the "risk premium" or width of the "spreads." That is, bond investors remained mysteriously content to be paid interest rates scarcely greater for risky investments than for safe ones such as U.S. Treasury bonds. The markets viewed those two as essentially equivalent. Since these interest rates and the risk evaluation they reflect are set by supply and demand in the credit markets, the persisting anomaly of low rates had to be traceable to either excessive cheap money, or investor overconfidence. In retrospect, it was both. Foreign money flowed in from Far East prosperity and Persian Gulf oil profits. Whether it pushed in or was sucked in, remains a matter of opinion. Wall Street greeted this bonanza with "securitization" -- new lending mechanisms for home mortgages--and builders went into high gear building more houses, especially in California and Florida. They built too many because it's hard to walk away when business is brisk. Because of distorted tax structures, mortgages were the preferred means of borrowing for any private person. Eventually, the bubble burst; it remains to be seen whether we would now go on to some other bubble (commodities, for example) or sink into a protracted depression. If it's to be depression, a new uncertainty arises. When investors accepted low rates in the expectation that politicians would bail out bad mortgages, they surely predicted rightly. The real risk is, it won't do any good.
Alan Greenspan
As Greenspan was implying, prosperity usually puts upward pressure on interest rates but this time it remained a coiled spring; house prices made unprecedented rises for several years in a row but mortgages remained cheap. In mid-August 2007, bank turmoil in a couple of European banks suddenly prompted a rise in worldwide long term interest rates, more or less obscured by a lurching drop in the stock market. It seems likely this unexpected stock movement created misleading signals; in a day or two stock prices recovered. It was mortgage interest rates snapping back toward normal levels that truly mattered because that predicted excessive home prices would now surely decline; even worse, house plus mortgage might soon cost more than overstretched consumers could afford, provoking panic selling of houses. In any case, house prices could be expected to fall until it was no longer cheaper to rent than to buy, and it was then an open question of whether rents might also be chased down further. Patterns were hard to identify at first; different parts of the country overbuilt to different degrees. Even worse spirals could be imagined, too. If a house must be sold for less than the unpaid mortgage, a homeowner is tempted to surrender the mortgage and walk away, so foreclosures might be more common than economic conditions alone would warrant. If homebuilding stops because of a housing glut, immigrant laborers may -- or may not -- go back home, after first looking around to see if patches of the country are still building houses. A recession may spread, the national election in November may turn our unexpectedly; all sorts of things might -- or might not -- happen.
Banks had been the most strained by all the good fortune of cheap foreign credit because they make their profit on the "yield curve" -- the difference between what they pay for deposits and what they charge for loans. For over a year, the yield curve had been inverted, meaning banks were often close to paying depositors more than they got back from borrowers. Dropping interest rates paid to depositors would increase bank profits, but go too far with that and depositors will be chased away to money market funds, or treasury bills. The problems of banks became the problem of the Federal Reserve. The Fed controls short-term lending costs but generally lets the bond markets establish long term rates. With long rates abnormally low for a long time, banks were severely tested to make a profit, which for them essentially consists of paying depositors low short term rates, and lending debtors the money at high long term rates. A very narrow spread between short and long rates deprived banks of their means of support. This "flattening of the yield curve" became threatening to banks and also to the Federal Reserve, whose whole system of controlling the money supply was based on their control over banks. Subsequent to the crash, a number of commentators led by the Cato Institute have severely criticized the Federal Reserve for maintaining low short-term interest rates for too long, and others have even attributed a motive of supporting the Bush administration by inflating the currency. It is unnecessary to place this construction on the Fed's behavior. If the banks depend for survival on the difference between long and short rates, and if the Fed is powerless to raise long rates, there is nothing to do but lower short rates. This has the unintended effect of stimulating inflation, and Greenspan has later admitted he regrets it. But he seems willing to accept the implication that he was dabbling in politics, rather than admit to what is more likely to have been the cause of this behavior. The whole theory of how the Federal Reserve currently combats inflation is based on "inflation targeting", in which the central bank essentially ignores every other signal and responds to its measurements of inflation in the economy. These measurements were also distorted by the flood of Chinese money, so the very force which was causing inflation was also making it appear that inflation was not a big concern. Since the value of money in current times is almost entirely a decision of the central banks, it seems too central bankers that public trust in that process must be preserved at all costs. And, indeed, when the behavior of Congress is observed on C-span television there can be a reason to be quite sympathetic with the plight of our monetary policy leaders. There remains however little doubt that the formulas for detecting inflation require some modification for changing circumstances.
