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Reopening the Economy vs. the Value of a Human Life

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Today’s episode was inspired by my friend and colleague Bob B, who suspects we need to be looking at COVID-19 lethality in the context of death rates due to car accidents, cancer and other factors.

Believe it or not, YOU are party to using this equation ALL the time!

Not only we Americans, but all the citizens of every country in the world are now and will continue for quite some time to be faced with decisions regarding what to do and how much money to spend on bouncing back from the COVID-19 pandemic. As we collectively figure all that out, it will be useful to think in terms of three distinct groups of people; 1) The Individual Risk-Takers, 2) The Politicians and 3) The Citizens At Large.

There already are and will be many, many distinct groups of risk-takers. Right now we’re all acutely aware of the front-line healthcare workers directly involved with treating those with active cases of COVID-19. No doubt, they’re taking higher risks with personal safety than the rest of us. Of course, taking risks with personal safety is nothing new. A U.S. Air Force fighter pilot in Afghanistan is there voluntarily, but is most certainly taking on greater risk than most of us. The worker hanging off the edge of the 83rd floor of a skyscraper construction project is there voluntarily, but is most certainly taking on greater risk than most of us. The key point here is that each is there voluntarily and has taken personal responsibility for dealing with whatever consequences may come.

The second group, the politicians, decide how much money will get spent on what initiatives. Small business loans, ventilator manufacturing, airline industry bailouts, college loans, health insurance, and on and on and on. The key point of focus regarding this group are the motivations behind their publicly expressed beliefs in each of those decisions. It is not going to be any easier than it was before to determine if what is proposed in legislation X is 1) What’s best for the American People, 2) What’s most likely to get the politician re-elected or 3) Something in between.

The third group, we citizens at large will be some combination of grateful for and amazed by the risks taken by the first group. We’ll also alternately cheer and demonize the politicians for supplying or withholding tax dollars from the parade of publicly-funded, government programs. Now a critical point…

All the decisions and actions of each member of all three groups always has been and will continue to be economically based.

Like it or not, every single one of us has limited resources. Some have more than others, but even the wealthiest among us only has so much. Tradeoffs are always necessary. Maybe it’s a tradeoff between a new personal Lear Jet or a beachfront vacation home. Maybe it’s a tradeoff between paying the rent or buying food for the kids. The point is, every decision each of us ever makes involves tradeoffs. Economic tradeoffs.

To take that thought a bit further, every decision any of us ever makes involves a cost/benefit analysis. It might be an extremely sophisticated analysis that takes months, a very simple one that takes a second or two, or maybe we just make a decision based on the last opinion we heard without putting any personal thought at all into it.

What I’m leading up to here is the very uncomfortable fact that all of us in all three groups are constantly making decisions based in part on the dollars and cents value of a human life.

It’s a creepy thought, but let its truth sink in. It is, in fact, a fact. Consider that jet fighter pilot in the war zone. The pilot decided that for the salary the Air Force pays, it’s worth the risk to be there. The politicians approved every penny of the Air Force budget, including what a war zone jet fighter pilot gets paid. We the citizens voted the politicians in and delegated the task of calculating the value of the fighter pilot’s life which is part of the equation for determining the pilot’s pay. continued below

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As long as we’re speaking about concepts that make us uncomfortable, try this one for size…

“Save a life at any price,” is simply not an option.

Ouch! Speaking of painful truths… Painful, uncomfortable, distasteful, but we all need to come to grips with this painful truth. At some point, the physical resources to save one more life will simply run out. We’re not putting any more armor on the jet even though that would make the pilot safer. We’re not paying for any more college, even though that would mean a better job for the head of household, that pays more money, enabling better nutrition for the kids which in the long term will extend the number years they live.

Just because we don’t ever talk about the fact that we literally put a price on everybody’s life for all manner of public decisions, doesn’t mean we haven’t been doing so for a very long time. We have. But most of us banish that fact from our heads by delegating the actual work of doing so to statisticians buried deep within the bureaucracies of government agencies and insurance companies.

The whole process started getting very mathematically formal back in 1946 with Operations Research conducted by the RAND Corporation (…then part of The Douglas Aircraft Company) with funding from the U.S. Air Force. To make a long story short, the Air Force wanted to know the cost of various strategies for nuclear bombing of, while defending against being nuclear bombed by, the Soviet Union. RAND’s first analysis did not consider the cost of losing an appalling high number of pilots and crews. The Air Force brass went ballistic and sent them home to consider that in their equations.

That was the start down the road to VSL; the Value of a Statistical Life.

