Deadly Tradeoffs

When discussing alternative coronavirus policies, considering what tradeoffs would need to be made between life and economics isn’t just an example of capitalism run amok, or a hard-hearted exultation of profit over people. If we lived in a completely socialized, non-market economy, the central planning board would need to decide what resources it would dedicate to hospital care for coronavirus patients. Whether the Board acknowledged the existence of tradeoffs or not, its decisions would implicitly be making decisions based on a tradeoff between the life of patients and the cost imposed on everyone else. If it were honest, it would explicitly acknowledge the existence of the tradeoffs it was making and defend the values or logic it employed in these decisions.

Relatedly, people in fact do not themselves treat their own lives as though they were of infinite worth. It is not immoral or unreasonable to recognize that. Nor is it unreasonable or immoral for a society to consider the cost of policies that would reduce death, and decline to adopt policies that would cost society more than the value that individuals place on their own lives.

I discuss both these claims below.

Before doing so, however, it is worth underscoring that thinking of the cost-benefit ratio of government policy proposals to respond to the corona virus does not necessarily mean letting the virus run amok. In considering regulations, Federal agencies adopt figures for the value of human life that run the gamut anywhere from $6 million to a bit over $9 million. Let’s take $9 million as our figure.

Estimates of deaths that might result from the coronavirus vary significantly depending on the scenario, and are much contested. Recent estimates suggest anywhere from 200,000 to 1.7 million people could die. For the sake of argument, and calculative ease, let’s choose the figure that 1 million people would die if there were no mandatory government policy interventions.

Doing the multiplication then gives us the figure that the total value the victims themselves would place on their lives lost to the corona virus would be in the neighborhood of $9 trillion. The GDP of the United States in 2019 was about $21 trillion. So, basically, government policies that would reduce deaths resulting from coronavirus to zero would be cost effective up to a little less than half the value of the entire U.S. economy for one year. That’s a lot. There are many ostensibly draconian policies that U.S. governments could adopt that, when totaled, would impose a cost less than $9 trillion.

For example, a “high” estimate of an “economic shut down” to stop the spread of the virus in the U.S. would have the GDP of the country decline by 40 percent, or $8.4 billion. That would be less than the value of the lives lost. So, considering the cost-benefit ratio of policy proposals does not necessarily entail “going cheap” and allowing lots of people to die so the rest of us can once again go out to eat at sit-down restaurants.

At the same time, it is important to note how sensitive the policy recommendations are to changes in the estimates. If, for example, expected deaths are 100,000 to 240,000, as recent estimates suggest, rather than 1 million, then the value of the lives lost would be just over $2 trillion, in which case the cost of an economic “shut down” to respond to the virus far exceeds the value of the lives lost. In that case, more intermediate strategies should be commended, as perhaps in Sweden or partial and region-specific “shutdowns” as Florida had initially employed.

Just thinking this way, however, invites criticism of callousness, cold-capitalist rationality, of putting a price on priceless human life, etc.

First, whether we want to admit it to ourselves or not, cost-benefit analysis is inescapable. If we do not do it explicitly—openly and honestly—we will be doing it implicitly, if not surreptitiously. The many businesses or government bureaus that mouth some version of the oft-repeated platitude that “Safety is Our First Priority” are not being straight with us. If that were the case—if preventing even one death or injury were its number one goal—it wouldn’t be produce anything (in the case of a business) or allow anything to be produced (in the case of a government bureau). We can have a sensible discussion about safety only after we get past platitudes that everything is sacrificed for safety.

Secondly, placing an economic value on our lives is not something that only “they” do to “us.” We place an economic value on our own lives scores of times every day. When economists estimate the value of human life, they seek to elicit from our own behavior the economic value we place on our own lives. As I explained in an L&L post discussing Nobel Prize winning economist Richard Thaler’s doctoral work on estimating the value of a life:

The nub of the estimation approach is easy to understand. (Actual estimations are more difficult.) It goes something like this: Say there’s a sale on an item you want to purchase, but the store with the sale is 20 miles further away than the store closest to you with the same item, but not on sale. If you purchase the item on sale you’d save $30 net of the added cost of getting to the more-distant store. (The gas, marginal wear on your car, your time, etc.). Driving the extra 20 miles, however, also entails additional risk: Traveling the additional 20 miles creates an additional one chance in 100,000 that you will be involved in a fatal auto accident. From your decision whether to make the trip for the sale, and the tradeoff you make between the risk and the reward, we can start to determine the value you place on your own life. If you make the trip, the implicit monetary value that you place on your life must be less than $3,000,000 (the marginal economic gain to you of $30 divided by the marginal increase in risk to your life of one over 100,000).

We all place an economic value on our own lives in the multitude of ordinary decisions we make every day. Society is not asking us to sacrifice our lives for it if it declines to set a higher economic value on our lives than we set them ourselves.

To be sure, there is a large set of important, related questions, such as the difference between being forced to give up one’s life and our choosing to engage in activity that may result in our losing our life. Or losing our lives to someone who accidentally killed us “negligently” relative to losing our lives to someone who accidentally killed us while acting responsibly. These are important considerations, but do not detract from the central point that people themselves do not treat their lives as though they were of infinite value.

