Philadelphia Reflections

The musings of a physician who has served the community for over six decades

367 Topics

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)
DelawareOriginally 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.

Tourist Walk in Olde Philadelphia
Colonial Philadelphia can be seen in a hard day's walk, if you stick to the center of town.

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

Independence HallMillions 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.

Benjamin Franklin Parkway
Benjamin Franklin Parkway

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 ... William Penn's Quaker Colonies
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Philadelphia's Republican Machine

From time to time, someone denounces big-city political machines, making the mistake of describing them as invariably Democrat. Debaters duly object, pointing to Philadelphia's Republican city machine lasting seventy-five years. It was, indeed, a very tough and corrupt organization. Whether it was Republican, is more debatable. The question might be re-phrased: How is it, with Democrats running every other big-city political machine, Philadelphia alone produced a Republican version? The explanation is buried in complex national politics just before the Civil War, when the last and final Whig convention was held in Philadelphia, following which the successors, the Republicans and also the Know-Nothing (American) parties, held their very first conventions here four years later.

James Buchanan

To stir the Philadelphia pot still further, the person who actually won the 1856 Presidential election was James Buchanan, a Democrat from Lancaster County. Just about everything political was happening right here, all at once. Lots of deals were made. The Pennsylvania Republican delegation emerged as Abraham Lincoln's king-maker, and Lincoln as President rewarded Pennsylvania for its keen insight. Appointing cabinet members from Pennsylvania, the new administration naturally steered war contracts to our local industries. Philadelphia politics immediately became Republican in a big way, and after the war, the Republicans were then in charge of the national government for fifty years. Philadelphia had created a political machine, and it made no sense patronage-wise for many decades, for it to profess allegiance to any other party than the one it started with.

There thus exists a simple and coherent explanation for Philadelphia's exceptional behavior. A more difficult question to answer beyond dispute is: Why do big-city political machines almost invariably develop a Democrat affiliation? We're going to take a pass on that one, falling back on the observation that municipal politics usually have very little to do with national politics, no matter what Tip O'Neill may have said. Indeed, local politicians mostly wish national politicians would go back to Washington and leave them alone. National politicians certainly reciprocate that feeling, especially if they have a safe district.

But Party unity is periodically stimulated (some would say simulated) when the national figures must come back home from Washington seeking voter approval, searching out support in the clubhouses, fire stations and taprooms that are firmly in control of local warlords. Those warlords care little about foreign affairs, interest rates at the Federal Reserve, or globalization, becoming uneasy when the national politicians to whom they owe nominal fealty drag them into messy subjects like abortion and civil rights. In the clubhouses, there is a tendency to measure national leaders by patronage and pork barrel. In return, the national representative wants to be re-elected. He wants voter turnout, campaign funds, and gerrymandered districts. It's mostly the same in both parties, and in all regions.

No Plan is Free of Risk; Long Range Planning is Political

In recent years, Congress has taken to producing laws of great complexity, sometimes thousands of pages long. This is particularly notable in the Obama administration but can be viewed as a non-partisan tendency throughout the Twentieth century, starting with Teddy Roosevelt and Woodrow Wilson. As part of the phenomenon, the workload of Congress has increased to the point where the Legislative branch is particularly weakened by its traditional procedures. The Executive branch has responded greatly enlarging itself, able to create most of the Law through regulation after the law is passed; and the Legislative branch reacts by creating excessive detail in later laws. This recipe for self-defeat has come to be called "micromanagement" by business theorists, who tend to view "command and control" as a solution. As long as the Constitution stands, that approach will not be allowed to work. It is not the purpose of this book to redesign government, or even to discuss it in detail. However, it is wise to remember that even good proposals are undermined by the change of circumstance. Unwisely freezing details when not truly necessary could defeat the main goal, which is to pay a large share of health costs with compound investment income.

