The Price of Everything Read online

  Students of Duke University, for instance, said they were willing to pay up to $166, on average, for a ticket to the big basketball game—when Duke was one of four teams vying for the championship. But those who had a ticket said they wouldn’t sell it for less than $2,411. Economists who trust human rationality see credit as an optimal tool to smooth consumption over our life cycle, allowing us to consume more when we earn less and pay it back later. The rest of us know credit cards can be dangerous. One study found that basketball fans in possession of a credit card would pay twice as much for tickets to a Boston Celtics game as those who had to pay in cash.

  And we are often simply inveigled by prices. In the 1960s, the California businessman Dave Gold discovered that charging $0.99 for any bottle of wine in his liquor store increased sales of all his wines, including bottles that had previously cost $0.89 and even $0.79. He left the liquor business, launched the 99 Cents Only chain of stores, and made hundreds of millions. Since then, companies of every stripe have lured us by slapping $0.99 on the price tag. Steve Jobs revolutionized the music industry by persuading us to pay $0.99 for a song. Evidently, the number convinces us we are getting value for money.

  Surveying the landscape of our idiosyncratic decision making more than fifteen years ago, Kahneman, the Nobel Prize-winning psychologist, suggested that the government should intervene to curb our tendencies toward the less than rational. We should consider, he wrote, “some paternalistic interventions, when it is plausible that the state knows more about an individual’s future tastes than the individual knows presently.” Jenny Holzer, an American artist of the 1980s who built her reputation projecting self-evident “truisms” on buildings, building them out of neon signs, and stamping them on T-shirts, addressed the very same human vulnerability on the shiny surface of a BMW race car, emblazoning it with the phrase “protect me from what I want.”

  CHAPTER TWO

  The Price of Life

  ONE OF PEOPLE’S most deeply ingrained convictions is that the price of life is incalculable. An old Jewish teaching holds that if one were to put a single life on one scale and the rest of the world on the other, the scales would be equally balanced. The French novelist Antoine de Saint-Exupéry wondered why “we always act as if something had an even greater price than life” when, self-evidently, “human life is priceless.”

  I’m not quite sure how this belief came to solidify. It might have been favored by evolution as a spur to avoid predators. Yet while true in the sense that each of us would probably accept parting with all of our worldly possessions in order to avoid certain death, this narrowest of definitions fails to account for the continuous pricing and repricing of life that has taken place since life first crawled out of the primeval swamp. More than a single price, life has a menu.

  Government is impossible without a grasp of what the lives of the governed are worth. The guidelines of the United States Environmental Protection Agency, last updated in 1999, value a life at about $7.5 million in 2010 money. Britain’s Department of the Environment says each year of life in good health is worth £29,000. A World Bank study in 2007 about the cost estimated that a citizen of India was worth about $3,162 a year, which amounts to a little under $95,000 for an entire life.

  Indeed, we are all ready to accept that life has a price tag as long as it’s not our own. The ethicist and philosopher Peter Singer suggested a nifty exercise to prove the point: ask yourself how much you would be willing to pay, through insurance premiums say, so the health-care system would cover a treatment to extend the life of a stranger by one year. Would you pay $1 million? $10 million? The moment you say no you have put a ceiling on the price of that person’s life. Unsurprisingly, prices like this one tend to be controversial.

  PAYING FOR THE DEAD

  Consider the September 11th Victim Compensation Fund, which Congress approved to compensate the injured and the families of those who died in the terrorist attacks against the World Trade Center and the Pentagon in 2001. Moved by generosity, mixed in with concern that victims and their relatives would bury United and American Airlines in lawsuits, Congress established the fund with an unlimited budget. Conscious of cost, however, it set tight criteria for payments, to be based on the “economic and non-economic” loss to a victim’s family. This principle set victims’ lives along a scale of values. It gave them a price.

  Appointed to run the fund was Kenneth Feinberg, a lawyer and former chief of staff of Democratic senator Edward Kennedy, who had an impressive track record as a mediator in tough cases. In 1984 Feinberg brokered the $180 million settlement paid by the manufacturers of the defoliant Agent Orange to some 250,000 Vietnam veterans who had been sickened by exposure to the toxic chemical that was sprayed on Vietnamese fields. He was one of three lawyers who determined the $16 million price paid by the government to the heirs of Abraham Zapruder for the original 26.6-second film he took of the assassination of President John F. Kennedy in Dallas, Texas, on November 22, 1963. Years after he had completed his work for the compensation fund, he was tapped by President Obama to become the White House’s “pay czar” and set compensation limits for top executives at the big banks that were bailed out by taxpayers following the financial crisis of 2009. In 2010, he was appointed to administer the $20 billion fund created by oil giant BP to try to repair the damage caused by millions of barrels of oil released into the Gulf of Mexico following the explosion of its Deepwater Horizon rig.

