Insights / Podcast episodeApr 23, 2020

Episode 1: The Value of A Life

Life is not priceless. But it’s also not cheap. Michael Greenstone describes how economics puts a value on life, and why it is so important to save as many lives as possible.


As the United States and the rest of the world grapple with COVID-19, the most reliable policy response seems to be social distancing, which itself imposes substantial costs on economies and people’s well-being. Indeed, people have begun to question whether the costs of social distancing exceed its benefits and are therefore too great. Here, we estimate the economic benefits of social distancing due to reducing mortality rates.

New research from Michael Greenstone Vishan Nigam estimates the monetized benefits of the lives saved through social distancing policy, which total $7.9 trillion, or roughly $60,000 per US household. About 90% of the monetized benefits are projected to accrue to people age 50 or older.


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Unedited Transcript

TESS VIGELAND: We know that the global response to this pandemic has tremendous costs. First and foremost in lives lost, but also in livelihoods lost because of social distancing policies.

EDUARDO PORTER: What is the value of social distancing? Can we measure it in terms of dollars and cents?

TESS VIGELAND: This is Pandemic Economics, a podcast about the global economic impact of COVID-19 from the Becker Friedman Institute and Stitcher. I’m Tess Vigeland.

EDUARDO PORTER: And I’m Eduardo Porter. We’ve been invited by the University of Chicago’s Becker Friedman Institute for Economics to have this series of conversations with their scholars.

TESS VIGELAND: In this episode, we’re looking at the value of life. University of Chicago economists Michael Greenstone and Vishan Nigam have been researching how we as a society put a price tag on the value of social distancing. We spoke to Michael Greenstone about their findings.

Well, Michael, I’m going to ask you to address kind of a philosophical question first here. I know you’re an economist, not a philosopher. But I think it’s important to ask why we are even bringing the concept of monetary value into this conversation.

You know, social distancing is presumably about saving lives. Why give a monetary rationale for the value of social distancing?

MICHAEL GREENSTONE: I think the challenge is that when we talk about social distancing, there’s obvious benefits, the improvements of people’s lives and fewer fatalities. But on the cost side, there’s very clear costs that come across your TV every few minutes, which are, the stock market is down by this, or GDP is down by that.

And in my experience, when you have a fight between something that’s measured in dollars and something that’s not, the dollars often win. You know, the example I like to give is, we could certainly have a road for every single person in the country. That road could have airbags on the side of it and no one would ever die again from a traffic fatality.

Now, the reason we don’t do that, of course, is because we care about other things besides traffic fatalities, and societies have to find some trade off between those two things. And as painful as it is, I suspect with COVID-19, there will eventually be a point where these trade offs start to matter.

But right now, I think the number one thing is to get control of the virus. And what our paper shows that the benefits are so large that we don’t have to have these kind of fine tuned trade offs. I think down the line as we figure out how to have a more nuanced social distancing policy and get the economy restarted, some of these more fine tuned trade offs will come into play more.

TESS VIGELAND: You mentioned the costs of social distancing, which I think are fairly evident to people, as you noted, the stock market, unemployment on an unprecedented scale, businesses going under, people losing their health care, at least here in the States. So how do you start evaluating the benefits which, perhaps, are not so obvious?

MICHAEL GREENSTONE: What we did was actually kind of an accounting exercise. The first step was to just go to epidemiological models and estimate how many lives would be lost in the United States under what they call a no policy scenario. So that is where nothing gets done.

And then the second part of that is to estimate the number of lives that would be lost under a moderate social distancing policy. And so the difference of those two just tells you the number of lives that would be saved from social distancing.

And as it turns out, the epidemiological model that we used suggested that three to four months of moderate social distancing, beginning in late March, would save about 1.7 million lives by October 1. A bit more than 600,000 of that 1.7 million lives come from avoiding overcrowding of hospital intensive care units.

And then the next step is, how do we convert that into dollars. And for that, there is a well used approach that comes straight from economic theory and has been adopted by the federal government and other governments around the world when they do all kinds of regulations where they’re trading off the public’s health versus the costs. These could be environmental regulations or road safety improvements and things like that.

