How much is your life worth? Ask the federal government
On Tuesday the Trump administration proposed new pollution limits for coal-fired power plants. While there’s likely to be no shortage of controversy surrounding the new regulation, which replaces more stringent limits set in motion by the Obama administration, less wellknown is what’s buried deep within an Environmental Protection Agency analysis accompanying these new guidelines: a dollar value assigned to human lives.
It sounds like something out of a dystopian novel, but the U.S. government actually computes this on a regular basis. Agencies put a dollar value on our lives to gauge whether lifesaving policies are worth their cost.
Different agencies use different numbers, but estimates tend to be similar: The EPA says a life is worth about $10.5 million on average.
The government uses numbers like this when writing regulations. Take, for example, a regulation that’s expected to save one life immediately and cost $2 million to implement. If a life is worth $10 million, then the rule passes a “cost-benefit test.” In other words, the saved life is worth more than the cost of the rule, so the rule should presumably proceed. However, if the cost rises to $15 million, the rule would fail the test.
The value-of-life number is based on how much people are willing to pay to reduce risk in their own lives. This approach has an advantage in that it’s based on people’s real-world behavior – but it also has serious problems.
A young adult might not be willing to pay much at all to reduce risk because she doesn’t earn much yet and is relatively healthy and carefree, whereas a middle-aged person with a big checking account might spend a considerable amount to reduce risk.
Last year, the President’s Council of Economic Advisers estimated the fatality cost of the opioid crisis to have been $432 billion in 2015, using values of life that vary by age. To produce its estimate, the council said the lives of people aged 25 to 44 are worth more than younger and older adults.
Valuing lives can lead to some unpleasant policy recommendations. Consider a regulation that costs $2 million. What happens if we invest the money instead and then put it to use in a few years, after it has increased in value? With more resources available to spend, we can save more lives that way.
But then again, why not wait even longer? We would never invest in lifesaving policies by this logic, because it always makes sense to wait.
The government tries to get around this dilemma by assuming that lives decline in value due to the passage of time – which, in addition to seeming crazy, may not solve the waiting problem. That’s because the government simultaneously assumes that richer people, with their greater willingness to pay, are worth more. By this logic, the value of a life rises with economic growth, and it makes sense by that logic to delay projects so richer future citizens can be saved rather than us.
In the past, and in other contexts such as preventing illnesses, agencies have taken another approach: They focus on the financial costs associated with illness and death. In other words, they simply calculate how much money – in terms of medical expenses, lost time on the job, and so on – preventing a death can save. Then regulators are only counting dollars, not converting lives into money. And money – unlike lives – earns interest over time, so the sooner it is earned the better.
There are no simple answers, so the government’s confusing approach should surprise no one. Even so, you should ask yourself: How much does the government think my life is worth?
James Broughel is a research fellow with the Mercatus Center at George Mason University.