  For Feinberg, determining the noneconomic loss of the 9/11 victims was easy. He settled on $250,000 a head plus $100,000 per dependent, which he recognized as absolutely arbitrary. Measuring economic loss was more difficult. The concept of economic loss was meant to capture the forgone earnings of a dead worker, adjusted for his or her age, marital status, and number of dependents. This ensured big gaps between awards. It pitted the multimillion-dollar paycheck earned by executives at the brokerage Cantor Fitzgerald working on the 105th floor of the World Trade Center’s North Tower against the $17,337 a year made by an illegal immigrant from Peru who worked as a cook at the Windows on the World restaurant five floors above them.

  Senator Kennedy, his former boss, gave him some advice: “Ken, just make sure that 15 percent of the families don’t receive 85 percent of the taxpayers’ money.” But despite the suggestion, victims’ value in death reflected the inequality they experienced while alive. Bankers were deemed to be worth more than janitors and the young more than the old. Men in their thirties were priced at about $2.8 million. Men over seventy, by contrast, were deemed worth less than $600,000. The women who worked and died in the World Trade Center and the Pentagon earned, on average, less than men. That implied that their value in death—the sum total of what Mr. Feinberg estimated they would have made during their lifetimes—was also lower. The average compensation to their families amounted to about 37 percent less, on average, than men’s. The fund ultimately paid about $2 million, on average, to the next of kin of 2,880 victims who died in the attacks. But each of the families of the eight victims who earned more than $4 million a year got $6.4 million, while the cheapest victim was valued at $250,000.

  This cold accounting is about as far as one can get from Saint-Exupéry’s musings about life’s unfathomable worth. The values attached to those who died in the terrorist attacks were determined as a function of their forgone economic output—what they could no longer produce because they were dead. Tort law in the United States uses such techniques to determine compensation for victims of wrongs. But to families of the victims, they represented a distortion of what was really lost.

  Family members offered all sorts of personal metrics to inflate the value of their loved ones, relative to the others. One widow said her loss of a husband of thirty-six years had to be worth more than the loss of a spouse to a newlywed. Another claimed her husband’s death was worth more because he took a long time to die, as evinced by the many calls he made from his cell phone, and so suffered more than someone who died instantly. The fund to compensa
te families of the dead of 9/11 produced a head-on collision between family members’ notion of the value of their loved one and the collective view that while lives are very valuable they must fit within a finite budget. It was almost guaranteed to leave everybody unhappy.

  In What Is Life Worth?—a memoir of his experience at the head of the fund—Feinberg suggested that if Congress were ever again to craft a compensation plan of this sort it should pay all the victims the same amount. “The family of the stockbroker and that of the dishwasher,” he wrote, “should receive the same check from the United States Treasury.” If part of the idea was to keep the rich from suing, however, this is unlikely to have worked. Indeed, the families of the ninety-six mostly wealthy victims decided not to participate in the fund at all and sued the airlines instead, hoping to get more money from the courts. Though this required paying for expensive lawyers, and it took them longer to get their money, they did get a bigger payoff. Years later, the ninety-three families that settled got an average of $5 million.

  VALUING CITIZENS’ SAFETY

  Courts, government regulators, and insurance companies replicate the sorts of calculations Feinberg made all the time. Governments can’t help setting prices on their citizens’ lives as they allocate resources among competing priorities. Simply setting the budget for a fire department puts an implicit value on life, putting some disasters beyond firemen’s ability to help and condemning those whose death would be too expensive to avert. Every time a rule is passed on product standards or workplace safety, the government is making a call that the lives saved from injury or death by the new regulations are worth the costs imposed on producers, consumers, and taxpayers.

  In 2006 the Consumer Product Safety Commission approved a new flammability standard for mattresses on the basis that it would save 1.08 lives and prevent 5.23 injuries per million mattresses. Valuing each life at $5 million and each injury at $150,000, it concluded that the benefits would amount to $51.25 per mattress. The cost to industry from the change would amount to only $15.07, so it was worth the expense. By contrast, nearly two decades earlier a panel of the National Academy of Sciences contracted by the Department of Transportation recommended against a federal mandate to require seat belts in all school buses on the grounds that this would save one life a year, at a cost of $40 million apiece.

  Measuring up costs against benefits is indispensable in a world where limited funds must be allocated between competing priorities. Still, it inevitably challenges people’s beliefs of what’s reasonable or fair. Cost-benefit analysis has come under withering criticism from consumer safety advocates and environmental activists who tend to believe that we should protect the world’s natural bounty at any cost. In the United States, the Clean Air Act of 1970 explicitly forbade the Environmental Protection Agency from taking into account the costs of compliance when setting air quality standards.

  A 1958 amendment to the Federal Food, Drug, and Cosmetic Act sponsored by New York congressman James Delaney required that food have no trace of any additive known to induce cancer in humans or animals, regardless of the cost of removing it or of the magnitude of the risk of contracting cancer by ingesting it. Until the Food Quality Protection Act of 1996 loosened the restrictions, the Delaney Clause implicitly accepted that protecting a consumer from food-borne carcinogens was worth an unlimited amount of money.