And so we just took the United States government’s value of statistical life, that’s what it’s called, and multiplied it by the lives that would be saved. And we did a little adjustment to reflect that people’s valuations might vary depending on how many years of life expectancy they have left.

And the net result of that exercise, the lives saved multiplied by people’s valuations of how much they would pay to reduce the probability of death, adds up to $8 trillion. It’s very, very hard to think of any policy that, in any time or any circumstance, could provide such a large benefit to the American people. And if you want to make that more concrete, it’s about $60,000 per US household.

TESS VIGELAND: So you mentioned the government’s VSO, the Value of Statistical Life. And that’s been out there for a really long time. Can you give us just a sense of what goes into that?

MICHAEL GREENSTONE: You should not think of it as how much you would be willing to pay to avoid your death with certainty. But rather, how much you would be willing to pay for kind of a small reduction in the probability of death.

Most of the evidence for this comes from studies that try to compare people who have otherwise similar jobs, but there’s a difference in the mortality risk they face on their job. So like a canonical example might be two people with the same education, one works in oil and gas drilling business where there’s a relatively high fatality rate, and another person has an office job with a relatively low fatality rate.

And then you see how much more does a person who faces extra mortality risk get paid in the labor market. And we use that not as that the government is coming in or some social planner’s coming in and telling us how much a life should be worth, but how much people were revealing, through their own actions, what a small change in the probability of death is worth to them.

TESS VIGELAND: So how does that play into the whole idea of social distancing being a financial benefit as well as just simply saving lives?

MICHAEL GREENSTONE: Well, so actually, this is a super important point that we haven’t talked about. One thing that comes out of the epidemiological models and our analysis is that the mortality impacts are not spread evenly across the lifecycle.

Now, if you were to convert that into dollars, which is what we do, what we find is that 90% of the benefits accrue to people aged 50 and over. And so there is an element of intergenerational trade offs here. Everyone is bearing the costs of social distancing, but most of the benefits are accruing to people who are 50 or older, and really even 60 or older.

TESS VIGELAND: So dare we ask if that’s fair?

MICHAEL GREENSTONE: So I think what this paper’s good at is tallying up the numbers and presenting them in a digestible way. Of course, the political system is going to have to make judgment to reflect everyone’s preferences. And whether or not I think it’s fair or unfair it’s kind of beside the point. It’s kind of what society as a whole thinks is fair.

TESS VIGELAND: Finally, Michael, this figure that you came up with in your research, $8 trillion in economic benefit because of social distancing, how can people kind of conceptualize $8 trillion?

MICHAEL GREENSTONE: One way we tried to make it real is, well, how much is that per US household? And it’s $60,000 of benefits per household. It’s very difficult to think of any policy, good or bad, that could produce $60,000 of benefits or costs for an average household.

I also want to underscore, it is probably an underestimate. It doesn’t account for the reduction in uncertainty that having a social distancing policy produces. It doesn’t account for the non-fatal sicknesses associated with COVID-19.

And then there’s a wonky reason that it’s probably too small, which is the value of statistical life measure that we’re using was meant for very small changes in mortality rates. And what we have at risk here is a big change in mortality.


And for that, people might be willing to pay more. And so that doesn’t incorporate into what we’re done.

TESS VIGELAND: After the break, Eduardo will join Michael to dig into more of the questions surrounding the whole exercise in cost benefit analysis in this crisis.

EDUARDO PORTER: There’s more Pandemic Economics right after the break. Don’t go anywhere.

We’re back with Pandemic Economics from the University of Chicago’s Becker Friedman Institute. One question on my mind when I first read Michael Greenstone’s paper was about the whole framework of cost benefit analysis in this context, particularly where the costs are still unfolding and unknown.

Your study on the value of social distancing offers a pretty unforgiving take on what we stand to lose. Now, your analysis concludes, then, that lives saved by social distancing is, you know, that near $8 trillion figure. A staggering amount.