We do not do treat our lives as infinitely valuable in other realms as well. For example, the US government sends people to die to defend our freedom and national honor. Even religion does not treat human life as infinitely valuable. For example, while affirming that all humans are made in the image of God, Christianity does not teach that physical life is of infinite value (see, for example Luke 12.4 or Philippians 1.22-24).

Another common criticism of thinking about the economic cost of policy proposals to fight the coronavirus is that such calculations are the result merely of a capitalist mentality. The suggestion being that non-capitalist systems would not engage in anything as low as trading human lives for filthy lucre.

But tradeoffs are unavoidable. The necessity of making tradeoffs between cost and benefits is not unique to market societies. Consider a centrally-planned socialist system in which there are no markets at all and all the means of production are socially owned. Opportunity costs continue to exist. The person ordered to “shelter in place” in a socialist system cannot go to work and produce goods and services to be distributed by the central committee for other people. The same piece of steel cannot be used to make a respirator and also be used in a car in a socialist system.

As I mentioned above, the Central Planning Board in a socialist system with no markets at all would still make tradeoffs when faced with the coronavirus. The Board would use exactly the same criteria asking, “What is the tradeoff between risk and reward that our citizens choose on average for their own lives?”

Of note as well is that if the socialist economy is less productive than the market economy would be for the same society, then the value placed on human life would be greater in the capitalist society than in the socialist society. And policy interventions that respond to the virus would in fact be greater and save more lives in the capitalist society than in the socialist society.

The question is not the existence of tradeoffs. The question is whether the necessity of making tradeoffs will be honestly acknowledged or dishonestly denied. Once the necessity of making tradeoffs is acknowledged, only then can we have an open, honest debate about the expected costs and benefits of competing policy responses to the corona virus.

Reader Discussion

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on April 07, 2020 at 11:44:17 am

Rogers is correct re: "honestly acknowledging" that tradeoffs, of necessity, MUST and WILL be made.
"...only then can we have an open, honest debate about the expected costs and benefits of competing policy responses to the corona virus. "

Not quite so:
An edit, if I may:
"...only [when we have moved beyond the pessimistic soothsayers within both the epidemiological and economic modelling communities] then can we have an open, honest debate about the expected costs and benefits of competing policy responses to the corona virus."
At present, we appear unable, or unwilling to move beyond hysteria and prefer to rely upon "data" that would not otherwise withstand any critical analysis by either economists or epidemiologists in normal times.

Is there a tradeoff in waiting for better data? Surely, there is? Measure that against the tradeoff "costs" of acting precipitously - we may find that the latter tradeoff is far worse than the former.

But kudos to Rogers for a rather sensible essay.

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on April 07, 2020 at 12:03:55 pm

This essay offers a clearly-written, easily-understood, politically- useful primer on an intellectual and moral concept that is indispensable to prudent public decision-making on all important matters from taxing the nation's wealth and spending its treasure, to sending its men and women and plunging the nation into war, to building the nation's infrastructure, to funding public and supporting private education, to preserving our wilderness and saving nature's species, to protecting the earth's environment and securing the public's health.

Sadly, this effective instrument of assistance in the making of morally, intellectually and economically prudent public decisions is mostly given laxative-like quick passage through the bureaucratic bowels of the Administrative State and is largely missing in action in the obtuse minds of Congress.

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Image of Paladin
on April 07, 2020 at 12:53:26 pm

I am in agreement with your comments. Just an addition to round our your remarks, if you are agreeable.
The major reason why third-party decision makers like politicians and bureaucrats consistently overlook trade offs and opportunity costs is that if they under-react to a crisis and the costs of a mistake are obvious to the public, they are punished. But, if they over-react to a crisis the costs are usually diffused throughout society and cannot be tied back to any particular politician or bureaucrat by the public that bears the cost. Under these asymmetric conditions lots of bad policy decisions get made. Did the public punish the politicians and bureaucrats who made decisions to weaken lending standards before the housing crisis? I could go on, but there are lots of examples of this in government.

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Michael Patrono
on April 07, 2020 at 13:53:35 pm

Good point re both segments of the ruling tribes.
Who can forget the irony of Chris Dodd in the Senate and Barney Frank in the House chairing Committee investigations to focus responsibility for the housing market collapse, both of them, along with Fannie Mae and Freddie Mac, pointing to the banks. The public bought it!

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Image of Paladin
on April 07, 2020 at 12:58:30 pm

Here we find data supporting a tradeoff decision somewhat different than the currently operative one in the USA:

wherein we find Sweden is apparently experiencing far fewer effects than are we.
Are the Swedes smarter than us? or do they have a less potent bureaucracy? better statisticians? a saner media?
Perhaps, they are simply better "tradeoff-ers" than we are.

Also important to note that while the US has unfortunately reached 10,000 dead from ChiComm Virus (or ChiComm *related* virus), the current total deaths in the US for seasonal flu just passed 24,000. Yet, to my knowledge, we have not, nor ar we considering "tradeoffs" for seasonal flu.

