Fascinating story in the Washington Post this morning, coming a day after a very related conversation I was having with a friend regarding how economists analyze environmental policy. We humans have been devalued/marked down!
Last week, it was revealed that an Environmental Protection Agency office had lowered its official estimate of life’s value, from about $8.04 million to about $7.22 million. That decision has put a spotlight on the concept of the “Value of a Statistical Life,” in which the Washington bureaucracy takes on a question usually left to preachers and poets.
This value is routinely calculated by several agencies, each putting its own dollar figure on the worth of life — not any particular person’s life, just that of a generic American. The figure is then used to judge whether potentially lifesaving policy measures are really worth the cost.
A human life, based on an economic analysis grounded in observations of everyday Americans, typically turns out to be worth $5 million to $8 million — about as much as a mega-mansion or a middle infielder.
Now, for the first time, the EPA has used this little-known process to devalue life, something that environmentalists say could set a scary precedent, making it seem that lifesaving pollution reductions are not worth the cost.
As I was explaining to my friend, who was asking why we typically see estimates of the economic costs of climate change policy but not estimates of the economic benefits, it’s never really possible to get a true ”apples to apples” comparison in the cost-benefit analysis of environmental policy, because the costs of policy are usually much easier to measure (via actual market values/prices) than are the benefits (which usually involve valuing things where no market exists).
My very first economics publication was during my first government job at the Interior Department during the Reagan Administration in the mid 1980s (remember James Watt?). My boss and I worked with the U.S. Fish and Wildlife Service to try to come up with an economic measure of the costs of allowing the Army Corps of Engineers to dredge and fill wetlands for conversion to agricultural land. The benefits of destroying the habitat were easy to quantify, based on the profits that could be earned in farming the land. The costs, up until then, were demonstrated by the Fish and Wildlife Service’s photos of dead ducks. My boss and I tried to quantify the value of avoiding the habitat destruction by, rather ironically, measuring the value that sportsmen placed on being able to hunt for (i.e., kill) the ducks on that habitat. Obviously that’s not the only value people would have attached to preserving the habitat, but it was the most reliable market value we could gather. You can hold up photos of dead ducks and ask people what they’d be willing to pay to avoid those ducks dying, but it turns out it’s hard to know whether those answers would be honest (when we wouldn’t actually go back to those people and ask them to pay up once the habitat was saved). So the costs of habitat preservation always seem more concrete than the benefits.
I told my friend that with climate change policy, it’s SO much tougher than that small wetlands issue, because the already wide range of possible estimates on how much people value avoiding too much climate change has to be multiplied by the (even wider?) range of uncertainty on the science of climate change. And while it’s clear that images of the polar bears stranded on floating ice rafts evokes strong emotions from people, I’m not sure economists have translated those feelings into dollars yet. (I’m sure John Whitehead on the Environmental Economics blog knows the latest on this.) If we have a hard enough time keeping the value of a human life straight, could we value a polar bear life with much confidence?
Of course, all these policies with benefits that stretch very far into the future are difficult for policymakers to deal with–not just because politicians are understandably nearsighted, but because the value we place on such policies is not just sensitive to how much we value a human life, but on how much we value the well-being of future human lives relative to the well-being of current human lives–what economists like to call the “social discount rate.” In policy evaluation, gains to future generations are usually “discounted” relative to gains to current generations, and how the cost-benefit calculus works out is very sensitive to the choice of this discount rate. But this is a whole can of worms that I don’t want to open up right now, fearing it could lead to another heated discussion about Social Security.