And then you argue from this that that must outweigh any costs imposed by our shutdown policies. So could you tell us a little bit more about what these costs are?

MICHAEL GREENSTONE: Oh, so first, the costs of social distancing are very real, very large, that they were outside of our analysis intentionally. That’s a big topic, and it’s hard to unpack. And we really only wanted to tick off one thing at a time. So we try to take on benefits.

EDUARDO PORTER: OK. Because normally, the analysis that you did is, it tends to be embedded in a cost benefit framework of, you know, looking at the trade offs.


EDUARDO PORTER: It seems to me that these things are not really apples to apples. But can I ask you just for you to help me explain something about the values in these kinds of cost benefit analyses?

MICHAEL GREENSTONE: No, I don’t think it’s apples and oranges. I actually think the purpose of the paper was to allow for an apples to apples comparison. And in particular, I think almost all events in human life, almost all, are amenable to cost benefit analysis.

And ultimately, that’s because there is a limit on our resources. There’s only so much that we can devote to one particular thing without suffering losses and distress in the rest of our life.

And so what cost benefit analysis does is it provides a framework for helping people and societies think through, is this worth it. So I think it is still possible to do cost benefit analysis. It’s going to lack some precision, because we’re going to have to make some guesses.

Once you give in to that view that something just beyond cost benefit analysis, then I think the way decisions get made are extraordinarily arbitrary. They’re based on the whims of the person who happens to be sitting in the chair when the question is asked.

There’s no analytical balance. There’s no facts that constrain it. And that’s what cost benefit analysis is so good at, is providing some facts to constrain decision making into a realm where, in principle, all Americans or all citizens’ interests are being taken account of. And I don’t mind fighting for cost benefit analysis.

EDUARDO PORTER: I think it’s a very good answer, Michael.

MICHAEL GREENSTONE: Yeah. No, no, it’s kind of a– it’s a deep question and it’s– there’s not– it’s not an easy one to answer.

EDUARDO PORTER: Yeah. I think it’s a very valuable tool, frankly. I don’t think it’s a perfect tool.


EDUARDO PORTER: And so I think we should understand its imperfection.

MICHAEL GREENSTONE: And, you know, I guess I’ll say one more thing. The thing about cost benefit analysis is, it reminds me a little bit of that famous quote from Churchill about democracy, which is, it’s terrible, it’s awful, and it’s better than anything else we have.

I think once we leave cost benefit analysis, then things start to bleed in often, not always, but often into moral decisions. And the deep problem, from my perspective, about moral-based decision making on a lot of these matters is that your morals aren’t my morals, and a third person’s morals are different than both of our morals.

And then there’s really no bounds on decision making, and there’s no– I have no confidence that what’s good for all of society will be the result.

EDUARDO PORTER: Yeah. Do you really think that society, our political system, if you will, can accept the kind of cost benefit analyses that you’re talking about? So I understand that they are prevalent and mostly in the regulatory context. The EPA uses them all the time. The Department of Transportation uses them all the time.

But those are kind of like, for hidden decisions, you know? If you go and ask the political system, well, you know what? We’ve got to make these cost benefit assessments, and we’re going to plug in the value of life of x.

If you’re older, that x is going to be smaller than if you’re younger. I mean, we have examples in history where people have not reacted to those kinds of thoughts very well. And so I sort of like, wonder at, ultimately, the efficacy of this sort of thinking if you cannot get it through the political system.

MICHAEL GREENSTONE: So let me start by saying there is a caricature of kind of robotically following cost benefit analysis and then pressing the green button or the red button based on that. Facts matter, and facts about cost and facts about benefits together can produce better social outcomes. What do you think, Eduardo, about that?

EDUARDO PORTER: You know, I’m remembering two instances here. The instance when the EPA tried to create the senior discount,


EDUARDO PORTER: And Christine Todd Whitman got destroyed,


EDUARDO PORTER: And she had to backpedal.


