To Nurture Our Nature

September 20, 2017

The quantification and forecasts of productivity are the gristmill of economics.  Typically, a ratio of inputs (labor and capital) over outputs (products and services) are often used to measure how effectively or efficiently a given economy is performing.   The range of creative variations of these ratios and measures are staggering.   But collectively, they are used to help compare across international/governmental systems, to help make predictions and identify areas where additional efficiencies might be achievable.  To trace the impact of technology overtime, to identify sources of cost savings, and even provide the pre-capita income estimates on which we assess living standards – income per person varies directly with one measure of labor productivity, value added per hour worked.

Together these analyses help to get the aggregate view of how much society (or an organization) gets back from what each member in it accomplishes.  It seeks to accrue what, from a production perspective, we seem to be worth.  As we zoom in across the world and down to the level of individuals, the variation of these calculations is telling and broadly consequential.

Twyla Tharp Image_9.20.17

Image derived from the work of Twyla Tharp. 

Yet, above it all stands the first principle that every human life is “priceless.”  A core tenet of the elimination of slavery – “at no price can one person be owned by another.”  But from economics, we also have the notion of the value of life – a set of calculations generally focused on the investments willing to be made in order to avoid the loss of life or the implied cost to avoid fatality (ICAF).  These calculations can take a number of different forms and can include elements of quality, residual life or income potential.  The costs required (or willingness to pay) to avoid the loss of a single life is what is called the “value of a statistical life” or “VSL.” VSL is a number that is often derived from the trade-offs individuals are willing to take; the value individuals place to achieve a marginal difference in the likelihood of their own death.   In the US, different agencies set their own values but the figures tend to be close.  The recent EPA estimate was $9.7 million, with the DPT at $9.4 million in 2014 and the FDA at $9.3 million in 2015.  Whereas in the developing world, VSL estimates are even harder to come by and are generally well below $1 million.

As you can imagine, these can be difficult numbers to obtain for several reasons.  The first relates to the forward-looking nature of the situation.  While we might be willing to pay $100 to meaningfully reduce the small chance (at least as we perceive it) of dying from some accident, perhaps by including seat belts in our automobiles, most of us would be willing to pay (if we had access to it) over 100 times more to save ourselves from a life-threatening disease if a successful treatment were available.  Our lives are valued very differently when viewed from a patient’s perspective.

Yet productivity and VSL-like calculations remain cornerstones of the actuarial science used across the world in valuing and incentivizing healthcare.  But history has some lessons which may help us revisit how we value life and what (and when) paying for it could be worth.  Today, we value and cherish one thing above all others: children.  This wasn’t the case not that long ago. As recently, as the 1890’s in the US, egregious wrongful death suits involving small children were being settled without damages.  In one case of a two-year-old killed due to negligence by Georgia Pacific Railroad, the parents asked a judge for compensation, arguing that their child “would soon be performing errands worth two dollars per month.”  They received nothing beyond the cost of a burial. The judge concluded “that the child was ‘of such tender years as to be unable to have any earning capacity, and hence the defendant could not be held liable in damages.’”  Today, this would be an unimaginable outcome. The value of a small child set purely on the basis of his/her near-term income potential seems barbarous.  Now we see children as the future and the future on which we and the world depend–something priceless.

In similar ways, perhaps soon we will all see our futures more clearly linked to the “future” stored within each of us.   A treasured resource, an attractive investment and, like all the best investments, much more valuable when made early and given time to mature.   For when we calculate “what is it worth,” using the “avoidance of death” is not a useful proxy.  Instead, we (and the institutions on which we depend) must focus on “vitality” as the productivity variable that truly matters to us and to society at large.  What is another year of dancing with a soul mate, or surfing with a grandchild and just living life to its fullest really worth?   These are the true “value of life” benchmarks we need to be using.