What Is The Value Of Life, Pt. 2: Economics
What Is The Value Of Life, Pt. 2: Economics

What Is The Value Of Life, Pt. 2: Economics

We’re picking up on the topic we started last week asking what is the value of life? For many, Life is priceless. At least, that’s what we’ve been telling ourselves and telling our children for the past couple of centuries. The concept was codified by Immanuel Kant in 1785 when his book, Foundations for the Metaphysics of Morals (also published as Groundwork for the Metaphysics of Morals) presented the idea that not only was there not a monetary value sufficient to exchange for life but that there was no other form of trade or presumed equivalent. In short, the only thing that could replace a human life was another life, and even that comes with some difficulty in terms of equity.

That kind of statement is easy enough to make if one is a philosopher. Statements like that make us feel good, it aligns with our religious beliefs and an overall general sense of morality. Most contemporary religions suggest that every life is sacred, making it theoretically impossible to place a price tag on any life. Sounds simple enough, doesn’t it?

But not everyone is a philosopher. Specifically, economists have not only disagreed with Kant’s premise but held that the monetary valuation of human life is necessary for certain risk assessments and in determining things such as accident liability. One of the most famous instances of such valuation comes from a 1973 internal memo developed for General Motors as they considered the cost of “automotive fire-related fatalities” in GM vehicles. At that time, the value of human life, at least the life of a person owning a General Motors vehicle, was determined to be $200,000. That would be the equivalent of about $1,223, 855 today when adjusted for inflation

As one might imagine, once the GM memo was made public as part of a lawsuit over the placement of gas tanks in the ill-fated Pinto, public opinion was not terribly supportive. Whether we’re talking about $200,000 or a million dollars more than that, both seem incredibly insufficient, and more than a few people will argue with Kant that there is no amount that sufficiently compensates for the loss of a parent, spouse, child, or friend. 

Defense of Kant’s philosophy loses in terms of practicality, however, when courts are forced to decide restitution, insurance companies are asked to offset risks, or when we start talking about reparations for the lives of enslaved and indigenous peoples. These are situations that cannot be resolved unless we give in to a limited value justified, for the most part, by subjective opinion. 

There are dozens of forms of valuation with varying levels of complication. But for today’s conversation, let’s look first at the literal value of the elements composing the human body, an actuarial accounting of human value, and the economic impact of an individual living in the United States. When we’re done, I think we’ll find that the value of life is much more complicated than what we extracted from Kant’s thesis. 

Tell yourself whatever you must to maintain a positive sense of self-worth, but at the end of the day, priceless is not a concept that fits well with contemporary economics, and that, ultimately, changes the conversation.

Let’s Get Literal

With multiple methods for considering the economic value of life, it’s difficult to know where to start. For those who follow more along with Aristotle’s concept that life is merely animation, it might do well to begin with a look at what the literal value is for the elements that compose the human entity. After all, if we are nothing more than an involuntary sum of parts and pieces then the sum of their value might make a sufficient baseline for establishing personal worth.

I’ll warn you upfront: using this calculation may be depressing. By even the most forgiving estimates, we’re not worth more than $100, and more recent calculations put the estimate considerably lower. First, let’s consider what, exactly, goes into that price. Here’s a list of the body’s composition by percentage:

  • 65, oxygen
  • 18, carbon
  • 10, hydrogen
  • 3, nitrogen
  • 1.5, calcium
  • 1, phosphorous
  • 0.35, potassium
  • 0.25, sulfur
  • 0.15, sodium
  • 0.15, chlorine
  • 0.05, magnesium
  • 0.0004, iron
  • 0.00004, iodine

There are a few other trace elements but they come in such small amounts that there is no marketable value for them. Dr. Anne Marie Helmenstein, a biomedical scientist at the University of Tennesee, Knoxville, puts the current value for these combined elements at $1. That’s it. One dollar. She adds that if one were to sell their skin for the price of cow leather, which is illegal in case you’re tempted, the price would be roughly $3.50. So much for self-worth.

Dr. Helmenstein mentions that one might make more profit by selling off individual organs, which is legal under certain circumstances. Just for the sake of valuation, let’s consider what some of those prices might be, assuming one has healthy organs for purchase. These prices come from medical transcripts in 2014, so I would assume there has been some fluctuation since then.

  • Human heart= $1 million
  • Liver= $557,000
  • Kidney= $262,000
  • Human skin= $10/inch
  • Stomach= $500
  • Eyes= $1,500
  • Complete cadaver= $550,000

While the prices vary based on demand at any given moment, if one could sell all their body parts, the total price could be as high as $45 million. Of course, you wouldn’t be around to spend it.

