The astonishing economic burden of the new corona virus is becoming increasingly clear. On Thursday, a report from the Ministry of Labor showed that a record 3.3 million people had applied for unemployment benefits last week. And since entire industries will be closed for the foreseeable future, economic output will almost certainly increase shrink dramatically.
With economic forecasts getting darker, compromise is becoming louder and louder: is protecting Americans from COVID-19 really worth all of these disruptions and economic pain?
On March 22, before President Trump launched the idea of reopening the economy by Easter against the recommendations of his own public health experts, he said tweeted“We cannot allow the cure to be worse than the problem itself.” Meanwhile, other politicians rejected the idea that economic costs should be a factor at all. Andrew Cuomo, governor of New York Trump’s push rejected to get the economy going again and say, “No American will say, speed up the economy at the expense of human life.” Because no American will say how much a life is worth. “
Cuomo’s feeling may be a nice piece of political rhetoric, but it’s not really true. Economists may not be able to tell how much a single person’s existence is worth, but they have found a way to calculate how much the average person is willing to pay to reduce the risk of death – which allows them to pay a price fix day on the collective value of saving a life. This figure, which is currently between $ 9 million and $ 10 million, is called the “value of statistical life” and is the basis for all types of high-stakes decisions that compromise public safety and economic costs eat and automobile Regulations too our reactions to climate change.
As cold-blooded as it may seem, several economists have told me that at least theoretically, a pandemic is exactly the situation in which this metric is supposed to help. “In essence, we’re trying to figure out what our society is willing to pay to reduce the risk of mortality,” he said W. Kip Viscusi, an economist at Vanderbilt University and one of the leading experts on these calculations. “In this sense, a pandemic is not so different from a terrorist attack or a pollutant that threatens to kill a large number of people – it happens very quickly and on a very large scale.”
From an ethical point of view, the idea that a life could have a monetary value is not necessarily easy to swallow. Economists and government regulators have to compensate for the risk of death against all sorts of other factorsHowever, the VSL concept was developed a few decades ago because economists disliked the idea of assigning this value through other, more intuitive means, such as our contributions to the economy as workers. “It’s pretty easy to judge someone’s life by how much money they make,” he said Spencer Banzhaf, an economist at Georgia State University who wrote about the history of the VSL. “But that’s not just bald, it doesn’t reflect the way we think about people. We don’t think retirees are worth nothing.”
Instead of trying to summarize the value of a life, the VSL approaches the question from the other direction: How much are we willing to spend to reduce the likelihood of death?
Economists obtain the numbers from multiple sources, including surveys and assumptions about our own decisions, such as: how much extra money people make for particularly dangerous jobs or how much a bonus You pay for a safer car. Estimates vary, but are in the same basic range – the EPA rating drops $ 9.4 million, while Viscusi’s latest calculation is $ 10 million. In other words, Viscusi’s estimate means that a group of 10,000 people who are at 1: 1000 risk of death are willing to pay $ 1,000 per person to reduce the likelihood that a particular member of the community will die.
These numbers show why, despite the high cost, spending trillions of dollars on fighting a threat like the coronavirus pandemic can be a good investment. “Let’s say one of our worst case scenarios occurs and 2 million people die,” he said James Hammitt, an economist at Harvard’s T.H. Chan School of Public Health and the director of the Harvard Center for Risk Analysis. “Multiply this by $ 9 or $ 10 million, and we’re talking up to $ 20 trillion in value for preventing these deaths. This suggests that it is worth spending a fair amount of our resources to do this mitigate. “
But back-of-the-envelope calculations can obscure some of the more gnarly questions that plague economists who have been on the subject for decades. The VSL varies by countrybecause the wealth of an average person in a rich country like the United States is much higher than that of a person in a poorer country like India, which means that Americans can “pay” more to avoid risk. This result can make most people feel uncomfortable, and it is also difficult to weigh the value of other types of life – for example, the young versus the old.
For example, although the coronavirus appears to result in a much higher mortality rate in the elderly – which leads to it to propose some politicians that you should consider sacrificing yourself to save the economy – trying to make your life a lower price has not worked well in the past. Joseph Aldy, a professor of public policy at the Kennedy School of Government at Harvard, said that under EPA George W. Bush the EPA tried to set a lower value about the life of an elderly person when calculating the benefits of air quality regulations. In their analysis, the life of a person over 70 was worth 37 percent less than the life of a younger person.
“It was a political disaster,” said Aldy. The policy was baptized the “Senior Death Discount” and in response AARP placed ads with an image of an older woman with a “37 percent discount!” Tag hangs on her glasses. The EPA has withdrawn and has never implemented the proposed changes.
However, outside of the political spotlight, this experience has not stopped economists from examining whether age-based assessments are correct in certain circumstances. There are proofsAldy said that people’s willingness to pay to reduce their mortality risk will decrease after they turn 50. These kinds of calculations, he added, are sometimes unrelated to the moral assessments we do together. “We spend most of our health care expenditure on people over 65, and yet one could say that the age-adjusted value of statistical life is lower for this population,” said Aldy. “It is a kind of social pact – we recognize your contributions to our society and will provide the resources to keep you healthy in old age. How far can this economic analysis really go when we have made this decision as a society?”
And even taking age into account could not be a convincing argument against the measures currently being taken in response to the pandemic. Two economists used age-adjusted VSL in a recent analysis the economic cost of social distance – and they still found that public health response to the coronavirus had “significant economic benefits”.
The sheer uncertainty of the coronavirus crisis is another problem – both in terms of the potential death toll and the economic impact. Estimates of how many people could die in the U.S. are everywhere – some as low as 200,000, others as high as 2 million. And Banzhaf said, just as age-based calculations have their limits, the size of the economic cost must go beyond income or GDP. “Depending on how long this shutdown takes, we speak of great success for the common good and our way of life,” he said. “If symphonies, hotels, art galleries and restaurants close and can’t return, it’s a loss that goes well beyond revenue.” I don’t know how you start quantifying it. “
If anything, the uncertainty and fear of the coronavirus pandemic could increase the value of statistical life even further. Studies Hammitt said that because people are more afraid of flying on planes than driving, they are ready to advocate safety measures on planes. “We see the same with the risk of terrorism,” said Hammitt. “When some kind of death is more feared or ambiguous, people are willing to pay more so they don’t die that way.”
However, Aldy told me that cost-benefit analysis would have been most helpful in earlier phases of the crisis when the government was able to invest in testing and monitoring. At that point, he told me, he wasn’t sure why a cost-benefit analysis was needed to drive the cost of an enormous death home – especially since he, like many other economists and public health experts, believed is that curbing the virus is the best way to ensure that the economy recovers quickly.
“Let’s say we’re talking 1 million deaths or 2 million deaths,” he said. “When you think about the economic harm and harm to families and communities across the country, I don’t think you need an egghead like me to price it. It’s catastrophic.”