Philadelphia Reflections is a history of the area around Philadelphia, PA
... William Penn's Quaker Colonies.

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Rising (China and) Developing Nations

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Winter of Our Discontent

Lyndon Johnson

In 1965, Lyndon Johnson diverted the (then) rapidly accumulating reserves of Social Security to support his new Medicare program for the sick elderly, along with Medicaid for the sick poor. It was a time of post-war prosperity, the country was sympathetic to the successor to the assassinated John Kennedy, and might well have agreed that the accounting trick Johnson employed was entirely justified. Unfortunately, he was making a huge financial committment against major political opposition, and felt that it was necessary to employ smoke and mirrors to accomplish a worthy goal. His lack of forthrightness however now puts his image in a bad light, when an unexpected demographic event occurred, clearly demonstrating he went beyond his mandate. The totally unforeseen event was that the unusually large generation of baby boomers collectively decided to have fewer children. The "bulge in the python" created the approaching deficit for funding retirements of baby boomers, which the boomers bitterly resent. In spite of that unusually large generation regularly making contributions of 12.4% of income toward providing for its golden years, they now approach the time to spend what they discover really isn't there. President Johnson's accounting trick, called a "unified" budget, was accomplished by describing Medicare and Medicaid as amendments to the Social Security Act. Title 18 was Medicare, Title 19 was Medicaid. Incidentally, those seeking to amend the two medical programs later have thus been destined to be confused for decades by discovering congressional oversight, lies not in the Health committees but in subcomittees of the Ways and Means and Finance Committees. The public shrugged it all off as meaningless congressional quaintness.

A major difference in the way the two medical entitlement programs are financed can if you wish be similarly traced to quaintness in the former Kerr-Mills and King-Anderson bills, but cynics may imagine more substantial motives. Medicare is entirely a federal program, while Medicaid is nearly half financed by state taxes, while entirely administered by state governments. Federal oversight of the way its share of the money is spent was indeed provided by the enabling legislation. But states have always gone their own way in Medicaid, emitting vast clouds of offended belligerence at the least sign of federal "interference". The central unspoken issue is recognition that if one state is significantly more generous to the poor than a nearby state, busloads of poor folks might rapidly migrate to take advantage of it. As they migrate in, employers might migrate out rather than pay higher state taxes inevitably generated by new poverty imports. State governments are happy to get the federal Medicaid money, but why must they spend it on poor people?

Whether states express this motive, they have this incentive. Either way, few exceptions are seen to a progressive diversion of federal funds for the hospital and physician costs of the poor, which is what the law intended, into something not intended, payment for nursing homes. In Pennsylvania, for example, less than 2% of the Medicaid budget is now used to reimburse physicians although reimbursement was originally quite adequate. Hospitals now uniformly complain: Medicaid reimbursements have driven away private philanthropy but pay 20% less than the cost of providing care. Indeed, the incentive to provide famous cutting-edge care is blunted for fear of attracting more Medicaid patients who would seek it. Although nursing homes are the main beneficiary of this diversion of funds, they too are funded below a level which would attract out-of- state migrants. This whirlpool of dissatisfaction has evolved during a period of wide-spread surpluses in state budgets. Total funding of the Medicaid program by the federal government is much desired by the states, but likely would not help the poor much; it would help the uninsured. What is most needed here is administrative discipline, and beyond that legislature discipline; an elusive wish since 1790.

State governors have recently taken to urging universal health insurance, but note that insurance is the only industry expressly designated (by the McCarran Ferguson Act) to have state rather than federal regulation. As a consequence, the health insurance industry is deeply intertwined in state politics. The term "Single payer system" is viewed with suspicion by the states as meaning consolidated federal administration, just as the opposite term "Socialized Medicine" alludes to supplanting professional with political control. Patients and doctors use these terms, everyone else is mainly concerned with the money. At 16% of the Gross Domestic Product, it is quite a lot. Naturally, insurance companies deplore that so many people do not own their insurance products, but it is hard to see why anyone else would feel that way.