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Image of gabe
on April 07, 2020 at 16:51:02 pm

Let me once again compliment Rogers for his fine and rather sensible essay reflecting actual human behavior re: the necessity and omnipresent practice of "tradeoffs."

If i may be permitted to highlight one such "tradeoff" It occurred in New York City. After having acted reasonably to assure that the City would be prepared to meet the contingencies of any future pandemic, in 2006 NY City purchased 500 ventilators, albeit of a type that was soon to be out of production. After running out of money for additional purchases and for maintenance of these devices, NY City decided, in 2016 to auction them off.

As Rogers asserts, tradeoffs are made at all times. Unfortunately for NY City, the risks were NOT known nor could they be.
This is not to criticize NY City but simply to provide confirmation of Rogers assertions. Tradeoffs by definition involve "risk(s). Not all data is available at the time the decision is made (nor could it be in the case of the ChiComm virus). It strikes me that decisions such as the one cited in this comment AND the "effects" of such decisions may, indeed DO, give greater impetus for the type of 3rd party (re: politicans) decisions of which Mr Patrono speaks.
So, two "tradeoffs": the first, i.e., the auction, which, euphemistically may be said to exhibit "non-diffuse" costs; the 2nd, i.e., our national lockdown, again based on incomplete data, which exhibits all the hallmarks of "diffused" costs.
Question: Will we hold anyone accountable? Will we insist on more complete data sets?
As Mr Patrono argues, there is invariably no accountability. I am thus not optimistic of any changes in a) our acceptance of "tradeoffs" or b) our ability to more clearly assess data and formulate a more appropriate "tradeoff."


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on April 07, 2020 at 21:36:42 pm

Using these numbers to calculate "the figure that the total value the victims themselves would place on their lives" is a false and maleficent understanding of the value of a statistical life. Who would just die for $9 million? Those values were calculated as what one would be willing to pay to prevent 1 death in 100, not certain death for themselves.

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on April 08, 2020 at 21:31:20 pm

What is going on here is a type of virtue auction.

The story is told of meetings of the Supreme Soviet under Stalin, in which when the dictator was introduced, the applause of those in attendance went on for absurd lengths of time, as no one wanted to be the first to stop clapping. The calculation was rational. It may have been that everyone despised the tyrant, but could easily avoid immediate suspicion simply by not being the first to give into the fatigue that such a prolonged display of insincerity demanded. The same principle applies here. Even though everyone knows that individual lives are subject to economic trade-offs everyday (juries are asked to arrive at dollar-valued verdicts in wrongful death cases all the time, for example), no one wants to be the first to propose an economic criterion upon which to relax coronavirus mitigation interventions. The reason is, just as a person gifted with prodigious stamina for applause who nonetheless despised Stalin could accuse the more easily fatigued of being insufficiently loyal to the commie despot, so too may someone who is quietly uneasy about economic fortunes launch accusations of hard-heartedness against the first person with integrity enough to raise the matter. There are cheap. and ultimately counterfeit reputations for virtue to be had.

In fact, it is well established in healthcare that some life-saving interventions are foregone because they are not "cost-effective." Determining cost-effectiveness is nothing other than putting a value on life. From this same exercise we get such concepts as "quality of life" years, or "cost per year of life saved." It used to be that "cost-effectiveness" was arbitrarily determined by the annual cost of hemodialysis in end-stage kidney disease patients. For those that are interested, they can search the LIFE magazine archives for an article from the early '60s describing how a board determined who would and would not have access to limited dialysis. Virtue signalling was limited by reality then, and no one took the poseurs seriously.

Here is a simple exercise. Consider a scale that consists of the following values:

1. Divinely charitable
2. Compassionate
3. Humane
4. Thoughtful
5. Reasonable
6. Costly
7. Controversial
8. Burdensome
9. Unreasonable
10, Ruinous
11. F'n nuts

Now consider that this scale applies to the cost to save one life by some particular intervention. What dollar values should we assign at each interval?

We should also be aware that our economic/philosophical/humanitarian calculus is affected by the intervention models that are responsible for the costs that are incurred with regard to the coronavirus. One such model assumes that everyone will eventually get the virus and our interventions are driven simply by a desire to keep the medical system from being overwhelmed. The denominator of cost per life saved is therefore the number of people who would die if resources were exhausted, and who would not die otherwise. But even this underestimates the cost. About half of the patients that do have access to adequate resources and are put on a ventilator die anyway. Furthermore, some have life expectancies limited to less than a year by underlying conditions. Has anyone heard of someone who has died in the United States for want of a ventilator? If not, the denominator in our cost-per-life-saved-by-shutting-down-the-economy calculation is conceivably quite small. Remember, this model is not premised on avoiding spread of infection, only upon controlling its rate.

Professor Rodgers does a good job of laying out one line of argument, but he does not explicitly say what pretty much everyone knows: Pretending that there are no economic concerns to be weighed against possible loss of life is not virtuous; it is unreasonable.

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