So to go back a few years to the time when the bubble in housing prices was getting started -- banks had resorted to some new and therefore risky procedures that seemed to side-step their difficult situation. With borrowers flocking in the door, banks were able to sell the loans of constantly rising size to the secondary market as fast as fresh borrowers came in. To understand this inflammatory issue, it is probably necessary to go back to the depression of the 1930s. At another time of confused floundering in the financial markets, public opinion centered on splitting up the functions of big banks for easier control by government regulators. Commercial banks, who obtain their lendable funds by accepting deposits, were forbidden to be incorporated with investment banks, who obtain their lendable funds by selling bonds. And incentives or regulations were modified to direct home mortgages to savings and loan banks. Forty years later, the Arab oil embargo precipitated a monetary situation where interest rates rose to nearly 20%. Savings and loan banks, holding enormous amounts of thirty-year mortgages at roughly 6%, had to close their doors because they could not remain, viable paying depositors, such rates. Thousands of savings and loans, holding nearly 50% of the home mortgages in America, went out of business. A vacuum was thus created, and some other mechanism for financing mortgages was extremely welcome. With almost inhuman ingenuity and innovation, Wall Street invented the CDO and marketed hundreds of billions of dollars worth.
It had elements of a Ponzi scheme but perhaps it was controllable. The banks who merely originated loans did create an undeniable moral hazard because they naturally took less precaution with loans they were immediately going to sell to someone else. No one, it is said, bothers to wash a rental car. Meanwhile, the strain of an inverted yield curve began to take its toll on the banks; after a year of it, their reserves started to get depleted.
Whether banks pushed or were pulled is debatable. Probably the bigger part of the growing problem was created by those ingenious investment banks on Wall Street, who were buying these increasingly risky mortgages and loans by the truckload. Bundling up thousands of mortgages into a new creature called collateralized debt obligations (CDO), they sold them to the public as "securitized debt". In effect, debt was partially converted to equity -- little bonds into big bonds, but the riskiest little bonds sifted out and converted into equity. It was a remarkably imaginative revolution in finance, but even if every step was absolutely perfect there could always be a danger that the generation of many $trillions worth of new paper would topple existing arrangements by simply going too fast for other systems to adjust. That's what happened, although there were inevitably also some design imperfections that got ignored for too long.
housing bubble burst
So the financial world started to crash in the middle of August 2007, while the rest of us were enjoying a summer vacation. The housing bubble burst; the party was suddenly over. The television was filled with scenes of traders jumping up and down, screaming orders to each other. Commentators commented excitedly every five minutes, and pundits screamed that the Federal Reserve must do something. All of this communications uproar conveyed the impression that a final explosion of some sort had taken place, and we could, therefore, expect a long period of post-bomb silence. But that really was not what seemed to happen. The stock markets dipped but recovered. House prices were down a little, in some places. Gas and oil prices remained too high and went a little higher. The Federal Reserve dropped short-term interest rates a few fractions of a percent, long term rates scarcely moved at all. In the background, America was fighting two overseas wars and a presidential primary campaign, but somehow they weren't part of the equation. Rather, it was explained that the consequences of August would be delayed, taking many months to unwind. A crash, in other words, in slow motion.
