The Price of Everything (8 page)

Courts, government regulators, and insurance companies replicate the sorts of calculations Feinberg made all the time. Governments can’t help setting prices on their citizens’ lives as they allocate resources among competing priorities. Simply setting the budget for a fire department puts an implicit value on life, putting some disasters beyond firemen’s ability to help and condemning those whose death would be too expensive to avert. Every time a rule is passed on product standards or workplace safety, the government is making a call that the lives saved from injury or death by the new regulations are worth the costs imposed on producers, consumers, and taxpayers.

In 2006 the Consumer Product Safety Commission approved a new flammability standard for mattresses on the basis that it would save 1.08 lives and prevent 5.23 injuries per million mattresses. Valuing each life at $5 million and each injury at $150,000, it concluded that the benefits would amount to $51.25 per mattress. The cost to industry from the change would amount to only $15.07, so it was worth the expense. By contrast, nearly two decades earlier a panel of the National Academy of Sciences contracted by the Department of Transportation recommended against a federal mandate to require seat belts in all school buses on the grounds that this would save one life a year, at a cost of $40 million apiece.

Measuring up costs against benefits is indispensable in a world where limited funds must be allocated between competing priorities. Still, it inevitably challenges people’s beliefs of what’s reasonable or fair. Cost-benefit analysis has come under withering criticism from consumer safety advocates and environmental activists who tend to believe that we should protect the world’s natural bounty at any cost. In the United States, the Clean Air Act of 1970 explicitly forbade the Environmental Protection Agency from taking into account the costs of compliance when setting air quality standards.

A 1958 amendment to the Federal Food, Drug, and Cosmetic Act sponsored by New York congressman James Delaney required that food have no trace of any additive known to induce cancer in humans or animals, regardless of the cost of removing it or of the magnitude of the risk of contracting cancer by ingesting it. Until the Food Quality Protection Act of 1996 loosened the restrictions, the Delaney Clause implicitly accepted that protecting a consumer from food-borne carcinogens was worth an unlimited amount of money.

Opponents of tallying the costs and benefits of government interventions focus on the inherent uncertainty involved in putting a price tag on an ecosystem, or estimating the benefit in dollars of a decline in the risk of contracting cancer. In the United States, critics remember how cost-benefit analysis was deployed in the 1980s during the administration of President Ronald Reagan, a strong-willed free marketeer who flat out opposed government meddling in the economy. During his first inaugural address in 1981, Reagan stated: “Government is not the solution to our problem; government is the problem.” Shortly thereafter he determined by executive order that all federal regulations would have to be submitted to cost-benefit analysis to determine whether they were providing value for money, and used these evaluations in a systematic campaign to dismantle regulations across the board.

But the alternative to cost-benefit analysis is resource allocation by fiat. In the seven years that followed the attacks on September 11 of 2001, the United States government spent $300 billion bolstering its homeland security apparatus. Yet an analysis of the number of deaths likely to be averted by foiling potential future attacks concluded that the cost of each life saved by this bulging security investment came somewhere between $64 million and $600 million.

As a reaction to the attacks, Australia deployed about 130 air marshals on domestic and international flights, at a cost of about 27 million Australian dollars a year. The marshals were not entirely useless. They were called upon to act once, to wrestle down a sixty-eight-year-old man with a knife on a flight between Sydney and Cairns. But according to a study in 2008, the program cost taxpayers 105 million Australian dollars per life saved.

It is only natural that societies will try to protect themselves from risks. But it is easy to go overboard when we ignore the costs involved. Because the truth is, we can’t afford it all. While the price of protecting ourselves may be hidden from view—when we insist on eliminating even the tiniest risks, the price tag can be staggering. When we fail to account for the costs and benefits of public policies, we often find ourselves spending enormous amounts in an intervention that will save a handful of lives while neglecting others that would provide more life for the money.

During the administration of George W. Bush, John F. Morrall III, an economist at the White House’s Office of Information and Regulatory Affairs, published a study of the costs and benefits of dozens of regulations. Some turned out to be astonishingly expensive: a 1985 rule by the Occupational Safety and Health Administration to reduce occupational exposure to formaldehyde would save only 0.01 lives per year, at a cost of $72 billion per life.

The 1980 law that established the “Superfund” to clean heavily polluted sites across the United States assigned some of the highest values ever placed on human beings. Since 1980 the fund has appropriated $32 billion to clean hundreds of polluted sites that could constitute a hazard to human life. But in many cases there were few or no humans at the sites. The EPA determined the need to clean them up by assuming people would settle on them in the future. The lives of these hypothetical settlers were expensive.

A study in the mid-1990s of population records around ninety-nine Superfund sites concluded that only one presented a substantial risk of pollution-induced cancer, one of the most important areas of risk evaluated by the EPA. But while cleaning the PCB-laced site of the old Westinghouse transformer plant in Sunnyvale, California, would avert 202 lifetime cancers, according to the analysis, cleaning up the other ninety-eight sites would prevent only two deaths from cancer in total. At six sites the implicit cost of the program ranged from $5 million to $100 million per each life saved. At sixty-seven sites, the cost of saving a life exceeded $1 billion. And at two sites no deaths were prevented—so the costs were infinite.

