Opinion

Nicholas Wapshott

Robert Fogel and the economics of good health

By Nicholas Wapshott
June 13, 2013

Robert Fogel, who died this week, won a Nobel for economics by mining historical data and in the process shook up the study of history forever. Just as with cholesterol, it seems there is good data mining and bad data mining. Fogel’s was undoubtedly the good kind.

As a teenager when World War Two was ending, he switched from chemistry and physics to study economics at Cornell because he feared, as did others, that when military spending was withdrawn the economy might retrench and sink back into a reprise of the Great Depression. It didn’t turn out that way.

Governments in the Western world switched from spending money on arms to spending on hospitals and schools and the buoyancy kept another slump at bay until the economy was on its feet. Fascinated by figures, as an academic Fogel applied quantitative methods used in economics to test whether historians’ hunches about the cause and effect of events were correct. His findings led to immense controversy and, eventually, a Nobel Prize.

He first tested whether, as was then commonly thought, railroads opened up America and provoked the surge in economic growth in the nineteenth century. When he looked closely at the data and ran it through computers, which had only recently become available, Fogel found that the great railroad barons had little to do with spurring growth.

Indeed, the building of railroads coast to coast amounted to a mere 2.7 percent extra growth. Different parts of America would have been turned over to agriculture, Fogel discovered, but the nation would have been almost as prosperous without Cornelius Vanderbilt, Leland Stanford, Jay Gould and the like.

The railroad barons made themselves immensely rich, but the nation was little richer for their energy and scheming. Traditional historians, disabused of their theory that America was founded upon the heroic individual efforts of “great men,” were furious.

Fogel then turned to an even more tricky subject: slavery in the Southern states. The conventional wisdom among Southern historians was that the emancipation movement achieved little and the Civil War was fought in vain because the use of slaves in the cotton trade was uneconomic and would eventually have disappeared without Abraham Lincoln or the Union Army.

Again using hard data, Fogel discovered that this version of history was flat wrong, though his findings would not make him popular among Northern historians either. His research revealed that slave masters generally looked after their charges well. They treated their human assets with the care that good farmers tend their livestock. Such cruel acts as whipping were comparatively rare and used mostly to intimidate slaves and make them more docile.

Fogel’s conclusion was that slavery would have operated in perpetuity had it not been for the political will to abolish it. Liberals who inappropriately accused him of excusing slaveholding — he did not no such thing; he merely reported how the economics of slaveholding worked — perhaps did not know that Fogel’s wife Edith was an African-American whom he referred to lovingly as “the overseer of my social conscience.”

Fogel was taught economics by the best. Though he began, like the conservative saint Friedrich Hayek, as a socialist, he learned fast at the knee of the Nobel-winning George J. Stigler, Austrian School economists Abba Lerner and Fritz Machlup, and the Keynesian Evsey Domar. His doctoral thesis supervisor was the Nobelist Simon Kuznets, whose pioneering work in econometrics led to the accurate measurement of economic growth.

As a relentless measurer and collator himself, Fogel was one of the best sort of economists, like Milton Friedman and Anna Schwartz, devoted to determining cause and effect through a meticulous study of the facts. Not for him the faith-based notion, so commonly expressed in the half-educated “economics” debaters in the blogosphere, that if only we were to throw away the last 80 years of macroeconomic thought and revert to a mythical lost Eden where the free market was allowed to rip unhindered we would all live for the rest of time in clover. Fogel didn’t win a Nobel for crossing his fingers and hoping for the best.

When Fogel was awarded his own Nobel, he gave a lecture in Stockholm on the subject that occupied his latter years – good health and its effect on economic growth. The lecture is worth reading in full,  but he discovered that better diet, clothing, housing and healthcare alone accounted for 50 percent of Britain’s growth between 1790 and 1980. (Britain has been keeping records longer than most countries.)

