CORONAVIRUS may cause many deaths and a global recession, depending on what governments do. Millions could die if the pandemic isn’t contained — but lock-downs risk financial collapse. This raises a major issue in economics, ethics, and politics: how can you compare lives with money?
(Short answer: by putting a very high dollar value on life, inferred from what people pay for safety. This lets governments consider health and safety alongside other aspects of policies. But the new field of happiness economics values life without using money; and analysed this way, a global recession would be far more harmful even than the coronavirus deaths.)
Calculating the value
When considering policies, governments model the effects of different actions to choose the best one. Normally, all effects are expressed in dollars, as mixing units creates a problem of comparing apples and pears. But if lives are at risk, as they often are — e.g. in healthcare, transport, and climate change — a problem is how to put a dollar value on them.
Economists can infer how the public values life from their behaviour. People often spend money on safety: insurance, bike helmets, car safety features. And if you’d pay $1,000 on a collision avoidance system, to reduce the chance of a fatal crash by 1 in 10,000, that implies you value life at $1,000 × 10,000 = $10 million.¹
Purchases like these, salaries for risky work, and surveys about hypothetical situations, are extensively analysed to work out how people value life. In the US, this does indeed produce a value of around $10 million. Which is a lot — 300 years of typical income.
So, using this value, if a policy would cost more than $10 million to save a life, or avoid a death, it’s too expensive; if it costs only $1 million, that’s a bargain. And if a construction project might result in one accidental death, that’s treated as a $10 million cost.
You may think it’s callous to calculate with lives like this — but there’s one thing worse, and that’s not to do it. For if you don’t put a value on life, you aren’t valuing health and safety — which might then be ignored, or follow the whims of politicians and tabloids. ($1 billion to save one child’s life, nothing to save another’s…)
Quality and quantity of life
People often claim the value of life is infinitely large. In a sense it is, because arguably the only thing we care about is our own and others’ enjoyment of life (about which more later).
But people don’t spend unlimited amounts on safety, as they would if life had to be preserved at all costs. Many buy a cheaper smoke detector or bike helmet instead of a pricey top-of-the-range one, even if they can afford it. This is because people don’t just care about length of life; they also care about quality of life. So they’re prepared to save money on safety, in order to spend it on other things, such as pleasure.
Indeed, people choose pleasure over health and safety all the time: Big Mac versus salad; drugs and drink vs. abstinence; safari vs. staycation; Netflix vs. gym. And the risks they take for pleasure and convenience can be large: American drivers lose half a year of life expectancy to crashes, and smokers lose ten years to their habit.
Government spending
Governments face similar, and often tough, choices on our behalf. Voters don’t only want long lives, via healthcare; they also want good lives, via education, housing, social services, culture, the environment. Again, money can buy quantity or quality of life. You may feel taxes should be higher, to spend more on everything; but there would still be a dilemma between health & safety and everything else.
Various things that improve quality of life also put lives at risk; 60,000 die each year constructing buildings, bridges and roads. The only way to avoid this entirely would be never to build anything, and live in tents — but people feel modern living standards justify the risk.
So health and safety aren’t all-important. They are major considerations, but so are others. Hence, when modelling policies, potential deaths are included, and accounted for in dollars so they can be weighed against other costs and benefits. This ensures that health and safety are not treated haphazardly, or ignored — and indeed, a high value is placed on them.
Money problems
Nonetheless, there are big problems with valuing life in dollars. For instance, while an American is worth $10 million, other rich countries use somewhat lower values,² and poor countries can’t afford anything like that to save one person. Yet it may seem immoral to put different values on different people, for example in global climate change policies.
Money is also a flawed measure of quality of life, because its value depends on who gets it: an extra dollar, or thousand dollars, is worth far more to a pauper than a billionaire.
More generally, money is not a good measure of many things people care about. It can buy goods and services, but much that people value — such as relationships, the environment, and aspects of culture — cannot really be bought: the best things in life are free.
QALYs
As an alternative, one non-financial measure has been used for decades to assess medical treatments. The QALY (quality-adjusted life year) combines quality and quantity of life in a single unit. 1 QALY means one year of perfect health, or two years of 50% (i.e. mediocre) health, etc. So a treatment that produces 1 QALY, by extending life or improving health, is deemed twice as effective as one that produces 0.5 QALYs.
Conversely, premature death counts as a loss of QALYs; so with a life expectancy of 80, dying aged 75 loses 5 QALYs, but dying aged ten loses 70 QALYs — many times more.³ This prioritizes saving the young over the old; an ethical stance many, but not all, agree with. Triage like this becomes a stark necessity when hospitals are overwhelmed and doctors must choose who to treat, as in Italy.
While QALYs are a better measure of life than dollars, they only deal with health. And health, like money, isn’t the only thing people care about — so a broader measure is required.
Happiness economics
A revolution is under way in economics and public policy. The idea is to measure quality of life not in terms of money or health, but ‘subjective well-being’, meaning happiness, plus satisfaction with life, absence of anxiety/depression/pain, etc. This encompasses everything people care about, whereas money is only a means to an end. So instead of GDP, governments should focus on making people as happy as possible, which some are starting to do.
Worldwide surveys are being used to work out what makes people happy. Unsurprisingly, it turns out that money and health are indeed factors, but so are relationships, work (particularly not being unemployed), freedom, and much else.