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The main goal is to pay a large share of health costs with compound investment income. {bottom quote}

The main concern is this: our present or future systems of managing the currency may not permit compound interest to compound faster than inflation. That can't be blamed on the Health Care system, but it would certainly injure health care. At the present moment, long-term U.S. Treasury bonds pay 2%, but inflation reduces the value of the bond by more than that, perhaps 3%. Income tax reduces the value by perhaps 0.5%. The graduated income tax already makes it useless for the top quarter of the population to buy Treasury bonds, to say nothing of the top 1% of the population. Whatever the outlook for bonds, insurance companies must keep a large bond portfolio to pay claims. Whatever the outlook for stocks, a large stock portfolio is necessary to stay ahead of inflation. The public must not force its managers to ignore these rules in order to match the investment results of others.

Congress has responded to unrelated pressures by trying to collect the same taxes from a loophole-less tax code, primarily for the purpose of lowering the rates on the top bracket. Whatever the outcome of this struggle, it dramatizes that the usefulness of investing in bonds can readily be destroyed by modifying the tax code, by the stroke of a pen, as it were. You certainly would not want your lifetime health insurance to be risked by that sort of thing happening, sometime in the next eighty years, so you do not want the government to be too tightly in control of your investment portfolio. You may love your government, but its agenda is not necessarily in harmony with that of an insurance company.

Legislative extremes probably won't happen, because of the historic sensitivity of Americans to taxation. But inflation could be equally destructive, and control of that lies in the hands of an un-elected committee at the Federal Reserve. Much of this power was unintended, created by going off the gold standard, and then replacing it with the power of the Federal Reserve to issue (or, not issue) vast amounts of currency in response to "targeting" inflation at 2%. Since a casual observer has trouble seeing much of a match between 2% and the actual amount of currency issued, the Federal Reserve Chairman has been given wide latitude in adjusting interest rates for his own purposes. The outcome for present purposes is that a fifty-year history of this system would have allowed the following statement: "You could withdraw 4% a year from an investment fund, indefinitely, and still have the same amount remaining in the fund." In the past year, however, the following analysis emerged from David C. Patterson, the CEO of a very large investment fund: "A draw of 3% a year at any time since 1926 would only have resulted in a steady purchasing power 60% of the time." Whether this attack on a fundamental investing maxim was caused by inflation, going off the gold standard, or the actions of the Federal Reserve, it is a lesson that interest rates cannot be predicted eighty years in advance, within the boundaries of what experienced financiers considered safe enough to depend on.

The Bottom Line. The life insurance industry faces exactly the same problem, and if the life insurance industry has a solution, it hasn't made it public. What the life insurance industry surely has, is lobbyists. The solution they would devise doesn't necessarily address someone else's problem, but health insurance for the last year of life comes pretty close to what they do for funeral cost protection, so one could be confident they would be allies in any congressional manipulation of income tax upper brackets, to the disadvantage of investment funds. And the same thing could be said of the financial community. And the banking community, so one could be reasonably confident there would be plenty of allies against any overt congressional assault. That does leave the loopholes created in any plan by the unintended consequences of some other plan.

All in all, it seems the best strategy to begin with an investment fund which has already been authorized and given a tax exemption: the Health Savings Account. Put as much as you can in one and let it grow. Spend it for some health expenditure if you must, but anyone who puts in two thousand dollars at the birth of a grandchild is probably going to be glad he did, even though it might be left undeclared just how it would later be spent or disposed of. Walk a couple of blocks and open a debit card for the fund, and walk a few more blocks to a broker who can sell you a high-deductible health policy. Link these three features together when, and only when, some changed circumstances make it useful to link them in a single integrated system. If this direst of dire circumstances never comes about, you are no worse for leaving them independent. But if something bad does come about, you may possibly be motivated to change the basic arrangement, or even dissolve it and take your money out of it. Under really dire circumstances, your own ability to judge what is sensible is probably the best protection you can reserve for what is, at the best, a very dangerous world we live in. For far distant planning, it is necessary to rely on our form of government to produce leadership which can handle the problems.


