Economists are odd people -- the economic way of thinking is an odd way of thinking that is. Md Harisur Rohoman told us that the government is at fault for people being killed in accidents. This can often be true too. Compensation is therefore due which could be true -- that's something I’ll leave to the lawyers. But what makes economists odd is that my immediate mental question was: “Well, how many people should be killed by accidents then?”
Which is an odd question because implicit in it is the insistence that the right answer isn’t none. But then that is indeed the way that economists think -- there's even an answer to that question too. The answer isn’t, though, some number of people, but a price. Which sounds terrible, cold-blooded, and concerned only with money but it is still the right answer.
The initial observation is that people being killed is a cost, of course it is. But then organizing things so that people aren't killed is also a cost. Leave aside that silliness about money and think of what we’re really talking about, resources and the things that humans can do with them. If we organize the world one way then we cannot also, at the same time, organize it another way. We have many conflicting desires so the problem is that we have to find the optimal trade off of what we can do and what we want to have done.
So, take transport. Sure, we can make sure no one is killed by transport simply by not having any transport. But that also means that no one can ever go anywhere -- something humans like doing -- and also that we can't get food from the farms to the city, clothes from the factories to the shops and so on -- we’ve no transport.
There is no method of transport that kills absolutely no one and never will be -- having 40 tons of something moving at 70 miles an hour simply will, at some point, kill someone.
So, how many people? At which point economists turn to “the statistical value of a life”. This is not the price which someone will accept for being killed -- even economists aren’t stupid enough to try to base policy on that idea. Rather, it’s the price people demand for taking known risks. For, just as with transport, being alive has risks. We’ve always got to make choices which carry a variety of risks. We demand different wages for taking different risks. If we study those risks, those prices, we can work out what it is that people think their own life, on average, is worth. For example, it’s more risky to work on an oil rig out at sea than it is to work on one on land -- so, what’s the wage difference between the two?
We end up with some odd numbers. For the US about $5 million per life. For the UK, some £2m (do note that these numbers are estimates, as such they might have the right number of zeros in them but beyond that, not so accurate). Not because the English are braver, but because we're poorer. For yes, poorer people will take greater risks for less money so they are indeed valuing their lives at a lesser price.
This does not then mean that the family of everyone who dies in an accident should be given £2m -- that would get granny's wheelchair pushed in front of the bus far, far too often. But it does give us that price of a life.
Once we know the price of a life we know what adds value in general. We want to do those things which add value to life in general, we don’t want to do those things which subtract from it. So, an absolutely standard piece of economic reasoning is that if we know the value of something then the optimal amount to spend on achieving that thing is to spend up to, but not above, that value. Spending £50 to save £2m is a grand deal, spending £5bn to save £2m isn't.
What we end up with is that yes, there are risks to transport systems. But we want to have transport, but we need to bring it up to some level of safety. But what level is that? Or, how many people should the transport system be allowed to kill? The answer being that we should be willing to spend up to £2m (in the UK) or $5m (in the US) on any safety measure that will save one life.
One statistical life that is. As it happens those are the numbers that the two countries largely use as well. A few years back a new braking system was approved for British railways on the basis that it would cost about £1.4m for each life saved.
I did say that economists are weird and there’s your proof. There’s a right number of people that the transport system should be killing. This is also true of any other part of the economy, pollution, medical care, bureaucracy itself, anything. Where it costs more to save the life than the life is worth then the death should happen.
Note, I didn't say economists are nice, just weird.
Tim Worstall is a senior fellow at the Adam Smith Institute in London