For example, trial lawyers who even have a candidate for President, seem not to perceive a threat to their business model in total government control of healthcare; they are probably quite wrong. No one in big industry appears to realize that health costs are progressively narrowing down to the first year of life and the last year; employers have been trapped by a tax abatement into paying for something which in time will scarcely affect their employees. When they do realize it they will surely try to escape their present posture of paying for the whole system with intergenerational transfers. Union leaders do not seem concerned that the coming bankruptcy of Ford and General Motors will probably be blamed on their notoriously generous health insurance benefits. Democratic politicians who were scarcely born when Lyndon fleeced the boomers do not seem to be concerned that the sixties generation loves to make a fuss. Although everyone acknowledges that total coverage leads to higher costs, and higher costs lead to rationing, few people seem to act on this knowledge. Residents of Blue states have scarcely heard of Health Savings Accounts, and if Pete Stark, the current chair of the Health Subcommittee of the House Ways and Means Committee, has his way they never will. But thirteen million people in states colored red on the political map have enrolled in HSAs, in spite of numerous obstacles which Blue politicians placed in their way. No one who wants to pay for drug costs with medical research funds seems to notice that life expectancy in America has increased by nearly twenty years in the same half-century that Russian life expectancy has shortened. Doesn't anyone want a cure for cancer or Alzheimer's Disease?

Have a nice time, suckers.

Odessa, Delaware

Delaware is a pretty small state to be divided into two civilizations, and in fact it seems safe to predict that division will soon be meaningless. New Castle County and Wilmington are up north in duPont country, with more Ph.D's than anywhere else in America, chatteaux in the suburbs, plenty of Porsche's and other elements of the finer life. The other two counties, "South of the Canal," are rural, marshy, or beach front. Wal-Mart country. Aside from a distinct difference in the weather patterns, all of this is destined to change, and soon. A limited-access toll road, probably mostly intended to carry people to the slot machines of Dover Downs, makes it breezily simple to go from one end of the state to the other in an hour. A ferry from Cape May to Cape Henlopen makes it a shorter simpler way to go from the urban areas of New York to and from Washington, Norfolk and points South. And changes in the tax laws make Delaware a great place to avoid sales taxes, estate taxes, business taxes, usury laws and lots of other things. That brings in businesses, and they in turn will bring in a swarm of home builders.

The Corbit-Sharp House Built in 1774 Located in Odessa, Delaware.

Little Odessa (population 280) sits right at the pivotal point in this transformation. This is the very narrowest point of the peninsula between the Delaware and the Chesapeake. In the Seventeenth Century, there was only a five-mile portage from the head of one creek to the head of the other; the town there was called Cantwell's Bridge. Just why the two Delaware-Chesapeake canals were built a few miles further North is an engineering question, but they tended to shelter Cantwell's Bridge from Northern influences. The neck was so narrow, however, that the road couldn't avoid the town, and for a century it was a pleasure to find a little Colonial town, a little Williamsburg so to speak, popping up among the fields of clover bordering a drive to Dover. A few miles to the West, a very fine boy's boarding school adds to the tone of the place, and it's only a short 9-mile commute to the University of Delaware. The finest 18th Century country house, the Corbit-Sharp House sets the tone for the area, and the Christmas season in Odessa is quite memorable. Rodney Sharp was the son of the local school teacher who acquired financial substance, private jet airplanes and all that, on the other side of the canal, and then restored his old home the Corbit house into the Corbit Mansion, bringing the whole farm village up to an elegant level. A visit to Odessa at Christmas, touring the open houses and visiting the festivities, is well worth the trip.

You have to hold your breath to see what is going to happen to real estate in the area. The toll road sweeps around the edge of Odessa, and now the people going to the slot machines and the beaches can hardly see it as they race past. But that's mostly weekend traffic, and during the week all of those cornfields are quickly turning into easy commuter villages, full of McMansions. They are going to fill up the schools, demand better ones, demand traffic signals to protect the kiddies, demand retail outlets for all those upscale stores with catalogers, demand to be noticed. Eventually, all those three-car families will choke up the toll-road, and it will become a great big congested parking lot at rush hour. Sad.

One final comment about the origin of Odessa. It's named after the city in Russia because both of them were wheat exporting cities at one time, although it is doubtful if they were ever comparable in steamy night life. However, the one in Delaware is actually the older of the two. Cantwell's Bridge, Delaware was founded in 1731. For reasons unclear its name was changed to Odessa in 1845, perhaps in the mistaken idea that the Russian city was where Odysseus once landed. That's what many Russians claim, but the place they have in mind was really in Bulgaria. The place the Russians call Odessa was founded by Catherine the Great in 1794, some sixty years after Cantwell began collecting toll at his bridge in Delaware. When the Bulgarian mistake was pointed out to Catherine the Great, she wouldn't change the name; she sort of liked it that way.

U.S. and E.U. Exchange Experiences (1)

The Global Interdependence Center (GIC), founded by Nobelist Lawrence Klein in 1976, brings noted foreign financiers to address Philadelphians interested in finance, and takes those Philadelphians abroad to return the visits. It's a gracious, entertaining, and highly stimulating travel club of very nice folks. Its 25th Annual Monetary and Trade Conference was especially exhilarating. Christian Noyer, President of the Banque de France, gave a description of the rationale and direction of the European common currency. Since he was the Euro's driving force right from the beginning, the experience of hearing him was pretty much like hearing Alexander Hamilton tell the story of the founding of the American banking system. Such a notable event needs to be reported.