The Game The Fed Plays With Your Investments Wall Street Journal
The Federal Reserve And Financial Crisis

Internal Borrowing Between Health Savings Accounts

The DRG system constrains hospital inpatient revenue so directly, that hospitals themselves constrain costs, although they generally seek ways to maintain revenue first. It never hurts to verify such impressions, but allowing a 2% profit margin while the Federal Reserve targets a 2% inflation, is probably already too severe. Since the only way to "upcode" this rationing system lies in admitting too many patients, the regulators designed a penalty system for "unnecessary" re-admissions. It largely had no effect. That is, patients who were re-admitted within 30 days, were generally found to need it, so after a time the penalty may even be repealed. Congress probably does not yet realize what a blunt instrument it has created. The DRG system is so draconian it probably incentivizes the hospital to constrain admissions of all kinds, since all admissions may be turning unprofitable. Consequently, the first step in reducing induced use, and charges, in the outpatient area would be to increase the profit margin to 4%, which is to say, 2% plus the inflation rate. We have already mentioned the need to discard the underlying ICDA code and replace it with a simplified SNOMED code, to improve its specificity and remove the upcoding temptation. Having done this, there would remain little reason to worry about inpatient costs; they are what they are, providing the cost accountants find a better way to handle indirect overhead.

This preamble may at first seem irrelevant, but its point is this: both the old employer-based system and the evolving Obamacare variant need to focus on the same problem which faces the Health Savings Account. Whether you overpay or underpay, the main cost distortion lies in the outpatient area. All three systems seem to agree that the use of high deductible insurance will solve the small-claims problem. But the history of health financing is that the medical system is entirely too willing to shape itself to the reimbursement climate. It may take some time, but it is highly predictable that medical practice will further evolve toward substituting outpatient care for inpatient care. The cost of shifting the locus of care is astronomical, and if we switch it back again it will be doubly astronomical. All of this cost should be attributed to the reimbursement rule-maker, not the provider or the patient.

Within the area we are discussing, higher than the deductible but lower than the inpatient cost, the ACA insurance approach tends to push up costs because internal cross-subsidy makes it appear cheaper, but it also makes it far easier to shift the cost of subsidies. Because by contrast, the HSA approach creates individual, not pooled, accounts, it is cheaper because the patient has the incentive of sharing the savings. But its lack of pooling makes it seem less benevolent for elective outpatient surgery, cancer chemotherapy, radiation therapy, and whatever else will be stimulated to migrate to this borderland between inpatient and outpatient. The stimulation will come from both the hospitals and the small-cost ambulatory areas, both being effectively excluded from alternatives. The managers of HSA need to anticipate this coming demand and facilitate it by pooling the funds to cross-subsidize it, struggling to consume much of the profits generated by shifting the locus of care from inpatient facilities and shifting volume profits from drugstores, pharmaceutical companies, and nursing homes. It isn't universally obvious how to do this. so the task must be assigned to someone.

Maintaining the solvency of HSAs encounters two types of problems, endogenous and exogenous. Endogenous means the growth curves of revenue and cost are not two parallel straight lines. A person may have a pitiful amount of money in his own account to pay a bill, but his age group collectively may have huge reserves, on average. Furthermore, a young person may not have enough cash to pay a bill, even though his future accumulations should be more than ample. Both of these problems depend on how much illness is found in young people, and one would hope will progressively diminish. However, the expected shortfalls at all ages must be somehow calculated, and matched against expected surplus; after providing a margin for error, an amount calculated to cover net shortfalls at each age should be escrowed in a "taxation" account, and later returned to individual HSAs as they balance out. There will be administrative costs, but one would hope there would not be much interest or borrowing cost. The goal would be to phase this process out, well before age 65, essentially returning the accounts to the same level of progress they would have achieved without the intervening disruption. My prediction is that most of this need will concentrate around pregnancy and neonatal care, with a low-level background cost of accidents and illnesses in other years. The general idea is to have each age cohort support itself, within the current year if possible, but borrowing against later years on a current-value basis, if necessary. Borrowing from other age cohorts should be seen as an emergency fallback only.

Whoever manages these "taxation" escrows would be well positioned to identify intergenerational anomalies, and therefore to manage the same sort of exogenous pressures. Such managers must look askance at all inter-generational appeals, but migrations from inpatient to outpatient must be matched by reducing the premiums of the catastrophic insurance and transfers to individual accounts. The catastrophic insurance stockholders will not cooperate without evidence of need, nor will pharmaceutical firms lower their prices without argument. Therefore, the managers of the "taxation" fund must establish adequate data resources, and negotiate small frequent changes rather that steep-step infrequent ones. To the extent this activity can stimulate anti-trust concerns, Congress might consider what issues there are, in advance.