That might be so. It often takes months to buy and sell houses; their value may have declined, but a thing is worth what you can sell it for, so you can't be sure what they are worth until houses are actually sold. Essentially the same thing is true of stocks and bonds, and it's hard to know if securities are worth the amount of the comparable most recent sale. or if you should measure them against what you suppose will be the price when you sell later. Auditors and bank regulators are rigid about their answer: banks must "mark to market" if they intend to base future loans on the securities in their vaults. The rest of us would rather wait and see and must do so for tax purposes. You can scarcely blame bankers for hoping the turmoil creates a V-shaped dip that can safely be ignored. Even if it does not, a protracted economic pause can create time to patch things up, generate new sources of income to replace what is lost, if it is lost. Only the gold market seemed to disregard such assurances, gold was emphatically on the rise. After six months of relative calm, it was still possible to believe this was a passing flurry, or to believe we were floating downstream to a tumble over another waterfall. America in the 1930s and Japan in the 1990s had discovered that drift and uncertainty can sometimes last fifteen years. After a brief recital of the events leading up to August, we next embark on a more detailed (but simplified) discussion of what went on, eventually leading to conjectures about what comes next, particularly what the Federal Reserve can and should do about it.
Market Flooding
Spreads, as bankers say, widen and narrow. Last August, the risk-premium demanded risky lending was stubbornly lower than history suggested was normal. In fact, the prevailing interest rate for mortgages and other long term loans was lower than interest-bearing cash in the form of money market funds was paying, a rather uncommon situation called inverted yield, or an inverted yield curve if you draw a picture of it. Stubbornly low long-term interest rates became a particular concern for the Federal Reserve and the commercial banks it regulates because the spread between long rates and short ones was not only where banks made a profit but how the Fed regulates the money supply. Since now the only way to maintain a profitable differential was for the Federal Reserve to lower short-term rates, it forced the Fed to hurt retirees and be inflationary by flooding the market with cheap short-term reserves. To put it another way, a flood of Chinese or Arab money into long-term bonds could only be kept in balance by a matching American flood into short-term ones. Inflation was already beginning to worry the Fed, so this development was unwelcome. At the extreme, it might force a choice between promoting inflation -- and bankrupting the banks. Add to this the conjecture that old-fashioned banking was eventually destined to vanish anyway, into some bright new computerized efficiency devised by Wall Street wizards; and you have to wonder if the very worst consequence might be to prevent creative destruction from taking place. It's awesome how simple changes multiply into a turmoil you can hardly understand.
Quantitative traders
On August 17, that risk premium squeeze went away. Long term rates for risky bonds went up, but safe bonds like U.S. Treasuries stayed about the same. While it is always a relief to see things return to normal, the gruesome fact is that money, or at least value, had to be destroyed to accomplish it. The nature of the secondary bond market is that a rise in the interest rate causes a corresponding drop in the price of bonds, a loss which will only be restored by increased interest over a long subsequent period of years, possibly not until the bond reaches maturity. That means for a long time more money is lost on bond principal than is gained on bond interest. An incentive to sell everything else is thus created for the bondholder, creating a contagion of selling. To return to Mr. Greenspan's conundrum, a suppressed interest rate had been creating an illusion of wealth whose disappearance was now reluctantly acknowledged. Some bondholders tried to dump before the full effect was felt, others held back from selling but eventually had to liquidate something to raise working capital. Panic selling spread, and unanimous fear of the unexpected caused "congested" trading, all in a downward direction. The Federal Reserve first helped out by dropping the interbank discount rate (the rate one bank charges another when one of them finds it needs to borrow to keep its books in balance) the next morning, but that action carried further messages of panic. Quantitative traders ("Quants") who programmed their computers to sell on signals of trouble were misled by huge sell activity which actually avoided the long bonds at the root of the problem, primarily because no one would buy them. Astonishing quantities of sell orders of perfectly good securities were accordingly issued by the obedient computing machines. Nobody knew what was going on, but everyone suspected something had been funny about bond rates for two years. Those who did not sell were ready to sell, and would certainly not buy. All markets were congested; credit markets were soon frozen solid. Someone was going to go bankrupt, but there was no time to find out who it was. Without transparency, markets will not clear.