While these programs might be nonetheless beneficial to the environment, this price tag might seem high in a world with other, perhaps more pressing needs. Flood protection in New Orleans comes to mind, or fighting malaria. A World Bank study determined that continuing with the World Health Organization’s strategy to combat tuberculosis in sub-Saharan Africa would cost $12 billion between 2006 and 2015. But in Ethiopia alone the program would save 250,000 lives. Today, about 92 of every 100,000 Ethiopians die of tuberculosis each year.

If the government must tally costs and benefits to evaluate public policies, the obvious question is how should human lives be valued? Feinberg’s approach—measuring our life’s worth by our contribution to GDP—is perhaps too cold-blooded. But there is an alternative, famously articulated nearly sixty years ago by the comedian Jack Benny.

In March 1948,
The Jack Benny Show
broadcast one of the most famous comedy skits in American radio history: a mugger—voiced by fellow comedian Eddie Marr—accosted Benny as he was walking home from his neighbor’s. “Now, come on. Your money or your life,” the mugger demanded. Benny, a notorious scrooge, didn’t immediately answer, so after a long silence, the robber repeated his threat. “Look, bud,” he said. “I said your money or your life.” Benny snapped back: “I’m thinking it over.”

Benny’s skit suggests a solution to this toughest of evaluations. In their efforts to perform better cost-benefit analyses to guide rule making and allocate public resources, governments only have to let people determine the value of their own lives.

We may not be willing or able to put a price on our entire lives, but every day we put a price on small changes in our chance of dying. We do it every time we cross the street, trading a slight chance of being run over by a truck against our wish to get to the other side. Deciding not to fasten a seat belt, smoking, or ordering the potentially poisonous blowfish at the Japanese restaurant involves choosing a higher probability of death than buckling up, not smoking, or picking the salmon. The Toyota Yaris delivers seven miles to the gallon more in city driving than the Toyota Camry—not an insubstantial saving. It also is about $7,000 cheaper. But according to a report by the Insurance Institute for Highway Safety, the chance of dying in a car crash is about 20 percent higher in the tiny Yaris than in the midsized sedan.

In 1987, the federal government allowed states to choose the speed limit on interstate highways, freeing them from the 55 mph yoke imposed in 1974. A study of driving in twenty-one states that revised their speed limits up to 65 mph found that drivers increased their average speed by 3.5 percent. This both shortened their commutes and increased their chances of suffering a fatal crash. The researchers calculated that for each life lost, drivers were saving about 125,000 hours in shorter commutes. If each hour were valued at the prevailing wage, the drivers saved $1.54 million, in 1997 dollars, for each additional death.

In the 1960s, the American economist Thomas Schelling suggested using people’s willingness to pay for safety to determine the price tag they put on their lives. “Proponents of the gravity of decisions about life-saving can be dispelled,” he wrote, “by letting the consumer (tax-payer, lobbyist, questionnaire respondent) express himself on the comparatively unexciting subject of small increments in small risks, acting as though he has preferences even if in fact he has not. People do it for life insurance: they could do it for life-saving.”

A study of parents’ willingness to buy bike helmets for their kids concluded they valued their lives at anywhere from $1.7 to $3.6 million. An analysis of how home prices drop the nearer they are to a polluted Superfund site concluded homeowners were willing to pay up to $4.6 million to avoid the risk of getting cancer. Another way to measure life’s value is to look at people’s choice of jobs, deducing the value of life from the fact that riskier jobs pay more: say a worker accepted $100 more per year to take a job that increased his risk of death by one in 100,000. An economist would conclude from this that the worker valued his life at 100,000 times $100, or an even $10 million.

These techniques have gained traction in many countries to determine the costs society is willing to bear to avoid injuries and deaths. With their appeal to citizens’ own preferences they have a more democratic flavor than calculations based on economic loss or other objective criteria. If the Department of Transportation determines that Americans are willing to pay no more than $5.8 million to prevent death in a traffic accident, it can make a reasonable case against spending more than $5.8 million for each life it expects to save through road improvements that would reduce the risk of fatal crashes.

The Department of Agriculture used to value life much the way the 9/11 fund did, tallying lost productivity from premature death. But in the 1990s it switched its metric to value life according to people’s willingness to pay. Today, it has a nifty calculator where one discovers that 1.39 million cases of salmonella that afflict the United States in a year impose a social cost of about $2.6 billion. The biggest chunk of the cost stems from the 415 people killed by the disease, each of whose lives the agency values at $5.4 million.

Health agencies prefer to measure the value of living one more year, rather than that of an entire life, on the not unreasonable assumption that we are all going to die anyway and all government action can do is push death back a bit, not prevent it. The most sophisticated analyses take into account the quality of each life saved, assuming that a year of life suffering an affliction or disability is worth less than a year in full health. This has led to the creation of a new unit of measurement: the quality-adjusted life year, known as QALY.

To decide whether to redesign or rebuild a road, for instance, the Department of Transportation values injuries along a scale: a minor injury costs 0.0002 percent of a statistical life; a critical injury is worth more than three quarters. The FDA estimates that the victim of a coronary disease loses thirteen years of life, on average, which is worth—to the victim—about $840,000.

These tools have become the standard in several countries to evaluate and shape government policies. In 2003, for instance, the economic analysis unit of Australia’s health department proposed changing warnings on packages of tobacco products. It based its analysis on the fact that it would save about four hundred lives a year—which added up to a benefit of some 250 million Australian dollars a year—at an annual cost of about 130 million Australian dollars in lost excise taxes because Australians would smoke less.