How much is a life worth?

“With this pandemic, it is possible to save lives or money. Not both” The Lancet, February 2020

With an increasingly shrill clarity, the alarm bells were ringing throughout the early part of 2020, as reports of a novel coronavirus emerged from China.

In days of yore, it may have taken a viral illness months to traverse the globe — but in this era, it is possible to reach the other side of our globalised world in less than 24 hours.

With this pandemic threat looming large, Governments globally faced a Faustian pact; protect lives or the economy? Richard Horton, Editor of The Lancet, a popular medical journal, suggested that this stark choice would present itself.

Scarce Resources

Economics is, by definition, the allocation of scarce resources. Attaining an economic equilibrium is the remit of public sector think tanks and governing bodies.

So, what did Horton mean by this? He was alluding to the fact that Governments could either shield the population by shutting down its daily functions, or continue as normal and expose the population to the risk of death from the virus. Shutting down would be likely to save many lives at a great economic cost, while continuing as normal would protect the economy but place the population at great risk from an overwhelmed health service.

On 13th March, Boris Johnson and the Chief Medical and Scientific Officers appeared before the UK media for the first time to address Coronavirus. They outlined a policy of herd immunity which would entail vast swathes of the population becoming infected by Covid-19. Arguably, they had chosen money over lives.

When epidemiological modelling suggested that this would mean the loss of 250,000 lives, the Government realised the extent of the threat and performed somewhat of a U-turn. Social distancing and then lockdown became the order of the day.

These two polemic choices served to illustrate the disparate difficulty in economic modelling during a pandemic. With no firm feel for how the virus will behave, no historic precedent, there is no economic equilibrium, no optimal cost/benefit resource allocation.

What price a life?

Let us suppose the epidemiological modelling was correct, and that herd immunity would have cost 250,000 lives. Let us also assume then that the death toll for this wave of the pandemic will be consistent with modelling, 20,000.

It is a fair summation then that the Government decision to pursue lockdown will have saved 230,000 lives.

Lockdown, however, comes at a great financial cost. The economy is effectively at standstill; GDP is projected to shrink significantly and the Government have had to borrow huge sums of money to bail out its citizens. Chancellor Rishi Sunak announced a rescue package of £340 Billion. Let’s assume that this figure is slightly conservative, and with combined with the cost of propping up the NHS and recalibrating society, is really closer to £400,000,000,000. That’s an awful lot of zeros.

In order to save those 230,000 lives, it has cost £400 Billion as a direct consequence.

£400,000,000,000 / 230,000 = £1,739,000

Each live therefore cost £1.739 Million to save.

Now, these disease modelling and real economic cost figures are highly theoretical. The real figures are likely to be materially different — but it’s a useful indicator.

Marginal Utility

Extending our economic modelling further, let us examine marginal utility. From a utilitarian perspective, saving 230,000 lives at a cost of £1.789 Million each is probably not good business.

However, the marginal utility of some of those lives is greater than others. Rightly or wrongly, the marginal utility of lives of my family Is infinitely greater to me than the thousands of people who will succumb to this illness. Selfish, yes — but, that’s life, and that’s marginal utility. It’s no different for the decision makers. It is one thing modelling economic benefit analysis against lives on paper, and quite another when bereavement arrives at your door. Boris Johnson’s own brush with death serves to illustrate how indiscriminate this illness is.

Has the government a selfish ulterior motive? Potentially. It is unconscionable that the NHS would be overwhelmed and people are dying in taxis and in corridors, without treatment. No developed economy could justify that. It would make the Conservative party unelectable indefinitely.

However, I prefer the narrative that this government acted to save lives. They have elected to place a real value on protecting human life. At a cost of £1.79 Million per life, nobody can accuse them of abandoning us.

At a microeconomic level, our generation will pay for this intervention through elevated taxes and a diminished ability to create wealth. It’s going to be tough for years to come — but remember the marginal utility of those lives closest to you, and you will see the rationale.