  Opponents of tallying the costs and benefits of government interventions focus on the inherent uncertainty involved in putting a price tag on an ecosystem, or estimating the benefit in dollars of a decline in the risk of contracting cancer. In the United States, critics remember how cost-benefit analysis was deployed in the 1980s during the administration of President Ronald Reagan, a strong-willed free marketeer who flat out opposed government meddling in the economy. During his first inaugural address in 1981, Reagan stated: “Government is not the solution to our problem; government is the problem.” Shortly thereafter he determined by executive order that all federal regulations would have to be submitted to cost-benefit analysis to determine whether they were providing value for money, and used these evaluations in a systematic campaign to dismantle regulations across the board.

  But the alternative to cost-benefit analysis is resource allocation by fiat. In the seven years that followed the attacks on September 11 of 2001, the United States government spent $300 billion bolstering its homeland security apparatus. Yet an analysis of the number of deaths likely to be averted by foiling potential future attacks concluded that the cost of each life saved by this bulging security investment came somewhere between $64 million and $600 million.

  As a reaction to the attacks, Australia deployed about 130 air marshals on domestic and international flights, at a cost of about 27 million Australian dollars a year. The marshals were not entirely useless. They were called upon to act once, to wrestle down a sixty-eight-year-old man with a knife on a flight between Sydney and Cairns. But according to a study in 2008, the program cost taxpayers 105 million Australian dollars per life saved.

  It is only natural that societies will try to protect themselves from risks. But it is easy to go overboard when we ignore the costs involved. Because the truth is, we can’t afford it all. While the price of protecting ourselves may be hidden from view—when we insist on eliminating even the tiniest risks, the price tag can be staggering. When we fail to account for the costs and benefits of public policies, we often find ourselves spending enormous amounts in an intervention that will save a handful of lives while neglecting others that would provide more life for the money.

  During the administration of George W. Bush, John F. Morrall III, an economist at the White House’s Office of Information and Regulatory Affairs, published a study of the costs and benefits of dozens of regulations. Some turned out to be astonishingly expensive: a 1985 rule by the Occupational Safety and Health Administration to reduce occupational exposure to formaldehyde would save only 0.01 lives per year, at a cost of $72 billion per life.

  The 1980 law that established the “Superfund” to clean heavily polluted sites across the United States assigned some of the highest values ever placed on human beings. Since 1980 the fund has appropriated $32 billion to clean hundreds of polluted sites that could constitute a hazard to human life. But in many cases there were few or no humans at the sites. The EPA determined the need to clean them up by assuming people would settle on them in the future. The lives of these hypothetical settlers were expensive.

  A study in the mid-1990s of population records around ninety-nine Superfund sites concluded that only one presented a substantial risk of pollution-induced cancer, one of the most important areas of risk evaluated by the EPA. But while cleaning the PCB-laced site of the old Westinghouse transformer plant in Sunnyvale, California, would avert 202 lifetime cancers, according to the analysis, cleaning up the other ninety-eight sites would prevent only two deaths from cancer in total. At six sites the implicit cost of the program ranged from $5 million to $100 million per each life saved. At sixty-seven sites, the cost of saving a life exceeded $1 billion. And at two sites no deaths were prevented—so the costs were infinite.

  While these programs might be nonetheless beneficial to the environment, this price tag might seem high in a world with other, perhaps more pressing needs. Flood protection in New Orleans comes to mind, or fighting malaria. A World Bank study determined that continuing with the World Health Organization’s strategy to combat tuberculosis in sub-Saharan Africa would cost $12 billion between 2006 and 2015. But in Ethiopia alone the program would save 250,000 lives. Today, about 92 of every 100,000 Ethiopians die of tuberculosis each year.

  PRICE YOUR OWN LIFE

  If the government must tally costs and benefits to evaluate public policies, the obvious question is how should human lives be valued? Feinberg’s approach—measuring our life’s worth by our contribution to GDP—is perhaps too cold-blooded. But there is an alternative, famously articulated nearly sixty years ago by the comedian Jack Benny.

 
In March 1948, The Jack Benny Show broadcast one of the most famous comedy skits in American radio history: a mugger—voiced by fellow comedian Eddie Marr—accosted Benny as he was walking home from his neighbor’s. “Now, come on. Your money or your life,” the mugger demanded. Benny, a notorious scrooge, didn’t immediately answer, so after a long silence, the robber repeated his threat. “Look, bud,” he said. “I said your money or your life.” Benny snapped back: “I’m thinking it over.”

  Benny’s skit suggests a solution to this toughest of evaluations. In their efforts to perform better cost-benefit analyses to guide rule making and allocate public resources, governments only have to let people determine the value of their own lives.

  We may not be willing or able to put a price on our entire lives, but every day we put a price on small changes in our chance of dying. We do it every time we cross the street, trading a slight chance of being run over by a truck against our wish to get to the other side. Deciding not to fasten a seat belt, smoking, or ordering the potentially poisonous blowfish at the Japanese restaurant involves choosing a higher probability of death than buckling up, not smoking, or picking the salmon. The Toyota Yaris delivers seven miles to the gallon more in city driving than the Toyota Camry—not an insubstantial saving. It also is about $7,000 cheaper. But according to a report by the Insurance Institute for Highway Safety, the chance of dying in a car crash is about 20 percent higher in the tiny Yaris than in the midsized sedan.