Christian Noyer urges that the central concept of the European Union is deliberate, voluntary surrender of national sovereignty -- for a mutually beneficial purpose. The declared purpose of limited surrender of national control of the currency is economic; price stability, lower interest rates, the stimulation of international trade by lowering transaction costs. But the unstated, grander, purpose is the elimination of war. Because the limited technical purpose has been achieved in almost all areas, the grander purpose of eliminating war has not been an accident. With this simple, even humble, declaration it immediately becomes possible for a mildly irritated American audience to understand that European reluctance to become our active military ally grows out of a highly commendable set of motives, and widely differing historical experiences.

As things worked out, the new nations who have recently joined the Union ("The U") are anxious to modernize, because the people of those nations demand modernization and their leaders must agree to achieve it. Inflation, that hitherto inevitable fund-raiser for national goverments, must be eliminated in order to join, and stays eliminated because the other members of The U will not tolerate it in a partner. In his curious way, "price stability" has placed the Union on the side of the people against the locally powerful, although it would be untactful to emphasize it. From the elimination of inflation comes lower interest rates, and from that, a stable currency. From that comes economic growth, for which the political lingo seems to be "modernity". As a consequence of this undeniable success, all nations in the area want to join the Union, and none wants to leave it. If that prevailing attitude doesn't lead to the elimination of what might then be a civil war, it's hard to know what will eliminate it. The marvel of all this skillful analysis is how natural, soft and modest it sounds, feeling like an old soft shoe. Eventual political unification is clearly an old dream in Noyer's head, but for now he seems content with the vindication that it is possible to have a currency without having a country control it. It seems to be a steamroller of economic logic, flattening out the pretenses of merely political power.

No less an economist than Martin Feldstein has written that stable unified currency is doomed in the European context of widely diverse labor markets; Noyer seems pleasantly serene in the face of this argument. He wouldn't say so, of course, but some in the audience got the idea that Noyer probably believes the power of this cooperative idea will eventually discipline the unions the way it disciplined the politicians. One certainly hopes so, for the sake of this smooth, cuddly French aristocrat.

The Corinthos Disaster

Oil Tanker on Fire

Fire, huge fire. The Corinthos disaster of January 30, 1975 was the biggest fire in Philadelphia history, and one hopes the biggest for evermore. Its immensity has possibly lessened attention for some associated issues which are nevertheless quite important, too. Like the issue of punative damages in lawsuit, or the need to balance environmental damage with a national need for energy independence. And the changing ways that law firms charge their clients. We hope the relatives of the victims will not be offended if the tragedy is used to illustrate these other important issues.

On that cold winter day, two big tanker ships were tied up alongside the opposite banks of the Delaware River at Marcus Hook. The Corinthos was a 754-foot tanker with a capacity of 400,000 barrels of crude oil, tied up on the Pennsylvania side at the British Petroleum dock with perhaps 300,000 barrels still in its tanks at the time of the disaster. At the same time, the 660-foot tanker Edgar M. Queeny

Edgar M. Queeny

with roughly 250,000 barrels of specialty chemicals in its hold, let go its moorings to the Monsanto Chemical dock directly across the river in New Jersey, intending to turn around and head upstream to discharge the rest of its cargo at the Mantua Creek Terminal near Paulsboro. Curiously, a tanker is more likely to explode when it is half empty, because there is more opportunity for mixing oxygen with the combustible liquid sloshing around. A tug stood by to assist the turn, but the master of the Queeny felt there was ample room to make the turn under her own power. With no one paying particular attention to this routine maneuver, the Queeny seemed (to only casual observers) to head directly across the river, ramming straight into the side of the Corinthos. Actually, the Queeny had engaged in a number of backing and filling maneuvers, and the sailors aboard were appalled that it seemed to lack enough backing power to stop its headlong lunge at the Corinthos. There was an almost immediate explosion on the Corinthos, and luckily the Queeny broke free with only its bow badly damaged. Otherwise, the fire might have been twice as large as it proved to be with only the Corinthos burning. The explosion and fire killed twenty-five sailors and dockworkers, burned for days, devastated the neighborhood and occupied the efforts of three dozen fire companies. A graphic account of the fire and fire fighting was written by none other than Curt Weldon who was later to become Congressman from the district, but was then a volunteer fireman active in the Corinthos tragedy.