Credit derivatives
Clarifications eventually surfaced in jumbled sequence. The main difficulty was concentrated in those new mechanisms for financing home mortgages, "derivatives" for which unfamiliar abbreviations leaped into excited jargon. Subprime loans, better called unwise loans were sold to victims, or maybe abused by speculators. "Credit derivatives" based on mortgages and other assets were discussed knowingly by those who a year earlier had never heard of them. The huge size of these mysterious instruments merits emphasis. There had been $26 trillion worth of credit derivatives in existence six months earlier, some said it was now $42 trillion. (A year later it was to be $62 trillion.) Compared with that, the entire mortgage debt of the country was said to be only $9 trillion, and the entire U.S. equity market was something like $13 trillion. Even congressional investigating committees were afraid to say much about something that big, that new, and that obscure.
Most confusing of all was to compare the growing consensus about the underlying difficulty with the solution now demanded by Wall Street, and apparently accepted by the Federal Reserve, our President, and our Congress. We started out with a problem created by foreign money flooding into our mortgage market; that's more or less comprehensible. The Fed then lowered short-term interest rates, Congress produced fiscal stimulus; both of these things created cheaper money, more credit and a lower international value for the dollar. The centerpiece of the solution was to create still more cheap credit, both at the Federal Reserve and with a Congressional Stimulus Package, when the problem was we already had too much cheap money.
Please, sirs. Would you mind saying that again, slowly?
IN 1783 the Revolution was over, in 1787 the Constitution was written, but the new nation would not launch its new system of government until 1790. It was a fragile time and a chaotic one. Earlier, just after the British abandoned their wartime occupation of Philadelphia in 1778, Robert Morris had been given emergency economic powers in the national government, whereas the state legislatures were struggling to create their own models of governance, often in overlapping areas. While the Pennsylvania Legislature was still occupying the Pennsylvania State House (now called Independence Hall) in 1778, it -- the state legislature -- issued the charter for America's first true bank the Bank of North America, and in 1784 the charter came up for its first post-war renewal. Morris was a member of the Pennsylvania Assembly both times. Although he was not a notable orator, it was said of him that he seldom lost an argument he seriously wanted to win. Keeping that up for several years in a small closed room will, unfortunately, make you many enemies.
Tavern and Bank
Morris was deeply invested in the bank, in many senses. He had watched with dismay as the Legislature squandered and mismanaged the meager funds of the rebellion, issuing promissory notes with abandon and no clear sense of how to repay them, or how to match revenues with expenditures. There was rioting in the streets of Philadelphia, very nearly extinguishing the lives of Morris and other leaders, just a block from City Tavern. Inflation immediately followed, resulting in high prices and shortages as the farmers refused to accept the flimsy currency under terms of price controls. Every possible rule of careful management was ignored and promptly matched with a vivid example of what results to expect next. Acting only on his gut instincts, Robert Morris stepped forward and offered to create a private currency, backed by his personal guarantee that the Morris notes would be paid. The crisis abated somewhat, giving Morris time to devise The Pennsylvania Bank, and then after some revision the first modern bank, the Bank of North America. The BNA sold stock to some wealthy backers of which Marris himself was the largest investor, to act as last-resort capital. It then started taking deposits, making loans, and acting as a modern bank. Without making much of a point of it at the time, the Bank interjected a vital change in the rules. Instead of Congress issuing the loans and setting the interest rates as it pleased, a commercial bank of this sort confines its loans to a fraction or multiple of its deposits, and its interest rates are then set by the public through the operation of supply and demand. The difference between what the Legislatures had been doing and what a commercial bank does, lies in who sets the interest rates and who limits the loans. The Legislature had been acting as if it had the divine right of Kings; the new system treated the government like any other borrower. As it turned out, the government didn't like the new system and has never liked it since then. Today, the present system has evolved a complicated apparatus at its top called the Open Market Committee of the Federal Reserve, most of whose members are politically appointed. Several members of the House Banking Committee are even now quite vocal in their C-span denunciations of the seven members of the Open Market Committee who in rotation are elected by the commercial banks of their regions. Close your eyes and the scene becomes the same; agents of the government feel they have a right to control the rules for government borrowing, while agents of the marketplace remain certain governments will always cheat if you don't stop them. This situation has not changed in two hundred years and essentially explains why some people hate banks.