RAND, with prodding from the Air Force, realized that not only the cost of the aircraft, the fuel, the bombs and the logistical support, but also the lives of the pilots and crews somehow needed to be incorporated into its cost/benefit analysis of the best way to beat the Soviets in a nuclear war.

They never did figure out how to finish that particular analysis. The question of how to assign a dollar value to a human life, however, continued.

In 1963, Jack Carlson, a former USAF pilot and researcher, got closer to answering the question when he realized, “Life saving is an economic activity because it uses scarce resources.” He used the example of building a dam – any dam, anywhere, any time – which inevitably, due to accidents, takes the lives of several construction workers. But dams still get built, don’t they?

Public authorities do in fact make the decision to build the dam because of the value of hydroelectric power and irrigated farmland. Allow me to re-state that. You and me and your family and friends and neighbors decide to build the dam knowing damn well a few construction workers will die. Again, LET – THAT – SINK – IN… You and me and your family and friends and neighbors decide to build the dam knowing damn well a few construction workers will die.

The cost of every public works project ever undertaken has inherently included the value of a human life in its cost/benefit analysis. Maybe not openly or directly, but it’s there! Ditto for the price of every driver’s license ever issued. It’s only a tiny percentage of drivers who cause the death of another person, but it’s a real, non-zero percentage!

Ditto for every pollution control regulation implemented by the Environmental Protection Agency. We could demand that they reduce air pollution to zero and thus totally eliminate loss of human life due to air pollution, couldn’t we? But we don’t. The cost of doing so would be astronomically high. So we back into putting a value on a human life every year when we set the budget for the EPA!

Ditto for whatever we decide to do about the coronavirus. Ditto for everything we decide to do!

Now back to the history of how we came to do the calculation the way we do. It was 1968, when Thomas Schelling finally coined terminology – the Value of a Statistical Life or VSL – that didn’t totally creep everybody out. Even VSL though, still stops short of categorically establishing the exact value of a human life. It does, however, establish how much we are willing to pay for reductions in mortality risk.

Let’s go back to the city that wants to build a dam for a simple example of backing into a VSL calculation. Initially the city offered a salary of $43,000 for construction workers which is the going rate for the area. Turned out nobody wanted the job. The potential applicants were smart enough to realize there is a 0.02% risk of death on a typical construction job, but a much higher 0.1% risk of death on a dam construction job. Turned out the city had to up the salary to $50,000 to get enough workers to complete the project.

Ready for some math? The risk of death on dam construction job vs. a regular construction job is 0.08% higher. (That’s 0.1% minus 0.02%) Turns out an additional $7,000 in salary is enough incentive for people to assume that higher risk. ($50,000 minus $43,000 = $7.000) When we divide the increase in wage by the increase in risk of death we are calculating how much money it takes to convince a construction worker to accept a higher risk of getting killed. $7,000 divided by .08% is $8,750,000. The city in question just backed into a decision that a human life, the Value of a Statistical Life, is $8,750,000.

I find it particularly interesting to note the interplay of the three involved groups of people, societal forces and the political process. By the way, this interplay is exactly the same for building a dam or implementing an EPA regulation or figuring out how to beat the Soviets in a nuclear war or addressing a pandemic and its aftermath.

Ultimately, the decision of how much money it takes to get someone to assume more risk rests squarely on the shoulders of the classic, idealized American “Rugged Individual.” In the last example, it’s the dam construction worker. For $43K, no way. For $50K, I’m in!

This gives the 2nd group, the politicians, all kinds of cover. They can totally avoid the fact that they agreed to placing a value of $8,750,000 on the life of a dam construction worker. There’s no question they did. The damn dam is getting built, and they’re the ones who agreed to, approved and supported the cost/benefit analysis which absolutely included that Value of a Statistical Life.

Which brings me to the 3rd group, the citizens of the city in question. Not to belabor the point, but it was they who voted the politicians in. They are all part and parcel of that $8,750,000 valuation of a human life.

In my example, the Value of a Statistical Life is $8,750,000. Do you agree with that number? Is that the correct number? Of course, there is widespread disagreement, and the number keeps getting changed over time.

  • In Australia, the value of a statistical life was set at $4.2 million in 2014
  • In New Zealand, VSL was set at
    • $2 million in 1991
    • Increased to $3.85 million in 2013, and
    • Increased again to $4.14 million in 2016
  • In Sweden, VSL is $2.3 million
  • In Turkey it’s $500,000
  • In Russia, it varies from $40,000 up to $2 million
  • In the U.S.:
    • The Environmental Protection Agency says it’s $9.1 million
    • The Food and Drug Administration says $7.9 million
    • The Department of Transportation says $9.6 million

What’s your number?