EDUARDO PORTER: And the other time was when the IPCC, that’s the Intergovernmental Panel on Climate Change, put out this document, which had one average price for citizens in rich countries and a different value for citizens of poor countries.

If I remember correctly, a rich country, citizens were valued at a million dollars, whereas people in poor countries were valued at $400,000. And that did not go down well at all. And so the document was remade using the same number for everybody.

Now, I understand the rationale for what the EPA was trying to do, for what that IPCC document was trying to achieve. But I also understand why people didn’t like it.

MICHAEL GREENSTONE: But that’s kind of what I mean. Like, are we better served by making these decisions about air pollution, COVID-19, whatever it is, without having the facts? My view is, no, we’re going to make worse decisions.


TESS VIGELAND: As governments and society as a whole grapple with this crisis, there is another important question. And that is, which lives have different economic value?

What about the significant chunk of the world population, the US population, that simply is unable to social distance? Whether it’s close living quarters, having to take public transit because you don’t have a car, not having the option of working from home, or just being told that you have to go to work whether or not it’s deemed essential?

MICHAEL GREENSTONE: I really don’t want to leave this conversation without being very clear, like, it’s very– the costs of social distancing are very unequal. And ultimately, I think the solution to that is for the federal government to be able to step in and make this, what might otherwise seem like a very difficult trade off, make it much easier to choose social distancing and the massive benefits that our paper estimates it will provide.

TESS VIGELAND: And doesn’t it also, then, tell those who are able to do it, who do have the financial privilege and wherewithal, to do so even on behalf of those who can’t?

MICHAEL GREENSTONE: Look, social distancing is something that we all owe to each other. And there are going to be some people who just can’t do it for a variety of personal and professional reasons. But every additional day that we do it, we are providing some benefit to the people around us.

Now, of course that doesn’t mean that social something should go on forever, because these costs are really large and they’re meaningful. But I think it does highlight that– it highlights this tension that exists in choosing the social distancing policy.


Yeah, I think that several decades of income inequality, greater growth and income inequality, are going to be exposed under the harsh light of this crisis. There’s no doubt.

TESS VIGELAND: So Eduardo, we heard Michael talk there about the enormous tensions involved in continuing the social distancing policy. And it’s pretty obvious that those tensions will change the further we go into the timeline of this pandemic.

EDUARDO PORTER: And of course, nobody has a crystal ball. Even history can’t help us much, because this is so unprecedented. But Michael did venture some thoughts on how it might play out.


And so presumably, the benefits assessed in your analysis will change over time as the disease hopefully abates. And the costs of these policies will also probably change. Is there a point, maybe, that, where the costs of keeping the economy closed will look like it outweighs the benefits of the additional lives saved? How should we think of this going forward?

MICHAEL GREENSTONE: I think there’s a couple of things. On the cost side, I think the costs benefits are going to grow, and they’re going to grow for a couple of reasons. People can handle large shocks to their income for relatively short periods of time.

But as this goes on and on, I think you’re going to see more and more people and more and more families stretch in ways that they can’t compensate for by borrowing money on their credit cards or things like that.

And then the costs are going to start to appear really large. And so I think there will be increasing pressure to get the economy going. And what that opens the door to, in my view, is, is there a more nuanced form of social distancing that we might be able to tolerate, or first design and then tolerate.

And there, there’s just like a cornucopia of very complicated questions, which, probably, economists can shed a little light on. But they’re ultimately going to be political judgments.


TESS VIGELAND: And that’s our first episode of Pandemic Economics. We’ll have much more on this and other topics in future episodes as we all move through this crisis.

EDUARDO PORTER: Pandemic Economics is produced by the University of Chicago’s Becker Friedman Institute. Our producers are Kaitlyn Nicholas and Dana Bialek. Our executive producer is Ellen Horne. Production and original music by Story Mechanics.

TESS VIGELAND: Pandemic Economics is part of the University of Chicago Podcast Network.

EDUARDO PORTER: I’m Eduardo Porter.

TESS VIGELAND: And I’m Tess Vigeland. Thanks for joining us.