There were surprising water shortages in this fire on the river, because the falling tides would take the water's edge too far away from the suction devices for the fire hoses on the shore. The tide would also rise above a gash in the side of the burning ship, floating water in and then oil up to the point where it would flow out of the ship onto the surface of the river. Oil floated two miles upstream from the burning ship and ignited a U.S. Navy destroyer which was tied up at that point. Observers in airplanes estimated the oil spill was eventually fifty miles long. All of these factors played a role in the decision whether to try to put the fire out at the dock, or let it burn out; experts continue to argue which would have been better. There were always dangers the burning ship would break loose and float in unexpected directions, that the oil slick would ignite for its full length, and that storage tanks on shore would be ignited. The initial explosion had blown huge pieces of iron half a mile away, and the ground near the ship was littered with charred, dismembered pieces of flesh from the victims.

Of course there was a big lawsuit. When a ship is tied up at a dock it certainly feels aggrieved when another ship crosses a river and rams it. The time-honored principle of admiralty law holds that the owner of an offending ship is not liable for damages greater than the salvage value of its own hulk, which in this case might have been about $3 million. The underlying assumption is that the owner has no way of knowing what is going on thousands of miles away, no control over it, no power to respond in a useful way. Enter Richard Palmer, counsel for the Corinthos. Palmer was aware that the National Transportation Safety Board collects information about ship maintenance inspections in order to share useful information for the benefit of everyone. His inquiry revealed that the inspections of the Queeny for four years before the crash had repeatedly demonstrated that the stern engine had a damaged turbine, and was only able to drive the ship at 50% of its rated power. Why this turbine had not been repaired was now irrelevant; the owners of the ship did have relevant information and had failed to act in a timely safe fashion. The limitation of liability to the salvage value of the hulk now no longer applied if the negligence was judged relevant. The defendants, the owners of the Queeny, decided to settle. While the size of the settlement is a secret of the court, it is fair to guess that it approached the full value of the suit, which was $11 million. Mr. Palmer, by using his experience to surmise that maintenance records might be available at the Transportation Agency, and recognizing that the awareness of the owner might switch the basis for the compensation award from hulk value (of the defendant's ship) to the extent of the damage (to the plaintiff's ship), probably tripled the damage settlement.

Reflections on the extraordinary benefit to the client from a comparatively short period of work by the lawyer, leads to discussion about the proper basis for lawyers fees. Senior lawyers feel that the computer has revolutionized lawyer billing practices, and not for the better. Because it is now possible to produce itemized billing which summarizes conversations of less than a minute in duration, services for the settlement of estates can be many pages long, mostly for rather routine business. Matrimonial lawyers are entitled to charge for hours of listening to inconsequential recriminations; lawyers can bill for hours of time spent reading documents into a recording machine, or sitting wordlessly at depositions. Since the time expended can now be flawlessly measured and recorded on computers, there is little room for a client to remonstrate about their fairness. Discomfort about this system underlies much sympathy for billing for contingent fees, where the lawyer is gambling all of his expenses and effort against a generous proportion of the award if he wins the case, nothing at all if he loses. This latter system, customary in slip and fall cases and justified as permitting the poor client to have proper representation, undoubtedly promotes questionable class action suits and often leads to accepting personal liability suits which should be rejected for lack of merit. The thinking underlying personal injury firms is widely said to be: most insurance companies will settle for modest awards in cases without merit because the defense costs would be no less that that amount, and occasionally a personal liability case gets lucky and extracts a huge award.

Oil Refineries

Listen to one old-time lawyer describe how legal billing used to be. After the case was over, the lawyer and the client sat down to a discussion of what was involved in the legal work, and what it accomplished for the client. A winning case has more evident value than a losing one, provided the lawyer can effectively describe the professional skills that helped bring it about. The whole discussion is aimed at having both parties leave the discussion satisfied. To the extent that both parties actually are satisfied with the value of the services, the esteem and reputation of the legal profession is enhanced. And the lawyer is a happy and contented member of a grateful community. If he can occasionally claim a staggering fee for a brief but brilliant performance, as in the case of the explosive fire on the Corinthos -- well, more power to him.

It does not take much familiarity with oil refineries to make you realize that cargoes of crude oil are a very dangerous business. We are accustomed to hearing jeers at those who protest, "Not in my backyard", and we deplore those who would jeopardize our national security to protect a few fish and trees in the neighborhood of potential oil spills. Since we do have to import oil and we do therefore have to jeopardize a few selected neighborhoods to accomplish this vital service, the opponents are sadly destined to lose their protests. But that doesn't mean their concerns are trivial. The shipping and refining of oil is dangerous. We just have to live with it, and be ready to pay for its associated costs.

www.Philadelphia-Reflections.com/blog/1496.htm