I’m your Intentionally Vicarious host Todd Youngblood – Still kinda’ creeped out that I, and my family, and my friends, and my colleagues and all my fellow citizens are all complicit in placing a dollars and cents value on human life all the time. Even though I remain emotionally conflicted about it, I do understand that it’s pragmatically necessary. That we must keep it in mind as we decide what to do about this pandemic’s aftermath. I know we’ll figure it out. We always do. That’s why I’m still having more fun than anyone else I know.

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Thanks for paying attention…

Join the discussion 5 Comments

  • James D Roth says:

    Thought provoking for first thing in the morning. Juries set a monetary value on lives which seems to me to be emotional and arbitrary. What am I worth? According to the Bible and the Declaration of Independence, I am inherently worth the equal of any other human being. Rightly stated. Depending on how I live my life, there is value added. Did I live selfishly or did I divest myself for the benefit of others? That added value is non-monetary, but far surpasses any dollar amount one would try to attribute to it. Government and society say all are equal, but then act as though some are “more equal”. It is too dangerous for Congress to meet, but grocery store clerks toil on. (It may show us who is truly necessary for the well-being of the people.) Privates are on the front lines and generals are in the rear. I would argue that while position would seem to add economic value to a person, true value has more to do with the values of the heart and the actions accordingly produced. Economically I’m not worth a plugged nickel anymore, but there are people I have helped who will say I’m priceless. I like that.

    • It really is a disconcerting uncomfortable topic isn’t it, Jim? Personally, I grab on to the following two sentences to come to grips with the fact that ALL of us DO in fact put a dollar value on human life for EVERY public decision.

      “Even VSL though, still stops short of categorically establishing the exact value of a human life. It does, however, establish how much we are willing to pay for reductions in mortality risk.

      Just because VSL is creepy does NOT mean we can avoid applying it to figure out how much of the economy to re-open how quickly.

  • Mary Margaret Just says:

    I can’t get your math to work on my Excell spreadsheet. How many workers? At what skill level? For how long?

    • Mary Margaret – Start by thinking in terms of a single worker making a personal decision for him or herself…

      Individual workers decide – one at a time – that $43,000 is an inadequate salary for a dam-building job. Individual workers decide – one at a time – that $50,000, $7,000 more, IS an adequate salary for a dam-building job. Individual workers know that risk of death on a typical construction job is 0.02%. They also know that risk increases by 0.08% up to 0.1% for a dam construction project.

      For $7,000, individual workers decide they are willing to take on the added 0.08% risk of death. $7,000 divided by 0.08% = $8,750,000. (0.08% = 0.0008)

      The city fathers approve the budget with an average labor cost of $50K per worker. The $8,750,000 VSL is inherently included within the budget THEY APPROVED. They have accepted that valuation. Since they represent the citizens who elected them, the citizens by default also buy into that valuation.

      As I said in the episode, IT’S CREEPY! Nonetheless, we all have been and will continue to use VSL or some other VSL-ish calculation to decide on how quickly to open up how much of the economy. We might not like it, but we WILL do it.

  • Jeff Stoneback says:

    Reopening the Economy versus the value of a human life response:

    So your article got me thinking about the actual numbers. Being a former math major, I thought it would be interesting the run some numbers and see what falls out. The conclusions are not where I expected them to go, and are mind boggling.

    Let’s make a few assumptions to start. We will value the life of a person in the US at 8 million dollars. Since the Fed has been doling out money like candy, let’s start with 4 trillion dollars. So summarizing, we are assuming that this pandemic will cost the US 4 trillion dollars (probably a lot more).

    If you do the math, based on these assumptions, that means if 70,000 people in the US die from Coved-19, the cost of every death would be 4 trillion divided by 70,000 or a whopping $57,142,857.14.

    If you look at it a different way, and assume the same numbers, then for a 4 trillion dollar hit to the economy, and 8 million dollars as a value of a human life in the US, then 500,000 could have died as a break even point.

    As you state in your article, this is a very morbid and disturbing subject. However, decisions have to be made taking all aspects into account. There is also a value out there called the “quality adjusted life year”, which I believe roughly states that if you value a human life in the US at 8 million dollars and assume a life span of 80 years (simple math) then you would lose $100,000.00 per year off of the starting value. So if the average age of a Coved-19 death is 70 years, the value would be $1 million, not 8 million, and the numbers become even more staggering. And if the actual cost to the economy is more like 10 trillion dollars…………….

    Again, a human life is sacred and even losing one person is a tragedy, but to your point if 38,000 people die every year in car crashes are we going to park all the cars?

    Some very interesting food for thought.

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