Longevity, a Moving Target

In the last fifty or so years, American life expectancy has increased by thirty years, enough extra time for three extra doublings at seven percent. So, 2,4,8. Whatever money the average person would have had when he died in 1900, is now expected to be eight times as great, since he dies thirty years later in life. And even if he should lose half of it in some stock market crash, he will still retain four times as much as he formerly would have, at the earlier death date.

The lucky reason increased longevity might rescue us is the doubling rate started soaring upward at about the time it got extended by improved longevity in 1900 (when life expectancy was 47). In particular, look below at the whole family of curves. Its yield turns increasingly upward for interest rates between 5% and 10%, and every extra tenth of a percent boosts it appreciably more. Let's take a small example. Why don't we invest everything in "small" capitalization companies? Because there aren't enough of them to support such a large diversion to a frozen account. We are therefore forced to concentrate in large capitalization corporations, yielding only 11%. A few tenths of a percent extra yield might be squeezed out of this curiosity. Life expectancy is slowly but steadily lengthening. And so on. It's useful for the nation to realize that having everybody live longer is a good thing, just as long as too many extra people don't get sick with something expensive.

In the past century, inflation has averaged 3% per year, and small-capitalization common stock averaged 12.7%. That results in an after-tax growth of 9.7%. Some people consider 3% inflation to be good for the economy, many do not. The bottom line: many things have changed, in health, in longevity, and in stock market transaction costs. Those things may have seemed to have deviated very little, but with the simple multipliers we have pointed out, that upturn in income at the end of life becomes steadily magnified. If you do nothing at 3%, your money will be all gone in thirty-three years. That is if you leave your savings in cash. While it is true there are risks with all choices, the option of being a deer in the headlights is a poor one. There's a small but critical margin, and everyone must collectively struggle for very small improvements in it.

If you work at things just a little, you take advantage of the progressive widening of two curves, also shown on the graph: three percent (for inflation) remains pretty flat, but seven percent (for investment income) starts to soar much earlier. Up to 7%, there is a reasonable choice between stocks and bonds; but if you need more than 7% you must invest in stocks. Future inflation and future stock returns may remain at 3 and 7, forever, or they may get tinkered with. But the 3% and 7% curves right now are getting further apart with every year of increasing longevity. Some people will get lucky or take inordinate risks, and for them, the 10% (large-company stocks) investment curve might widen from a 3% inflation curve a whole lot faster. But except for desperate gamblers, every single tenth of a percent net improvement, will cast a long shadow. That means blue-chip common stocks are best, except during a black swan crash where all bets are off, but bonds are probably least bad.

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Save it, or Spend it. You can't do both. {bottom quote}

But never forget the reverse: a 7% investment rate will certainly grow much faster than 4% will, but if people allow this windfall to be taxed, gambled or swindled, the proposal you are reading will fall short of its promise. We are offering a way to minimize taxes, the other two risks are your own problem. Our economy operates between a relatively flat 3% and a sharply rising 4-5%. In other words, it wouldn't have to rise much above 3% inflation rate to be starting to spiral out of control. Our Federal Reserve is well aware of this, but the public isn't. A sudden international economic tidal wave could easily push inflation out of control, in our country just as much as Greece or Portugal if they leave the Euro. Another issue: As developing, nations grow more prosperous, our Federal Reserve controls a progressively smaller proportion of international currency. Therefore, we could do less to stem a crisis that we have done in the past.

To summarize, on the revenue side of the ledger, we note the arithmetic that a single deposit of about $55 in a Health Savings Account in 1923 might have grown to about $350,000 by today, in the year 2015, because the stock market did achieve more than 10% return. It might be more realistic to say $250 at birth rather than $55. but the principle is sound. You can't do it twice, but it ought to work, once. There is therefore considerable attractiveness to the expedient of extending HSA limits down to the age of birth, and up to the date of death. It's really up to Congress to do it.

