Tuesday, September 13, 2011

What is a human life worth?


It seems crude to place a monetary value on human life, but governments have to do this all the time, spreading limited resources over a population facing unlimited threats. Benjamin H. Friedman tries to do this in this article, criticising the US government's response to the terrorist threat as being too generous. Emphasis is mine:
Cost-benefit analysis of counterterrorism policies requires first knowing what a policy costs, then estimating how many people terrorists would kill absent that policy, which can involve historical and cross-national comparisons, and finally converting those costs and benefits into a common metric, usually money. Having done that analysis, you have a cost-per-life-saved-per-policy, which can be thought of as the value a policy assigns to a statistical life—the price we have decided to pay to save a life from the harm the policy aims to prevent.

Then you need to know if that price is too high. One way to do so, preferred by economists, is to compare the policy’s life value to the value that the target population uses in their life choices (insurance purchases, salary for hazardous work and so on). These days, in the United States, a standard range for the value of a statistical life is four to eleven million dollars. If a policy costs more per life saved than that, the market value of a statistical life, then the government could probably produce more longevity by changing or ending the policy.
Politicians may feel uncomfortable admitting it, but they can never reduce risk to zero and must always balance various risks off one another. This is, as Friedman explains, because every penny spent fighting one risk is not spent on another. When the US government spends money on reducing the risk of terrorism they must either reduce their spending in other areas - healthcare, for example - or increase taxes, which has its own economic risk.

Sooner or later this means that political leaders need to put a number to the amount of money they're willing to spend on protecting each individual: the value of life.

A really interesting look at this idea of humans having finite value comes from this old video of another Friedman, economist Milton Friedman debating with a student over Ford's decision to put a relatively dangerous car on the market. Rear-end collisions supposedly caused this car's petrol tank to explode, simply because they had chosen not to install a $13 plastic block in front of the tank. The student explains that Ford estimated that this decision would cost about 200 lives a year in deaths, at a cost to the company of around $200,000 per death in lawsuits. Ford supposedly weighed up the costs and decided that it was more profitable to accept 200 deaths a year than spend $13 per car on the block, so in the seven years since the car was produced, over 1,000 lives were (allegedly) lost.

The student was disturbed that Ford seemed to value a human life below $13 per car. Friedman's response is intriguing. First he asks whether the student's objection would remain if the cost per death was not $200,000 but rather $1 billion.
Friedman: You're not arguing about principle.... nobody can accept the principle that an infinite value should be put on an individual life. Because, in order to get the money involved, in order to get the resources resolved - it's not money - they have to come from somewhere.... You cannot accept the situation that a million people should starve in order to provide one person with a car that is completely safe.... You're just asking, you're just arguing whether Ford used $200,000 was a right number or not....

Supposing it was $200 million dollars, what should Ford have done?
Friedman's point - a little unclear when put into text - is that the student is not bothered by the principal of valuing a human life, but only that Ford puts the value so low. If Ford had calculated the cost at $200 million per life, the student would, he thinks, not object. Friedman uses this high value because at that cost Ford could not produce cars at all, unless money were somehow diverted from other people (the million people he suggests are staving because their money was taken) to help them make a perfect car.

The conversation (helpfully transcribed here) bounces back and forth for a while and then the student makes clear his position:
Student: I don't see Ford spending $13 less on each car at the cost of 200 lives a year as being a principled position to take.

Friedman: Suppose it would had been one life a year? ...would it then have been okay for Ford not to put in that block?

...Everyone of us separately in this room could, at a cost, reduce his risk of dying tomorrow. You don't have to walk across the street. The question is, is he willing to pay for it?
For Friedman the solution was for consumers to decide as individuals if they were willing to accept the increased risk of death in a cheaper car, or reduce the risk on a more expensive car. I don't know if Friedman's free market solution is the right one but that debate did help me think more clearly about the awkward need to value a human life in money.

An honest politician would have to admit at some point that they could no longer spend money on protecting citizens from a particular risk, because the cost would increase other risks. This sits very uncomfortably with my own sense that human life should have a sanctity that transcends economics, but I see no alternative.

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