He cited alarming findings about our current hectic work rate: “During the mid-nineteenth century only slaves on southern gang-system plantations appear to have worked at levels of intensity per hour approaching current standards.” But the general takeaway from his talk is this: the greatest drivers of economic growth are improvements in diet, housing and healthcare.

All credit to Hayek for intuitively understanding this simple economic fact; it is why, in an aspect of his landmark Road to Serfdom that seems to escape many contemporary readers, w he advocated the state provision of housing, a generous social safety net, and universal healthcare.

So ensuring that a whole population is healthy is not only a prerequisite for a civilized nation, it makes good economic sense. That goes a long way to explain why countries in Western Europe since World War Two have put as a top priority a universal healthcare system, some single payer, like Britain, and some based on mandated private insurance, like France.

The schemes have proved so hugely popular that any politician who suggests returning to a “devil take the hindmost” health policy is doomed to oblivion. That is why Margaret Thatcher, who received an annual audience with Hayek, toyed with privatizing healthcare but ended up announcing, “The National Health Service is safe in our hands.”

How do Fogel’s findings feed into today’s debate about Obamacare, which will not be fully operational until January 1, 2014? It will, eventually, be good for growth, though it may take awhile to filter through. As Fogel explained, there are “extremely long lags” before the benefits of investments such as good diet, housing and health translate into higher growth.

And it will take some considerable time before the 48.6 million Americans who will now be treated by primary care physicians rather than expensive emergency rooms come to benefit in their pocketbooks from the better jobs they will gain from their improved health.

Nicholas Wapshott is the author of Keynes Hayek: The Clash That Defined Modern Economics. Read extracts here.

PHOTO: Robert W. Fogel, winner of the 1993 Nobel Prize in Economics, addresses a press conference October 12, 1993,  at the University of Chicago, where Fogel is the Director of the University’s Center for Population Economics.

Comments
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This nonsense might have been topical when Mr. Fogel was a teenager and the world was feeling it’s way from wartime economies into peacetime prosperity. Although WW II moved most of America off the farm into town, into the sixties, it was a “given” that more people meant more workers, and more workers meant more prosperity for all. For a short while there was VALID concern about the “population bomb”. Today we are living with our heads in the sand, in denial of reality.

Since the sixties and seventies positions of countless millions of American production workers, Clerks, Girls Friday, Secretaries, Executive Assistants, lower management, supervisors, draftspersons, project coordinators, railroad workers, etc. have disappeared as greater and greater efficiency has become possible through countless inexpensive computers and software.

All these “middle class positions” are not only gone, but gone FOREVER! Fewer and fewer people are needed to do what our society NEEDS done or produced.

Production jobs that are easy for humans to learn are today offshored to “emerging economies” or illegal aliens (think drywallers and roofers). Jobs that are more complex are today being “redefined” into simpler “dead end” tasks anyone warm and breathing that can read and do simple math can do 95-100% in two weeks by part time employees. No overtime, no benefits, no future when there more and more seeking fewer and fewer jobs. What are these people’s children going to do for a “living”?

Any increase in the minimum wage will accelerate the automation of more and more jobs. Computer guided automatons already build much of our cars, planes, computers, etc. Much of the “brain work” of design is now computer-assisted imagination.

Production will increasingly be structures with robotic capabilities in mind. Robots don’t need health care, get overtime, get sick, take vacations, have family expenses and related problems, expect raises, or consume finite natural resources at the rate an exploding human population does. The only problem is that robots don’t buy stuff either.

Irresponsible countries and governments sit on their hands as the world’s population continues to explode towards EIGHT BILLION humans! And yes, the greatest numbers of the youngest and most desperate will forever be those without land, clean water, sanitation, shelter, transportation, intelligence, money, skills, education, jobs or any reasonable prospect of any of these things.

From birth they have no useful place in their society, doomed to a meager, miserable existence until they die from starvation, disease, exposure or violence. And we are supposed to believe if it were possible to give everyone already born “housing, a generous social safety net, and universal health care”? Please.

