Economists have a way of measuring the cost of protecting people from COVID-19.
Economists have done the math.
The staggering economic toll of the new coronavirus is becoming abundantly, unavoidably clear. On Thursday, a Department of Labor report showed that a record-shattering 3.3 million people applied for initial unemployment claims last week. And with entire industries shuttered for the foreseeable future, economic output will almost certainly shrink dramatically.
As economic forecasts grow darker, talk of tradeoffs is getting louder: Is protecting Americans from COVID-19 really worth all this disruption and economic pain?
On March 22, before President Trump floated the idea of reopening the economy by Easter, against the recommendations of his own public health experts, he tweeted, “WE CANNOT LET THE CURE BE WORSE THAN THE PROBLEM ITSELF.” Other politicians, meanwhile, rejected the idea that economic costs should be a factor at all. New York Gov. Andrew Cuomo dismissed Trump’s push to get the economy moving again, saying, “No American is going to say, ‘accelerate the economy at the cost of human life.’ Because no American is going to say how much a life is worth.”
Cuomo’s sentiment might be a nice bit of political rhetoric, but it’s not really true. Economists might not be able to say how much an individual person’s existence is worth, but they have figured out a way to calculate how much the average person is willing to pay to reduce the risk of death — which allows them to put a price tag on the collective value of saving one life. That figure, which currently hovers somewhere around $9 or $10 million, is known as the “value of statistical life,” and it’s the basis for all kinds of high-stakes decisions that involve tradeoffs between public safety and economic cost — from food and automobile regulations to our responses to climate change.
As cold-blooded as it might seem, several economists told me that, at least in theory, a pandemic is exactly the kind of situation this metric is designed to help with. “Essentially, we’re trying to figure out what our society is willing to pay to reduce the risk of mortality,” said W. Kip Viscusi, an economist at Vanderbilt University and one of the leading experts on these calculations. “In that sense, a pandemic isn’t so different from a terrorist attack or a pollutant that’s threatening to kill large numbers of people — it’s just happening very quickly and on a very large scale.”
The idea that a life could have a monetary value isn’t necessarily easy to swallow from an ethical perspective. Economists and government regulators have to balance the risk of death against all kinds of other factors, though, and the concept of the VSL was developed several decades ago because economists didn’t like the idea of assigning that value through other, more intuitive means, like our contributions to the economy as workers. “It’s fairly simple to value someone’s life based on how much money they make,” said Spencer Banzhaf, an economist at Georgia State University who has written about the history of the VSL. “But in addition to being baldly crude, that’s just not reflective of the way we think about people. We don’t think a retired person is worth nothing.”
The VSL, instead of trying to sum up the value of a life, approaches the question from the other direction — how much are we willing to spend to reduce the odds of dying?
Economists draw the numbers from multiple sources, including surveys and assumptions about our own choices, like how much additional money people earn for especially dangerous jobs, or how much a premium they’ll pay for a safer car. The estimates do vary, but they fall in the same basic range — the EPA’s valuation falls around $9.4 million, while Viscusi’s latest calculation is $10 million. To put it another way, Viscusi’s estimate means that if a group of 10,000 people is facing a 1-in-10,000 risk of death, they’re willing to pay $1,000 per person to reduce the odds that any given member of the community will die.
These numbers show why spending trillions of dollars to combat a threat like the coronavirus pandemic can be a good investment, despite the high cost. “Let’s say one of our worst-case scenarios comes to pass, and 2 million people die,” 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 that by $9 million or $10 million and we’re talking about up to $20 trillion as the value of preventing those deaths. That suggests it’s worth expending a fair amount of our resources to mitigate this.”
But back-of-the-envelope calculations can obscure some of the knottier questions that plague economists who have studied this issue for decades. The VSL varies by country, because the wealth of the 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 Americans can “pay” more to avoid risk. That outcome is liable to make most people uncomfortable, and weighing the value of other types of lives — for example, the young versus the old — is tricky, too .
For example, even though the coronavirus appears to result in much a higher mortality rate for older people — prompting some politicians to propose that they should consider sacrificing themselves to save the economy — trying to put a lower price tag on their lives hasn’t worked well in the past. Joseph Aldy, a public policy professor at Harvard’s Kennedy School of Government, said that under President George W. Bush, the EPA tried to put a lower value on the life of an older person in calculating the benefits of air quality regulations. In their analysis, the life of a person over the age of 70 was worth 37 percent less than the life of a younger person.
“It was a political disaster,” Aldy said. The policy was christened the “senior death discount” and in response, AARP ran ads featuring a picture of an elderly woman with a “37 percent OFF!” tag hanging from her glasses. The EPA backed off and never implemented the proposed changes.
Outside the glare of the political spotlight, though, that experience hasn’t stopped economists from exploring whether age-based valuations are right in some circumstances. There’s evidence, Aldy said, that people’s willingness to pay to reduce the risk of mortality starts to decrease after age 50. But those kinds of calculations, he added, are sometimes disconnected from the moral valuations we make collectively. “We spend the vast majority of our health care dollars on people over the age of 65, and yet one might say the age-adjusted value of statistical life for that population is lower,” Aldy said. “It’s a kind of social compact — we recognize your contributions to our society and will provide the resources to keep you healthy as you age. So how far can this economic analysis really go when we’ve made that decision as a society?”
And even accounting for age might not provide a compelling argument against the measures currently being taken in response to the pandemic. Two economists used age-adjusted VSL in a recent analysis of the economic cost of social distancing — and they still found that the public health response to coronavirus had “substantial economic benefits.”
The sheer uncertainty of the coronavirus crisis is another problem — both in terms of the potential death toll and economic impact. Estimates of how many people might die in the U.S. are all over the place — some as low as 200,000, others as high as 2 million. And Banzhaf said that just as age-based calculations have their limitations, the scope of the economic costs has to go beyond earnings or GDP. “Depending on how long this shutdown goes on, we’re talking about a huge hit to the common good and our way of life,” he said. “If symphonies, hotels, art galleries, restaurants close and can’t come back — that’s a loss that goes way beyond earnings dollars. I don’t know how you begin to quantify it.”
If anything, though, the uncertainty and fear of the coronavirus pandemic could drive the value of statistical life even higher. Studies have shown, Hammitt said, that because people are more afraid of flying on airplanes than driving in cars, they are willing to shell out for airplane safety measures. “We see the same thing with terrorism risk,” Hammitt said. “When a kind of death is more dreaded or ambiguous, people are willing to pay more to avoid dying that way.”
But Aldy told me that cost-benefit analyses would have been most helpful at earlier stages of the crisis, when the government had the opportunity to invest in testing and surveillance. At this point, he told me, he wasn’t sure why a cost-benefit analysis was needed to drive home the cost of a huge loss of life — particularly since he, like many other economists and public health experts, thinks that containing the virus is the best way to ensure the economy rebounds quickly.
“Let’s say we’re talking about 1 million deaths or 2 million deaths,” he said. “When you think about the economic damage and the damage to families and communities all over the country, I don’t think you need an egghead like me to try to put a price on that. It’s catastrophic.”
CORRECTION (March 27, 2020, 12:35 p.m.): An earlier version of this article misstated the odds required for 10,000 people being willing to pay $1,000 per person to reduce the odds that any given member of the community will die. It is 1-in-10,000 odds of dying, not 1-in-1,000.