Two things put dents in the value of those body parts, though. The black market provides parts of questionable quality for roughly ten percent of the “retail” cost if one is desperate enough to give that a try. At the same time, the rapid development of 3D-printed organs is offering a new way to address the need for commonly replaced body parts (think kidneys, lungs, heart) and will ultimately make the value of organic parts minimal.

This leads us to the eternal question of whether we are more valuable than the sum of our parts? If there is something more to us than bits and pieces, then perhaps we need to consider other forms of valuation. 

The Value of Not Dying

I doubt anyone is too surprised to learn that the US government has been in the business of putting a value on human life for a long time. The task started with the development of the atomic bomb in the 1940s. The military needed a cost justification for the lives that would be inevitably lost in a nuclear attack, ours or anyone else’s. While the calculations went all over the place for the latter half of the 20th century, in 2003, a concrete calculation method was accepted and has been in use since, with some refinement.

The latest paper on the subject from the STRATA Energy & Policy Institute (full disclosure, STRATA is a Charles Koch-funded organization) come from 2017 and provides some minor tweaks to the valuation method to keep valuations up to date. In short, their method of calculation is “the marginal rate of substitution between income (or wealth) and mortality risk.” If that makes your mind spin, then let’s look at how the paper breaks down the explanation. 

“… consider a mandate that would decrease the risk of premature death by one in a million for each person in a group of one million people. On average, this mandate would be expected to save one life—the regulation would save one statistical life. It is important to note that this is not the same as saving the life of an identified person. The regulation may also save seven lives, or two lives or none. The key issue is that the probability of death has been reduced for each person and each person would likely value that reduction. If each person in the population in our example is willing to pay $5 for the decreased risk, then the group is jointly willing to pay $5 million to save, on average, one life–one statistical life–and the VSL is therefore estimated at $5 million. Hence, the VSL reflects the population average marginal rate of substitution between income and risk of death.”

Note, this method does not produce a universal price-per-person. Every valuation is event-specific. So, for example, when the US was considering what would be the potential cost of hundreds of thousands of deaths from COVID-19, this is the valuation method put in place. What would be the value of those lives, statistically, and what is the cost of reducing that risk? The result of that valuation led to the rapid development and deployment of vaccines that have the potential to save millions of lives if only people would take them. What the valuation failed to consider is the severe level of hesitancy among significant at-risk populations. As a result, the pandemic is costing the government, and the economy as a whole considerably more than was anticipated.

There are some issues with how VSL is calculated, however, that can result in an overestimation. STRATA lists those issues as, “1) risk perception problems, 2) omitted variables bias and other problems in revealed preference studies, 3) hypothetical bias in stated preference studies, 4) scope test failure in stated preference studies, and 5) problems with the VSL resulting from oversimplification.”

There’s a lot one can get wrong when making this kind of calculation. If one is feeling generous, some calculations for recent events have put human valuations as high as $10 million or more. Others have put the value considerably lower, around $2 million. In the end, the valuation depends on the severity of the risks. If one is a bad driver living in a city of bad drivers, the valuation goes down. If one lives in a crime-ridden part of town, the valuation goes down. Race and sexuality factors, unfortunately, result in lower valuations as well despite being obviously biased.

What VSL shows us is that trying to put a specific limited value on an individual life is inexact. With such an array of variables, getting two identical answers from separate calculations is almost impossible. Even when they are close to an agreement, one might easily argue that they are insufficient when compared to Kant’s philosophy. So, we keep looking. 

A Lifetime of Value

The final methods of valuation I want to consider are more retail economics, the lifetime income calculation, which is used to determine things such as how much of a mortgage you can afford and settlements in premature death scenarios, and individual GDP, or how much one is putting into the overall economy. When compared, the numbers can give us a good look at how a person affects the financial status of a country. 

Mind you, this is rarely a positive or well-used calculation. When it appears that a particular population is consuming more than it is producing, they are more likely to become victims of policy-driven discrimination. Such policies then inevitably contribute to extended poverty and devaluation of life. At the same time, going the other direction, the calculations may inflate the value of some people beyond what they actually provide. From the outset, we need to exercise considerable caution in making these estimations and applying them to individuals.

First, using the US Department of Labor’s calculator for lifetime earnings, there are some critical variables to consider. 1) the age of the person when the calculation is performed, 2) the age at which a person plans to retire, exiting from persistent income development, 3) expected years until retirement, 4) annual income as it currently exists (including investment income), and 5) the date on which the calculation is made. 