The governments he most admired, Britain, France and much of Western Europe are even today on financial life support and these United States hang onto our present economic position in the world only by the “skin of our teeth”. Without today’s production efficiencies utterly dependent on oil and gas for electricity and crop production, three quarters of the world’s population could starve in less than a year. Food surpluses rot without distribution.

This is a scenario that causes the desperate to turn to “strong men”, and “strong men” to wars of survival or conquest. With Canada to our north and fish east and west, America can defend it’s southern border only if it develops the will to do so. I see no way this can end well.

Posted by OneOfTheSheep | Report as abusive
 

It is universal in Western Europe and a few zip codes in New York to assume that anything done by a bureaucrat must be good. Anything people do for themselves must be dangerous.

This is odd because, of course, European bureaucrats destroyed Western civilization in the 20th Century with a succession of totalitarian philosophies and the wars that went with them. None the less there area few trusting souls who will grant the government that can’t deliver a letter or manage its finances the responsibility not only cure disease but make everybody healthy. One hesitates to take these sentiments seriously enough to assume that they could be tested in the real world.

As far as I can tell the British love national healthcare because it compels everyone who can’t afford a ticket to the US to wait in very long lines for any serious medical treatment. While the system is sweetness and light on the outside, it is the classic English passive aggressive instinct that is gratified in the end.

Any careful reader of past columns by Nicholas and others will wonder why an American recovery must now wait until the public health improves. Is it really argued that America has had long-term unemployment and dismal economic growth because there is a mysterious plague which has caused everybody to call in sick since 2008? A careful reader will recall that we were told that our current American President and his enlightened policies had solved all these economic problems several stimulus packages ago. The problems, however, seem not to have gotten the memo.

The great attraction for government-run medicine in Europe and here is that politicians promise that they can use the power of the state to compel doctors nurses and scientists to provide care and new research and products to consumers at less cost than a free market would impose. In short, it is price fixing and extortion labeled as compassion.

What is the talent of one, good orthopedic surgeon worth? If it makes the difference between you being a paraplegic or not–perhaps more than the Department of Health and Human Services would write into its reimbursement regulations. But the government takes the average and rounds the numbers (usually) down until a political imperative is reached. Oddly, what it costs equals what we wish to spend–is this a great country?

I would grant, if anyone cared to ask, that a competitive market in healthcare and pharmaceuticals would expose heartbreaking inequities. Perhaps we could soften some of these inequities and ease some of that human suffering if our political class did not choose to deny that a government run system could possibly be improved. It is hard enough to fight disease. Who wants to fight city hall and an utterly complicit media?

Posted by lordbaltimore | Report as abusive
 

Hmm, OneOfTheSheep, you may want to revise your frankly irresponsible views on economics by reading:

1) “Economics in One Lesson” by Henry Hazlitt for the basics.

and then

2) “The Great Deformation” by David Stockman to know WHY things are foobared (but are bound to correct messily eventually). Hint: it is not due to “governments sitting on their hands”. Quite the contrary.

Furthermore, criticism for Mr. Wapshott can be had at:

http://bastiat.mises.org/2013/06/at-leas t-he-spelled-fogel-correctly/

Posted by PrintShopDollar | Report as abusive
 

Excellent article!

Thanks for the hyperlinked references.

Posted by jrpardinas | Report as abusive
 

Actually, our economy would benefit significantly by a resumption of cigaret smoking. Lung cancer kills quickly, thus avoiding many of the medical and personal care costs that we now have with old people.

Posted by drdhesq | Report as abusive
 

Irresponsible countries and governments sit on their hands as the world’s population continues to explode towards EIGHT BILLION humans!

Not only do they sit on their hands, some countries like Ireland, Poland, and the U.S., especially at the state level, actively restrict access to contraception and abortion while using a disproportionate share of the world’s resources. The economic model of infinite growth is not sustainable.

Posted by yooper | Report as abusive
 

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