A Price for a Human Life?

By Robert Bernstein   |   June 18, 2020

New York Governor Cuomo said in March, “If it’s public health versus the economy, the only choice is public health. You cannot put a value on human life.”

But public policy absolutely requires placing a value on human life. There are about 35,000 automobile deaths each year in the U.S. If we reduced the speed limit to perhaps 10MPH the death figure could be reduced to nearly zero. Clearly, policy makers have placed a price on human life.

So, what is the price of a human life? There have been different measures over history. At one time the price was set by the earnings of the individual. This would be used in legal cases to assess a fair compensation to a family that lost its primary earner. This clearly would depend on the age of the earner and the potential for future earnings.

But is that the best way to assign a price? What about when someone dies who was disabled and could not work. An actual court case ruled such a person is a liability and the family got zero.

If we base the price on the individual value of a life, I might claim that the value of my own life is infinite and claim the value of others’ lives is something else. A more common value today is given by the “Value of a Statistical Life” or VSL. This is based on how much you would have to pay someone to raise their risk of death by a certain amount. Or how much they would be willing to pay to reduce their risk.

It is hard to do a survey for this number, but we can observe what people actually choose. For example, how much more people are paid for taking extra risks on the job. This is called a “revealed preference.” The number reveals about $10 million per life.

Private companies make risk assessments based on the penalties they might have to pay if something goes wrong. The case of the Ford Pinto is a famous example. Out of about two million Pintos, there were six horrific deaths due to poor placement of the fuel tank in rear end collisions. Ford calculated that it was cheaper to pay compensation for the deaths and injuries than to fix the problem.

Governments can change these assessments by setting fines or other punitive damages. But in most cases these fines are smaller than the actual damages that are caused. In other cases the government simply mandates policies. For example, starting in 1968 all cars were required to have seatbelts for all passengers.

U.S. healthcare policy is really an outlier among industrialized countries in that there is very little rational assessment of value of life. The U.S. spends about $3.5 trillion each year on healthcare, amounting to over $10,000 per person on average. But that average is misleading. About 5% of the population accounts for half of that spending. Meanwhile, about 30 million Americans have little or no access to healthcare.

Britain has the National Institute for Health and Clinical Excellence, called “NICE,” to rationally allocate money in its universal healthcare system. Their rulings are not always politically popular in individual cases. But their outcome statistics are better than ours in the U.S.

Americans will rail against the very idea of “rationing” of healthcare. But what is the alternative to a rational allocation of resources? The U.S. rations healthcare, too. Just not very rationally.

In the case of the coronavirus, we may have made a false dichotomy between the value of a human life and the economic costs. First of all, economic costs have real human costs. There is a direct correlation between higher unemployment rates and rates of suicide and domestic violence.

But we can also look on the positive side: We could invest in proper disaster preparedness and avoid some of the economic impacts. Starting with adequate supplies of Personal Protective Equipment.

We also could be investing in projects that need to be done, but always get sidelined for more immediate priorities. Over a trillion dollars was quickly printed at the start of the COVID-19 crisis and handed out as a stimulus. With no clear idea where that money would end up. The Green New Deal was first promoted during the last economic crisis as Obama ran for president. But little ever came of it.

If we invested a trillion dollars in sustainable transportation and energy projects we would get the economic stimulus and keep people employed. But we would also get the benefit of solving the climate crisis and living in a healthier world. Perhaps that is the best value of life?

 

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