Robert William Fogel Interview: Conversations with History; Institute of International Studies, UC Berkeley

Economic History: Conversation with Robert William Fogel, 1993 Nobel Laureate in Economics; 11/16/04 by Harry Kreisler

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History and Economics

A second part of the story of your career and your work is that you are also a historian, and you bring history and economics together in your work. Help us understand how that came about. What made you bring history along in the work that you did in economics?

I liked history. I used to read history for fun. I had very good history teachers in junior high school and high school, who made it a lively and living field. Then I had the good fortune that my principal teachers, both at the Master's degree level and at the Ph.D. level, were very historically oriented, particularly Simon Kuznets, who supervised my dissertation and was the third winner of the Nobel Prize in Economics.

Did these teachers have a European background in their sense of history? Because one could say that Americans generally don't have as much of a sense of history.

Simon Kuznets, who was born in Russia and came here at about age twenty, got a Masters and then a Ph.D. at Columbia University in the late twenties, and worked with [Wesley Clair] Mitchell, the founder of the National Bureau of Economics, who had a very strong historical orientation to economics. The National Bureau, in general, has appreciated history as a source of evidence and as a basis for forecasting likely developments in the economy. So I was with teachers who, although they were economists, valued history as a basis for forecasting.

Tell us a little about the synergy between history and economics, because when one thinks of economics one thinks of theory, but you often don't associate history with theory. There must be an interesting play that has helped you in your work.

I was also very theoretically oriented. Again, I had very good theory teachers at Columbia, one of whom was George Stigler, another Nobel Prizewinner. He was the first holder of the chair that I now hold. He was a mentor [as well as] a teacher when I came to Chicago as a young faculty member; he took an interest in me. He was very pleased to see how I was combining economic history with theory, and helped to encourage me to develop that approach at the University of Chicago.

You wrote that "the historical point of view makes you better aware of the evidence you need." Explain that to us.

If you look at the kinds of problems we're now worried about -- "we" being the Congress, the President, the makers of national economic policy -- we worry about the fact that the Social Security system may go bankrupt in thirty years, or that Medicare may go bankrupt in a similar time span. Well, if you're going to forecast thirty years in advance, are you just going to do it with today's data or do you want to see how the demand for health care and the costs of providing it have changed over a substantial period in the past in order to forecast likely trends? You have to be a historian to be a good forecaster. You have to know what data to look at. Most of our forecasters, even though they're not trained as economic historians, have to learn a lot of economic history.

Using the example of Social Security, then, it probably becomes important to understand how it came into being and what assumptions were built into the program, which have now changed as our historical situation has changed.

Right. You need to go back into the history in order to know why we have, let's say, the kind of problems we have. That is, what was the outlook for the people who designed Social Security in the 1930s, and then redesigned it under the Great Society program? Their vision, the vision of the people who were trying to set up a system that would last for a while, is your basis for thinking about what our problems are going to be in the future and how we improve on the current design in order to avoid a crisis in the not-too-distant future.

Part of the issue is financing, right? The way they chose to finance the system.

Right, financing is the central issue. It's not that we're too poor a country. We spend, if we take health care, for example, we spend a great deal of our national income on health care, 15 percent. My forecast is that by 2030, we'll be spending 21 percent -- and I'm relatively on the low end. There are some very notable forecasters who think it's going to be 29 percent, so nearly a third will be spent on health care. If you go back to 1929, for example, we only spent 3 percent. We're much healthier than we were in 1929, but we spend more than five times what was spent then.

The demand for health care is not driven by the fact that we're getting more unhealthy, but that we're getting richer. Indeed, we're so rich that we need to use only a small fraction of our income for what used to be thought of as the basic necessities of life -- food, clothing, and shelter. At the beginning of the twentieth century, 75 percent of all household expenditures went for that, and now it's less than a third.

And we're eating too much. We're eating more food and more expensive food. A lot of the food is not just food, it's services, because food is now substantially prepared. Most of us have big freezers and a lot of it is frozen. But even if you buy from the grocery store, if you buy spinach, it's pre-washed. In my mother's day, if you bought spinach, the grocer would pick up a bunch of spinach that was one-third sand by weight, wrap it in a newspaper, and my mother spent hours trying to wash the sand out. And even then, the spinach she gave me was a little on the gritty side. So we eat a wider variety of foods, foods that are relatively more expensive in the chain. We don't eat much grains anymore. We used to [get] 75 percent of our calories from grains. And yet, despite all of this, food, clothing, and shelter are under a third of all of our expenditures.

So we have a lot of other things to spend it on. We spend it on education, and we spend it on health care. We spend it on early retirement, compared to the beginning of the century. And we spend it on a variety of leisure time activities.

I hear you saying that history allows you to see the broad institutional context in which the [Social Security] program originally emerged, and history helps you see its evolution over time to where we are, and then to project it in the future.

Right. And also how the society that that program is supposed to serve has changed, how its needs and interests have changed.

So the situation of old people at the time of Roosevelt was very different.

What is your comment on the way this kind of analysis, which gives us a sense of the whole picture over time, is then used by the people who make policy? Do politicians still tend to get it wrong once they have all of this information?

I have a very high regard for the people in the Congress who specialize in these issues. They are very knowledgeable. They have excellent staffs, and they invite academics to evaluate their proposals and approaches. So I think Congress is very serious. It wants to do a good job on these things. How serious Congress is gets a little distorted by partisan elections, because there's a certain amount of drama in which you try and emphasize the problems more if you're the party out of power, more than you might be inclined to do in a non-electoral situation. But leaving aside what you might call the theatrics of elections, I think politicians are very well-informed, serious men who want to make sure that the government serves the population well.

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