Robert Fogel and the economics of good health
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chemistry and physics to study economics at Cornell because he feared, as did others, that when military spending was withdrawn the economy might retrench and sink back into a reprise of the Great Depression.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.