The interviewee here, SETH BORENSTEIN, pleads ignorance -the material here, econometrics -esoteric to economists -'smoke and mirrors'?
Certainly, there has to be some way of justifying the cost of some particular governmental undertaking with respect to what benefits (or non-) it saddles the public.
Disturbing me in this example of such justification and its associated econometrics is what appears to be the absence of important criteria: there is no reference to the either the validity of human occupations -one's station in society, or the amount of money one 'earns' for such stations -the Bill Gates, ENRON'ers and Mozilo types for example (Dubya? :-)
July 11, 2008 from All Things Considered National public radio
Value On Life 11 Percent Lower Than 5 Years Ago
MELISSA BLOCK, host: The EPA has made another policy change recently as far as what it believes you are worth. The EPA has lowered the value of a statistical life about 11 percent from five years ago. That valueís now calculated to be $6.9 million
per person. The agency uses that value for cost-benefit analyses when itís figuring out new regulations.
Seth Borenstein of the Associated Press discovered the change, and heís here to help us understand it. And Seth, first, how do economists calculate the value of a statistical life as weíre talking about here?
Mr. SETH BORENSTEIN (Science Reporter, Associated Press): Much of it is the way weíre paid to do riskier jobs. If you do a job such as in a coal mine and itís a job thatís riskier than a secretary in a coal mine office, youíll get paid extra by
your employer, hopefully, to do a riskier job. So economists look at how much extra you get paid to do riskier jobs. Thatís one part of it.
And a second and lesser part is they ask people, would you be willing to do this that will be a little less risky, and how much would you be willing to pay to cut your own personal risks?
So they take those and then they do all sorts of calculations that are just beyond most people and including mineís. (Unintelligible) then they come up with this value of a statistical life - itís a range - and then they come up with an
BLOCK: So that average number is supposed to represent all of us.
Mr. BORENSTEIN: All of us.
BLOCK: And it has nothing to do with future earnings. I mean, the way life value is calculated, say, for civil lawsuits, things like that Ė nothing to do with that.
Mr. BORENSTEIN: In that, weíre all equal. It doesnít matter if weíre 85 or 22 or two. I mean, itís called the value of a statistical life, but mostly itís about how much an individual person is willing to pay to reduce their risks.
BLOCK: And itís assumed thatíll be the same whether youíre a hamburger flipper or a hedge fund manager. All the same.
Mr. BORENSTEIN: Exactly.
BLOCK: Okay. How would EPA, for example, use this value of a statistical life in practice?
Mr. BORENSTEIN: Well, you know, when we all make difficult decisions, we make Ė many of us make pro and con lists. The government does that. They call it a cost-benefit analysis. And when they do that, you have the costs, which are in dollars and
thatís fairly easy to figure out. But benefits are in reduced deaths or reduced illness, and those are something you canít compare to dollars unless you come up with a dollar amount for a life or an illness. So they come up with the value of a
statistical life so they can compare apples to apples.
BLOCK: Give us(ph), for instance, a rule that the EPA might be considering where they would take into account the value of a statistical life.
Mr. BORENSTEIN: Okay. For instance, an air pollution rule. And letís say their science determines that 10,000 lives could be saved by this rule. At $7 million a life, thatís $70 billion. If the rule costs $80 billion and there are no other
benefits, then EPA can look at it and say, you know, itís just not worth it. Now, if the value of life were $10 million and the rule cost $80 billion, they could Ė they would say, you know, this is Ė this pays off. Now, those numbers are just
hypotheticals, but thatís generally how you use them.
BLOCK: Is the message behind this lower value of a statistical life Ė is the message behind that that we now are more willing to accept risk and donít expect to be compensated for it?
Mr. BORENSTEIN: Thatís sort of what EPA is saying, that thatís what the study showed them. But actually, if you talk to the scientists, thatís what one study shows, their studies donít, and theyíre splitting the difference on two studies when
scientists are saying theyíre giving a little too much credence to the study that says what EPA wanted them to say.
BLOCK: Itís interesting, Seth, because other agencies come up with their own numbers for the value of a human life, and theyíre all different.
Mr. BORENSTEIN: They are all different. And White House is going back years, not just this one, have(ph) wanted some kind of uniformity in the value of a human life, and they just donít get it. Even in EPA, EPA itself is inconsistent because the
Water Department ignores the rest of EPA and has a much higher value of human life, they never dropped theirs.
But Department of Transportation, Homeland Security, FDA, they all have other values that are lower. EPA traditionally has been the most generous. Theyíre just cutting back. At the same time, the Department of Transportation has
increased theirs twice.
BLOCK: But EPAís number is still higher than the other agenciesí.
Mr. BORENSTEIN: EPA is still the most generous, yes.
BLOCK: Seth Borenstein, science writer for the Associated Press. Thanks for coming in.
Mr. BORENSTEIN: My pleasure.