Seigniorage
That's the real essence of Morris's new idea of a bank; other advantages appeared as it operated. The law of large numbers smooths out the volatility of deposits and permits long-term loans based on short term deposits. Long-term deposits command higher loan prices than short-term ones can; higher profits result for the bank. And a highly counter-intuitive fact emerges, that making a loan effectively creates money; both the depositor and the borrower consider they own it at the same time. And finally, there is what is called seigniorage. Paper money (gold and silver "certificates") deteriorates and gets lost; the gold or silver backing it remains safe in the bank's vault, where it can be used a second time, or even many times.
For four days, Morris stood as a witness, hammering these truisms on the witless Western Pennsylvania legislators. At the end of it, scarcely one of them changed his vote, and the bank's charter was lost. But at the next election, the Federalists were swept back into the majority, defeating the opponents of the bank. Although, as we learn the way democracy works, still leaving them unconvinced of what they do not want to believe.
Andrew Stewart, the Public Relations Director of the Barnes Foundation, and for thirteen years a member of its Board of Directors, recently addressed the Right Angle Club. He gave a new slant to the quarrelsome saga of Dr. Barnes' will, offering the point of view in favor of moving the paintings to the Parkway. It's useful to hear the legal and historical background because about all we hear are criticisms, balanced by joy at having the famous paintings where we can see them.
Essentially, the will declared a wish for the School and Museum to follow the original indenture. After the passage of time, the old board members died off, and the new board members found the Indenture to be out of date, like specifying the purchase of railroad bonds. Delivered in a charming Scottish brogue, the argument was fairly convincing. But it stimulated in me an entirely different moral from the eternal dispute between the right of a man to have respect paid to his expressed wishes for his own property, versus the self-defeating quality of the same restrictions with the passage of time.
Barnes Foundation
Barnes was born in Kensington, and had a hard life as the son of a Civil War veteran who lost an arm in the war, and had a dismal time making a living as a butcher. Barnes was his fighting-spirit son, who worked his way through medical school. It was Jefferson Medical College, where I was on the faculty for decades. While it is true his patent medicine gave a permanently sickening color to the children who were treated for sinusitis, it is also true that in the form of eyedrops it prevented the transmission of syphilis to millions of newborn children. In that view, it was a real scientific contribution, although the medical profession continues to take a dim view of doctors advertising their wares. Although he was himself a failed artist, Barnes was a highly successful collector of (then) modern art and started a school with John Dewey to teach art appreciation to poor people. One by one, the local universities snubbed his wishes for an art appreciation school, and the local Philadelphia museums were pretty sniffy about his favorite artists.
In fairness to them, Barnes was probably pretty pushy in his demands. Unfavorable local reception to an exhibition which had received rave applause in Paris, convinced Barnes he was right and they were wrong. After this, Barnes developed a lasting hatred of Philadelphia and all its stuffy ways; he definitely didn't want his own impressionist art to be in Philadelphia, which would never appreciate it. While Philadelphia finally woke up to the value of Impressionist painting, Barnes never relented while he was alive. I hope I give a fair portrayal of the argument except for the politics and the legalities, that I know very little about.
But hearing the arguments, I see an entirely different moral to the saga. Ever since the inflation of the 1930s, fine art has appreciated in value, faster than the endowments to maintain the art. (That's probably a useful tip to investors, too.) It's fairly standard for a wealthy person to donate his art collection, plus a sum of money to endow the maintenance of the art. Most of the time, the size of the endowment is carefully calculated to grow at least as fast as the value of the paintings, because you have to ensure them, and pay for increased security, and increasing attendance. With the new trend toward inflation of at least 2% a year, the old premises don't work anymore, and the endowment eventually runs out. At that point, it runs into restrictions which -- to be perfectly blunt -- were created to prevent the trustees from pilfering the museum. A museum may not sell its art to pay for administrative expenses.
