Opinion

Nicholas Wapshott

Robert Fogel and the economics of good health

Nicholas Wapshott
Jun 13, 2013 21:30 UTC

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chemistry and physics to study economics at Cornell because he feared, as did others, that when military spending was withdrawn the economy might retrench and sink back into a reprise of the Great Depression.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

Gold’s decline shakes the true believers’ faith

Nicholas Wapshott
Apr 17, 2013 18:39 UTC

The dramatic slide in the price of gold in the past week has reversed a rise that for more than a decade has been steady and seemingly inexorable. The sudden fall ‑ in which prices plummeted 9 percent, to $1,347.40 an ounce, on Monday, the biggest two-day loss percentage since 1983 ‑ has put goldbugs, who are by definition pessimistic lovers of certainty, into a state of high anxiety. When the commodity of last resort so conspicuously fails to hold its value, the world becomes scarier place.

There  is room, however, for a small celebration: that the Cassandras have been caught short. Their simple remedy of faith in the abiding value of gold as a hedge against an otherwise treacherous, inflated market has been shown to be flawed.

There have always been those who have advocated cashing out and putting everything into gold against the day the stock market crashed, though the number of investors who genuinely found refuge in gold when the market crumbled in 2008 is probably fewer than goldbugs would like to admit. The flight to gold over the past dozen years has attracted a new form of ardent absolutist who suspects the Federal Reserve and the Treasury do not know what they are doing and who believes quantitative easing to be an evil process that invites inflation. These ideologically driven gold stashers are closely related to, indeed are often the same people, as those who advocate the return of the dollar to the gold standard. Such nervous creatures can only be reassured by the ancient lure of gold as a rock-solid reserve. For the past 12 years the rising gold price has appeared to confirm their lack of confidence in Keynesian manipulations of the economy. Since August, however, when gold started to lose its value, something has gone badly wrong.

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