TCS Daily


Your Money and Your Life

By Iain Murray - June 6, 2003 12:00 AM

In March, I wrote about the controversy surrounding the EPA's valuation of life in their assessment of the economic benefits they think the nation will accrue through adoption of the Clear Skies initiative. In that analysis, I congratulated the EPA for taking the tough decision to adopt a prorated value of life based on the age of those whose health will supposedly improve as a result of the new policy. There have been two developments since that article that show that the controversy then was just the beginning.

First, seniors associations pressured outgoing EPA administrator Christie Todd Whitman into abandoning what they called the "senior death discount." The AARP and others, supported by Sen. Joseph Lieberman (D-Conn.), ran an emotive campaign against any prorated valuation of life. The Public Interest Research Group in Tampa, Fl., for instance, ran a campaign featuring elderly people with discount tags saying "37% Off" affixed to them.

The argument that all lives should be valued equally regardless of age is superficially attractive. Yet it falls victim to its own logic. A flat value of life systematically devalues the lives of younger people - assuming an average life of 70 years, valued at a flat $6 million, a person of 65 should contribute $1.2 million each remaining year, while a 30 year old will contribute just $150,000 per year. There is clearly something wrong with this approach.

On one aspect, however, the seniors did have a point. The original "discount" was based on research from Britain that showed that seniors tended to downplay the value of their own lives, being less willing to pay to extend their lives than they would to extend those of younger people. New evidence from the U.S. suggests American seniors do not devalue their own lives. (This actually confirms one point I regularly make when people push me to make generalizations about the differences between Britain and America. I tell them that in Britain, we have a sense of historical scale that makes us aware that we are playing our role and will die. In America, I get the impression that people feel they can and will live forever.)

The second development came when John Graham, the Office of Management and Budget's regulations chief, entered the fray. As the Wall Street Journal reported on May 30, he has noted the inconsistency of different agencies utilizing different values of life in their analyses, mentioned in my earlier article. He is pressuring agencies to come to a single value to use in all governmental cost-benefit analyses.

These two developments indicate how the government's approach to rational cost benefit analysis is in a state of chaos. If cost-benefit analysis is to be a useful tool, it must be subject to refinement. The seniors' position stands against that, demanding a one-size fits all approach to the value of life.

Mr. Graham's approach, on the other hand, is as superficially attractive as the seniors' argument. It is patently ridiculous that a highway safety proposal will be viewed as less beneficial than an environmental proposal, simply because the highways proposal used a value of life half that of the EPA. Some sort of consistency is needed across government, otherwise the analytical tools we are supposedly using to help guide our decision making will actually misguide us. Yet searching for one value may be a red herring.

Ideally, proper analysis should take into account not just age but many other factors as well if it is to provide a truly meaningful account of what benefits policy proposals might bring. We need to get away from identity groups and crude demographics, and base our analysis on what we know about people's behavior. Credit rating, for instance, may actually prove to be a better indicator of economic value than age. Far from having just one value of life, a huge variety of figures should be fed into benefit models. The more sophisticated they are, the better indication we will have of whether a proposal is worth pursuing. The more this ever-more-complex analytical process is separated from the political, the better1 .

Yet there are some who will continue to object. Charles Short of the Catholic Archdiocese of Washington told the Wall Street Journal, "To me it's almost an immoral exercise to place a dollar value on any human life." This is not an analytical objection, but a philosophical one. Cost-benefit analysis is based on a utilitarian view of government, which accepts that human happiness can be quantified. If we are considering abandoning that, then that may be a debate worth having. But it is one that is confused rather than advanced by arguing that one method of valuing life is better than another.


Notes:

1. Robert Hahn and Scott Wallstein of AEI make this point as well in a Washington Post article published Sunday June 1.
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