Consequently, The Barnes ran into a situation where it had billions of dollars worth of paintings in the basement, which it could not sell, and could not even hang in the museum because of Barnes' specifications for what went on the walls. This situation isn't going to change, because a dollar in 1913, when the Federal Reserve was created, is now scarcely worth more than a penny. And the present Fed is committed to 2% inflation, forever.
So, how about this: let the lawyers who write wills, and the Orphan's Court which administers them, insist that the art collection be divided into two parts. One would be the permanent collection, just as at present, and the other would be eligible for sale in the judgment of the Orphan's Court.
One secret of success for Classical Health Savings Accounts lies in recognizing a single approach is inadequate; at least two approaches are required. Catastrophic health insurance spreads big risks (mainly hospitalizations), while tax-free accounts promote more frugal spending for small ones (mainly ambulatory care). Combined in an HSA, they do what neither does alone, by covering overlaps. Now I contend, six principles in combination can create even greater savings, when separately they might create more confusion.
1. Redesign Insurance. Health insurance has traditionally been upside down. Starting with "first dollar" coverage, really sick people feared bankruptcy when medical costs outran policy limits for the last dollar. Obviously, it would be better to ensure big catastrophes first, skipping small ones if funds run out. If we must have mandatory health insurance, the thought ran, let it be the high-deductible catastrophic variety, with out-of-pocket limits protecting outliers. To a certain extent, the Affordable Care Act moved in that direction, possibly opening room for compromise. Deductibles should be high, but co-payments are useless and should be eliminated. Subsidies should subsidize people, not specific programs, and should avoid taxing the same program they are supporting.
2. Indirect Transfers Between Age Groups. Working-age people largely finance the health system but most don't get sick themselves, whereas sick people are mostly retired and on Medicare. That makes young people restless, while Medicare breaks the national budget with a 50% subsidy. (It's largely accomplished through bond-loans from foreign countries, like China.) The age-related funds' transfer is desirable but is now largely left to hospital cost-shifting. The cost could be lessened by letting the worker keep health money in his HSA, earn interest, and spend it on himself when he ages. 2b. Furthermore, I propose we shift the cost of the two most expensive medical years of life to individual escrow funds during the period of investment. To be specific, shift the cost of the first and last years of life from coverage by catastrophic health insurance and Medicare -- to repaying average national cost (reported by Medicare) back to the insurers who originally paid the bills. That's technically known as first and last years of life reinsurance.
3. Funds Creation. How might we pay for this transfer? Well, in the first place, living people are assumed to have somehow already paid for their birth year. It will be forty more years before new ones are even half-way phased in. Even terminal care costs will not level out until life expectancy stops lengthening. Revenue, on the other hand, could commence immediately. The hard part of revenue production lies in fixing "agency" failures. That is, avoiding spending it in the meantime, and keeping middle-men from poaching on it. I propose individual escrow accounts are preferable to agency management by either government or private sector financial institutions. Saving for your own rainy day is much more palatable than taxing for transfers between demographic groups. The cost of passive investment in index funds is small, and long-run gross returns approach 11%, or 7% net. But middle-man costs are often too high. Considering the trillions in index fund potential, these inert investments might even be considered for a substitute currency standard. Gold is too rigid, government judgment always proves too inflationary.
