The measures of real income we have been discussing are imperfectly correlated with personal happiness, the ultimate goal of economic activity. One difficulty is what economists call the “index number problem.” Typically, real income is computed by dividing money income by a weighted average of prices, where the weights are determined by the amounts consumed in a base period. This works fine for commodities that are consumed in the same amounts now as in the base period. But what happens when consumption of a commodity declines because it is replaced by something new and better? In that case, the use of the price index based on the old weights tends to understate the increase in real income. The government agencies that compute price indexes are well aware of the problem and have begun using “chain indexes,” which update the weights annually, to minimize the problem. Nevertheless, it is still difficult to compare real income today with real income decades ago because of the introduction of new products. The computer revolution is a case in point. Cell phones loaded with apps, e-Book readers, laptop computers, and so on have added to our well-being but are only imperfectly reflected in our measures of real income, victims of the “index number problem.”
Real income, moreover, is only one of many determinants of personal happiness. Many economists therefore have been working on ways of moving beyond real GDP per capita to other measures of well-being. Economic historian Richard Easterlin (1974), along with others, pioneered the most direct approach: to look at what people say when asked how happy they are. One of his most surprising findings is that beyond a certain basic level of income, more income does not make people happier. In recent surveys the United States, although well above the median, has not been in the top tier. Denmark, the Netherlands, and Ireland, on the other hand, have typically been among the leaders in terms of self-reported happiness.
Since happiness depends on many factors besides real per capita income, a number of economists have attempted to combine real per capita GDP with other quantitative indicators of well-being into a comprehensive index that is, hopefully, more highly correlated with happiness than is real per capita GDP. The best-known and most widely used comprehensive measure of well-being is the human development index created by economists Mahbub-ul-Haq, Amartya Sen, and their colleagues. The HumanDevelopment Index combines measures of life expectancy at birth and education with real GDP per capital.
Life expectancy at birth is included in the Human Development Index because it is a widely available measure of health. But economic historians have been exploring many other biomedical measures of health and well-being. Striking gains have been made in the postwar period, for example, in reducing the death rates from numerous diseases, as shown in Table 30.2. (See Economic Insight 30.1 for a discussion of the insights provided by height.) These measures reveal that life in the United States was spent in better physical health in the postwar period as revealed by the statistics on death rates from specific diseases and broader measures of health such as infant mortality and life expectancy.
The age-adjusted death rate from influenza and pneumonia fell from 53.7 per 100,000 in 1960 to 16.2 per 100,000 in 2007 in part because of the development and widespread use of antibiotics.1 Perhaps the most dramatic improvement was in the death rate from diseases of the heart, which dropped from 559 per 100,000 in 1960 to 190.9 per 100,000 in 2007. Rapid improvements in medical technology, improved living standards, and the adoption of more healthy lifestyles among the elderly produced these improvements. The number of active physicians per 100,000, moreover, climbed from 153 in 1970 to 242 in 2009, in part because of the increase in the number of active physicians educated abroad. By the end of the period, physicians were plainly more efficient (if less personal) in treating patients than they had ever been in the history of medical science. Not all diseases, however, have shown such dramatic improvements: The deaths from diabetes climbed from 1980 to 2000 before dropping to about the same level as in 1960.
Infant mortality is another sensitive indicator of the overall health of the population. Table 30.3 shows infant mortality rates in the United States between 1940 and 2007. The decline in infant mortality has been dramatic. Improvements in medicine, such as the development of antibiotics, and increases in real per capita income—because income governs access to nutrition and medical care—account for the downward trend. We are still very far, however, from the lowest levels of infant mortality that could be achieved given the current state of medical knowledge. The infant death rate for African Americans was 13.2 per 1,000 live births in 2007, more than twice the infant death rate for whites, 5.6. Some foreign countries, moreover, do better than the United States, showing that more progress could be made. In 2007, the infant mortality rate was 3.4 per 1,000 in France, 5.1 in Canada, 4.9 in the United Kingdom, 6.0 in Cuba, and 2.8 in Sweden. Another indicator of the potential for progress is the wide variance in infant mortality rates within the United States, from 4.0 per 1,000 in New Hampshire in 2008, the lowest in the United States, to 10.0 in Mississippi, the highest. 119
One of the most sensitive vital statistics is height. Height is the result of a number of factors, including nutrition and disease, and is closely related to the level and distribution of income. Height can supplement income as a measure of well-being and can help us understand periods or places for which conventional measures of income are of low quality or not available. Partly through the influence of Robert W. Fogel (1994, 2000), John Komlos (1987), Richard Steckel (1995), and other leading scholars, studies of height by age have become a “hot topic” in economic history.