If the past century's market had grown at merely 6.5% instead of 10%, the $55 would now only be $18,000, so we would already be past the tipping point on rates. You do have to leave some extra room. In plain language, by using a 10% example, $55 could have reached the sum now presently thought by statisticians -- to be the total health expenditure for a lifetime. But by accepting a 6.5% return, the same investment would have fallen well short of enough money for the purpose. Unlike the municipalities that gambled on their pension fund returns, that sort of trap must be anticipated to be avoided. Things are not entirely hopeless, because 6.5% would remain adequate if our hypothetical newborn had started with $100, still within a conceivable range for subsidies for the poor. But the point to be made provides only a razor-thin margin between buying a Rolls Royce, and buying a motorbike. If you get it right on interest rates and longevity, the cost of the purchase is relatively insignificant. That's the central point of the first two graphs. For some people, it would inevitably lead to investing nothing at all, for personality reasons. Some of the poor will have to be subsidized, some of the timid will have to be prodded.

This is more of a research problem than you would guess: a round-about approach is to eliminate first the diseases which cost so much, choosing between research to do it, or rationing to do it. Right now we have a choice; if we delay, the only remaining choice would be rationing.

Commentary.This discussion is, again, mainly to show the reader the enormous power and complexity of compound interest, which most people under-appreciate, as well as the additional power added through extending life expectancy by thirty years this century, and the surprising boost of passive investment income toward 10% by financial transaction technology. Many conclusions can be drawn, including possibly the conclusion that this proposal leaves too narrow a margin of safety to pay for everything. The conclusion I prefer to reach is that this structure is almost good enough, but requires some additional innovation to be safe enough. That line of reasoning will be pursued in a later chapter.

Revenue growing at 7% will relentlessly grow faster than expenses at 3%. As experience has shown, it is next to impossible to switch health care to the public sector and still expect investment returns at private sector levels. Repayment of overseas debt does not affect actual domestic health expenditures, but it indirectly affects the value of the dollar, greatly. With all its recognized weaknesses, a fairly safe description of present data would be that enormous savings in the healthcare system are possible, but only to the degree, we contain next century's medical cost inflation closer to 2% than to 10%. The simplest way to retain revenue at 7% growth is by anchoring the price leaders within the private sector. The hardest way to do it would be to try to achieve private sector profits, inside the public sector. This chapter describes a middle way. Better than alternatives, perhaps, but nothing miraculous. .

The EU: Sometimes It's Best Not to have a Choice In a Common Bond Fund

America only needs to price its sovereign bonds to a small spread below the prices of its many component corporate bonds, whereas the common market drives multiple sovereign nations to compete in bond prices. Consequently, half of the member nations will oppose consolidation. because bond rates and prices go in opposite directions. The economically stronger nations, no matter who they happen to be, will always have an incentive to oppose bond consolidation because they see it as the richer nations subsidizing the poorer ones when they wanted to believe their success was their own ingenuity and hard work. When survivors of a previous war are still alive it gets even harder to raise your own costs on behalf of a former enemy. The poorer nations, for their part, pay dearly for the opportunity to inflate away government expenditures. Texas surely nursed feelings of this sort in 1913 when the Federal Reserve demanded national bond rates. But only the ignorant ones feel that way, today. New York is constantly looking for ways to escape subsidizing Alabama, but eventually, the tide will turn. New York and California are eternally bemoaning their high taxes, so there is probably an upper bound to what will work. Meanwhile, stocks in a panic fall further than they should have because they had risen too high.

There are no perfect alternatives, but the volatile nature of interest rates creates opportunities to introduce variable mixtures of active and passive bond pricing, depending on circumstances, as an outgrowth of the obvious need to introduce a new currency gradually. The American experience of having state and federal bond systems coexist may well provide useful guidance, and in any event, shows unification can be accomplished.

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.

Sociology: Philadelphia and the Quaker Colonies
The early Philadelphia had many faces, its people were varied and interesting; its history turbulent and of lasting importance.

Nineteenth Century Philadelphia 1801-1928 (III)
At the beginning of our country Philadelphia was the central city in America.

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.