4. Compounding. Meanwhile, it helps to recall what the Ancient Greeks knew about compound interest. Money at 7% doubles in ten years, and therefore with life expectancy now at 84, can expect to double more than eight times. 2,4,8,16,32,64,128,256, (512- 1024). Unfortunately, the rounding errors also get compounded. Therefore, although the general concept is unchanged, one dollar at birth actually grows to about $289 at the average time of death by present expectations of it. By that time, life expectancy will likely grow by unpredictable amounts, so it might actually transform one dollar into $500 if inflation is held to no more than 3% -- or to some other value, more or less. The main hope for price stability lies, not so much with the Federal Reserve, as in medical science reducing the burden of disease and increasing the productivity of the delivery system. I feel confident last-year costs can be covered, either by patient contribution or by government subsidy, if -- transition costs are absorbed over the first decade or so, if the Federal Reserve can successfully hold inflation below 3%, and if medical science can cure one or two major diseases inexpensively in the next fifty years. Otherwise, this could merely be a proposal for generating tons of new revenue but would fall short of paying for all the healthcare affected. Even covering by only 10% would produce staggering sums, however.
Let me remind you, those extrapolations are for only one dollar invested. More specifically, the goal of the proposal is to pay for the last year of life by some variant of one-time investing of $150 at birth, possibly even as much as $50 per year. This should be enough to relieve the debt pressure on Medicare and to reduce the cost of catastrophic care for the rest of the population considerably. It's still much less costly than continuing the present approach.
5. Adding a Generation to the Family. To include the cost of children, we propose increasing the $150 at birth to $200 (potentially, $25 a year) and transferring the resulting surplus, from the grandparent's "bequest" to the Health Savings Account of no more than one grandchild at birth, thereby adding 21 years of compounding, broadening the scope to the first 21 years of life, and further reducing the premiums of catastrophic coverage for the rest of the population. Child-care costs are far more significant than they sound, and all health care plans have faltered on them. It is nearly impossible to refund the day you are born, particularly when the responsible parents are young and financially insecure, facing the cost of an automobile, a house, college education, and another child. For a remarkably small dollar cost, compound interest can greatly relieve this social environment, and therefore I advocate the small additional cost of extending the first year of life to the first twenty-one of them. And funding them via the grandpa route.
6. Tax Equity. Additional required regulations are more or less self-evident, but the most important one would be to permit paying for catastrophic insurance premiums by the Health Savings Account itself, thereby creating tax exemption equivalent to employer-based insurance.
(7) The overall result presented here is to shift the costs of children up to age 21, plus the last year of life, to a longer compounding period and to their ultimate source, which is working people from age 22-66. It adds a major source of revenue through extended compounding, and it does this at the reinsurance level, mostly insurance company to an insurance company. By shifting these costs, other programs cost less, and cost-shifting at the hospital level should greatly be reduced. As scientific research reduces costs, Medicare is destined to shrink, so its revenue can gradually be shifted to retirement income. That isn't exactly privatization, although politics may describe it so. In the far, far, future, health care might reduce along with a designated pathway to nothing but the first and last years of life. Or, the concept may be dismantled and pieces of it used in other ways.
(8) The alternative for tax equity is much more drastic -- of reducing corporate tax rates, sufficiently to compensate companies for losing their existing tax preference. For years, reformers have advocated tax equalization by eliminating the tax deduction for employees. It hasn't been successful, so now we advocate equalization first, reduction later. If that is blocked, there is no choice but to lower corporate taxes, paradoxically the source of the problem.
The Right Angle Club, now in new quarters in the Pyramid Club, was recently visited by Professor Kenneth Burdett of the Universities of Pennsylvania and Cornell. A charming fellow with a Scottish burr (he mentioned being born in England), the professor told of a new twist to economics, which mostly employs familiar data in unfamiliar ways. Many concepts central to macroeconomics actually become less informative as net values or ratios of other expressions, losing useful information in the name of abbreviated elegance. "Unemployment" was offered as a handy illustration.
Mark Rank
We tend to think of 230,000 new jobs this month as a hard fact, whereas employment might be more precisely described as a set of several million people switching jobs each month, offsetting several million others who gain new jobs, along with almost as many who simply decide to leave the workforce and retire. We always sort of knew unemployment was a combination of gainers and losers, but few of us recognized that net turnover affected far larger volumes of people going opposite ways at slightly different rates. The reasons underlying a large flux, in other words, may be much more important than small net overall fluctuations. Or, far larger population upheavals may produce deceptively similar net results. We've been accustomed to judging smaller final ratios than to many-times larger underlying flows, or at least implying undue importance to a small subset of change. What usually happens is vastly larger numbers of people lose their jobs during a depression, but almost as many millions more re-enter the workforce, too, but at a lower wage level.