In place of money, we can put everything people care about in a single unit similar to the QALY, called the WALY⁴, or well-being adjusted life year. 1 WALY is one person spending one year in perfect well-being; that is, completely happy. And whereas the dollar value of life is rather uncertain, WALYs put quite a precise value on it: on average, a whole life is currently worth 38 WALYs, calculated from 5.17/10 global average well-being (measured from surveys⁵) × 73.2 years life expectancy. That is, the typical person alive today enjoys the equivalent of 38 years of complete happiness.
This approach solves various problems with using dollars, e.g. it treats rich and poor the same⁶. While it raises issues about whether well-being can be measured, compared and averaged like this, there are good reasons to think it can.
Coronavirus impact
Applying this, finally, to the pandemic: the traditional approach counts lives in dollars (as no doubt do the official coronavirus models — though governments wouldn’t publicise such an unpopular fact). Happiness economics might instead count the impact of global recession (unemployment, hardship, anxiety, etc.) in WALYs, so it can be compared more directly to the loss of life.
We only have a vague idea of how many might die from the pandemic, and how bad a global recession could be. But as a comparison, we do know how the 2008 financial crisis affected well-being (see chart), and we can also estimate the WALYs lost by each coronavirus death.
A rough calculation (see footnote⁷) suggests that if there’s a recession as bad as the last one, it would be far worse for well-being even than millions of deaths.
Conclusions
Lives are valued at millions of dollars (in rich countries), inferred from what people are prepared to pay for safety. This enables governments to consider health and safety alongside other costs and benefits of policies.
Though people often claim life — meaning longevity — is of infinite value, they also care about quality of life, and frequently choose quality over quantity, i.e. pleasure over safety.
Economists and governments are increasingly focussing on quality of life measures, as there’s more to life than money, and there are problems comparing rich and poor. Analysed in these terms, the impact of a global recession could be much worse even than the coronavirus deaths; that is, the harm to billions of lives may far exceed the loss of life.
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¹ Technically this is the ‘value of a statistical life’: what people pay for a change in risk, not what they would be prepared to pay in a life-or-death situation — as few could afford $10 million, and if they could, they’d probably be prepared to pay even more.
² Presumably because the US is richer, and American healthcare costs to keep people alive are higher, as are fines and compensation for avoidable deaths.
³ Life is also sometimes valued in dollars per year of life lost or saved, rather than using, say, $10 million for everyone. However, people aren’t consistent about whether, and by how much, they value the young more than the old. I suspect the confusion is that all those who die are mourned by family and friends, who would thus place a high value on avoiding death at any age. But death can never be avoided, as we all die eventually; it can only be delayed. So it is not the harm of death that value of life should measure, but the extra harm of a premature death. Those who die young lose the most years of enjoyment of their life, as do their present and future family and friends; hence valuing life in proportion to the time lost.
⁴ Also called the WELBY (well-being year) or HLY (happy life-year).
⁵ By asking people how satisfied they are with their life nowadays, as points out of ten. From 2018 figures, which average around 7 or 8 out of 10 in rich countries, and 3/10 in the worst-off.
⁶ Though it does assign a happy person more WALYs per year than an unhappy person; which might lead to undervaluing the unhappy (rather as dollars can undervalue the poor). Hence there’s a case for prioritising the unhappy, i.e. the worst off.
⁷ The fatality rates at different ages (Imperial College COVID-19 Response Team model, table 1) combined with UK life tables suggest Britons who die from COVID-19 will lose about 10 years of life on average compared with the general population; or (scaled crudely to match global life expectancy) 9 years worldwide. However, as most who die already have multiple health conditions, their life expectancy was already reduced; which at a guess might halve the years lost to 4.5.
Global life satisfaction averages 5.17/10 (as of 2018), making 4.5 years x 5.17/10 = 2.33 WALYs lost per death. The Imperial College Global Impact model of 26 March estimates 1.9 to 24 million pandemic deaths worldwide (using R₀ = 3, scenarios D (with low mortality) and B). This would thus lose 4.4 to 56 million WALYs. [These are updated figures; I previously used the Australian National University model.]
Between 2007 and 2011, global wellbeing (yellow line on chart) fell by nearly 0.2 life satisfaction points out of 10, then recovered. I will attribute all of this dip (blue area) to the financial crisis; and as it was mostly over a two-year period (2008–10), averaging 0.1/10 p.a., it totals about 0.2/10 = 0.02 WALYs lost per person worldwide, or 155 million WALYs overall (using today’s population); i.e. 2.8 to 35 times the impact of the deaths.
(This may be an underestimate, for a couple of reasons: firstly, we are treating the state of death as zero WALYs. However, most people reckon there are states worse than death, e.g. prolonged extreme pain; and as those would be around the bottom of the life satisfaction scale, e.g. 0 or 1 out of 10, then death is at maybe 2/10. Adjusting the above calculation for this increases the economic harm by about 60% relative to the deaths.
Secondly, the last recession may have been even worse than the blue area indicates, because it may have caused part of the subsequent long-term fall; or at least, it could be that long-term happiness — or indeed life expectancy (not shown on the chart) — would have been slightly higher without a recession, e.g. due to uninterrupted progress in lower income countries.
But I have also ignored some effects of the deaths, viz. other illnesses that went untreated because of pressure on health services from coronavirus, and the extra impact on the bereaved from premature deaths.
I have also ignored other harms to quality of life resulting from the pandemic, viz. non-fatal physical illness (e.g. damaged lungs), and the psychological effects of lock-downs and anxiety, as these are neither deaths nor economic.)
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