Figure 30.3 here shows the adult height of white males in the United States by year of birth from colonial times to the present. The data come from a variety of sources. Men are measured, for example, when they enter the military. As you can see, the figure tells an interesting story, one that is different from Figure 30.1, which shows a steady rise in per capita real GDP. Evidently, heights of American men reached a fairly high level, although one below modern standards, during the colonial era. Then heights fell from the 1840s to the turn of the century, when adult male heights began a long climb to modern levels.
The reasons for the depression in heights are not yet well understood. Urbanization does not seem to have been the whole story because heights declined in rural as well as urban areas. Growing inequality of income is one possibility now under study: the poor may not have been able to get enough to eat. Another possibility is that increased movements of people— between urban and rural areas, between regions, and between other countries and the United States—spread infectious childhood diseases that prevented many people from reaching their full adult height.
One important lesson we can derive from the study of height by age is that while per capita real GDP is a useful summary measure of how productive the economy is, we need other measures to get a well-rounded picture. Economic historians have long used measures such as industrial production and consumer prices. Now they are beginning to realize that additional measures drawn from other disciplines, such as height by age, can provide important insights.
Year of Birth
Source: Steckel, Richard H. “Stature and the Standard of Living.” Journal of Economic Literature 33 (1995): 1903-1940.
Life expectancy at birth is another sensitive indicator of a population’s health and well-being. This measure also reveals a steady improvement in the standard of living. For the United States, life expectancy in 1850 for a white baby at birth was 40 years; for an African American baby, it was only 23 years. By 1900, life expectancy had risen to 52 years for white babies and to 42 years for African American babies (Haines 2000). By 1940, life expectancy was 64 years for whites and 53 years for African Americans.
AThe figures for 1940-1960 include other minorities.
Source: 1940-1960, Historical Statistics, 1970, Series B110-B115; 1970-2010, Statistical Abstract of the United States, various issues.
Considerable additional progress has been made since 1940 (see Table 30.4). Between 1940 and 2010, life expectancy at birth for white Americans rose from 64 years to 79 years, an increase of 21 percent. Although African Americans still had a lower life expectancy at birth than whites, the increase for African Americans was even larger, from 53 years to 74 years, an increase of 33 percent. The overall increase is a testimony to improved public heath, increased access to medical care, and improved standards of living, although the continuing gap between whites and African Americans is also testimony to continued inequality in these areas. See Perspective 30.1 regarding the life expectancy of people with Down Syndrome.
The increase in health and well-being in the United States (and the lack of progress when viewed from the perspective of other industrial countries or the most successful
GAINS IN THE LIFE EXPECTANCY OF PEOPLE WITH INTELLECTUAL DISABILITIES
The civil rights movement of the 1960s affected a wide range of groups that traditionally had been excluded from the mainstream of American economic and cultural life. Mentally retarded people were among them. Allowing mentally retarded people to enter the mainstream had dramatic effects on their health. A study by Friedman (2001), for example, drew attention to a startling increase in the life expectancy of people with Down syndrome, a genetic defect that produces retardation. For white people, the increase in median age at death went from 2 years in 1968 to 50 years in 1997. There was also a startling increase in the life expectancy of African American people with Down syndrome, but as with other measures of well-being, a gap between the rates for the two groups remained. In 1968, most
African Americans born with Down syndrome died before their first birthday. By 1997, however, median age at death had risen to 25 years. For white people, progress was steady throughout the period. For African Americans, progress began about 1982, with most of the improvement coming after 1992.
Although all reasons for the increase in life expectancy of people with Down syndrome are not yet known, it seems probable that the increase in the frequency with which children with Down syndrome are being reared at home rather than being institutionalized has led to improved supervision, nutrition, medical care, and emotional support. An important component of the improvement in medical care was the development and employment, often at an early age, of surgical techniques for remedying a congenital heart defect that afflicts a significant minority of people with Down syndrome.
American states) can be traced to a variety of factors, including nutrition, lifestyle, and access to medical care. As late as 1940, only about 7 percent of the U. S. population had any kind of hospital insurance (e. g., any kind of prepayment of hospital costs that one day nearly everyone must pay). That percentage has risen dramatically in the postwar period as a result of new government programs—the most important being Medicare and Medicaid—and of the extension of private insurance, usually provided by employers. In 2000, 86 percent of the population was covered by private or public heath insurance. However, a worrisome segment of the population concentrated among poor people remained uncovered by health insurance. In 2000, only 70 percent of individuals living in families in which family income fell below the poverty line had any form of health insurance (Statistical Abstract 2002, 102). Many people who had some form of insurance worried about its adequacy. In 2010, a major piece of legislation, the Patient Protection and Affordable Care Act informally called Obamacare, was passed. A complex piece of legislation, the major goals were to provide universal health insurance and to slow and possibly reverse the trend toward higher real costs of medical care. As this is written, it is still far too early to know whether the law will achieve its goals.
World History