Immediately, one notices a significant problem with the calculation method. The method makes two critical assumptions that are no longer valid. One is that the individual will stay in the same general area of employment over the course of their work period. That concept hasn’t held true for the past 20 years but still remains a part of both government and corporate calculations. The other is the existence of static retirement age. Officially, the US government still recognizes 65 as the stated age of retirement. This is when full Social Security benefits kick in and the government assumes you’re not generating your own income. However, economic conditions increasingly require longer periods of employment and extended life expectancy has led millions of people over the age of 65 to continue working well into their 80s or 90s. 

So, let’s create an example in which the person is 30 years old and plans to retire at age 70 (probably not wholly realistic, but a compromise over age 65), beginning with an annual wage just barely above the poverty line at $35,000 and $1,100 in the bank. This yields a final value of $359,891, which, in 2061, isn’t going to amount to much. In fact, putting $35,000 through various inflation calculators, assuming 3% annual inflation (not accurate but a decent average for calculation purposes), the wage at the point of retirement would need to be $114,171.32 a year just to keep up with inflation and that would still represent a loss in buying power of approximately $10,000. 

What we know about individuals living at or barely above the poverty line, which itself is subject to inflation, is that saving is difficult and making long-term investments is almost impossible. Under current calculations, using the example given above, the person retiring at age 70 would potentially be eligible for a Social Security income of $1,958 a month, which, again, in terms of buying power in 2061, is probably going to put them well below the poverty line. They may have no choice but to keep working.

The person in this example is almost certainly spending every dime that comes in, but in economic terms may still not be a positive contributor to the US economy. Individual GDP is impossible to calculate for the future given the volatility of the economy. For 2019, the per capita GDP for the US was $65,297.52 according to the World Bank. For 2020, however, as the economy contracted because of the pandemic, per capita GDP shrunk to $63,416. There are a number of situations that can cause the value to shrink. Assuming consistent growth over a 40-year period is wreckless. 

What we can assume is that the person making $35,000 today doesn’t gain significant buying power over the next 40 years unless they do something to dramatically increase their income. In their current position, they’re taking from the economy a little over $30,000 more than they’re contributing. On a balance sheet, their economic value would be entered as a negative because they’re not contributing enough to pay for what they consume not just in terms of material goods, but services provided to the general public such as schools, roads, and basic infrastructure. When the number of people falling below the per capita GDP expands, as happened last year, the economy contracts because there aren’t enough people making in excess of that amount to cover the balance.

The end result is disheartening. In economic terms, if one is not making something close to twice the poverty rate, their economic value is severely diminished. That’s not to say that the economy would be better without them, as the loss impact would be severe. People making lower wages often have higher values in terms of productivity. The loss of migrant farmworkers, for example, has a ripple effect that negatively affects the entire GDP. We’ve not touched on the complicated calculations of productivity valuation. Still, if we’re valuing ourselves based on our general economic participation, our sense of self-worth can take a dramatic hit.

Something else that hasn’t been mentioned here is that, statistically, women, people of color, indigenous, and LGBTQ+ communities are more negatively impacted by standardized economic valuations. Their wage levels and buying power are lower while their productivity stress impact is higher (they spend more hours per week working for what little they make), consistently putting them in a position where policymakers fail to see their full benefit to the economy.  

There are more ways to slice up the issue but the results only grow more depressing. Economic valuation favors the rich and leaves the rest of us in serious depression.

We only have time to skim the surface of all the ways that exist to put a price tag on human life. The Australian government made news this week when it announced that it was setting aside $378.6 million as reparations to indigenous people forcibly removed from their land. If that number doesn’t sound too high, it’s not. Each person affected is being given a one-time sum that amounts to $62,000, $55,000 in reparation, and an additional $7,000 for “healing.”  Valuing the entirety of an indigenous life at only $62,000 seems dramatically low and is certainly far from Kant’s proclamation of life being priceless.

The argument against a pure economic valuation is, of course, that there are other forms of valuation than just the amount of money one has, which is correct and important. We will look at some of those other valuations in the coming weeks. 

What we must realize, however, is that for those who live paycheck to paycheck, who struggle to pay rent and utilities and provide food for their families, a tremendous majority of their entire sense of self-worth is tied to economics. Being a good parent is something that holds tremendous value but if that parent is unable to produce sufficient income to provide for the family, their value as a parent is diminished in the eyes of many. All the other values we might attach to a person inherently assume that the economic issue isn’t a factor. Without sufficient revenue, everything else diminishes. There is no economically-driven society in which being a good person is considered sufficient. 

If economics is neither fair nor equitable then we need another model, a better model. We will continue our search next time, but remember there is no scenario in which economics don’t matter. Human valuation is complex and we have to consider everything, even if the numbers don’t always work in our favor.

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