Thomas A. Hirschl
Curiously, a new book by Mark Rank of Washington University, and Thomas A. Hirschl of Cornell (!) called Chasing the American Dream: Understanding What Shapes our Fortunes has just appeared, saying much the same thing. Their approach is to develop a figure for the risk of being unemployed for a year in the next 5, 10, or 15; at the moment the answer for unmarried white persons sometime during the next fifteen years in the future, is 32 percent. That seems to be a much more scary projection than setting the present aggregate total unemployment at 4.6%. We'll have to wait 15 years to see which prediction really is more descriptive, or if it has the same consequences we immediately assign to it. But it would appear many assumptions are about to be set on their head, and the quality of our projections is about to shift dramatically. For example, Chairman Bernanke of the Federal Reserve placed great stock on wage inflation being "core" inflation, but these calculations suggest much more can be made of the data than that. Since somehow it is suggested the present recession has eight more years to run, current oversupply may require eight more years to run down; old data restated in this new way may have different implications for policy.
Chasing the American Dream
Right Angle members who lean both right and left seemed impressed and befuddled by a new view of an old topic, and that's probably a good thing. There seems no question of the validity of the approach, no question of significance, and little doubt of its ability to change attitudes. We look forward to many more such insights from the Dismal Science, of this nature. For instance, this professor of many students of the rentier class remarked at how repeatedly he had been struck by students able to afford red convertibles (and the Princeton tuition cost) were nevertheless willing to throw themselves into the scrum of Wall Street, to make even more money.
He regarded that as a strength of the American economy, in stark contrast to that in Europe, where the first sign of prosperity sent his old acquaintances straight to the pub, to relax a bit. In the British aristocracy, "entering trade" is a low-class thing to do, whereas sitting on the sidewalk sipping wine is the mark of really high class. The American version is reversed, but possibly that's a more useful misconception.
109 Volumes
Philadephia: America's Capital, 1774-1800 The Continental Congress met in Philadelphia from 1774 to 1788. Next, the new republic had its capital here from 1790 to 1800. Thoroughly Quaker Philadelphia was in the center of the founding twenty-five years when, and where, the enduring political institutions of America emerged.
Philadelphia: Decline and Fall (1900-2060) The world's richest industrial city in 1900, was defeated and dejected by 1950. Why? Digby Baltzell blamed it on the Quakers. Others blame the Erie Canal, and Andrew Jackson, or maybe Martin van Buren. Some say the city-county consolidation of 1858. Others blame the unions. We rather favor the decline of family business and the rise of the modern corporation in its place.
Originally the "lower counties" of Pennsylvania, and thus one of three Quaker colonies founded by William Penn, Delaware has developed its own set of traditions and history.
Start in Philadelphia, take two days to tour around Delaware Bay. Down the New Jersey side to Cape May, ferry over to Lewes, tour up to Dover and New Castle, visit Winterthur, Longwood Gardens, Brandywine Battlefield and art museum, then back to Philadelphia. Try it!
Millions of eye patients have been asked to read the passage from Franklin's autobiography, "I walked up Market Street, etc." which is commonly printed on eye-test cards. Here's your chance to do it.
In 1751, the Pennsylvania Hospital at 8th and Spruce was 'way out in the country. Now it is in the center of a city, but the area still remains dominated by medical institutions.
Grievances provoking the American Revolutionary War left many Philadelphians unprovoked. Loyalists often fled to Canada, especially Kingston, Ontario. Decades later the flow of dissidents reversed, Canadian anti-royalists taking refuge south of the border.
We faced a big problem caused by too much cheap money, and we struggled to save the situation -- by injecting more cheap money.
