There cannot be a price for a human life. This is the major assumption behind closing down society in this pandemic. Life is so precious that it cannot be calculated in economic terms. Anyone thinking otherwise must be a greedy, egocentric, maybe even sociopathic bastard.
I think this is wrong. Superficially, this seems like a noble thing to believe. Of course lives are very valuable. But they do have a price. The idea that economics does not apply to human lives is factually wrong. It is wrong in the same way as the believe in a flat earth. And it is important to understand why. I will lay out, as simple as possible, why lives have to have a price, whether we like it or not.
One fundamental and undeniable fact of the world we live in is that most resources are scarce. There is not enough of most things for every project we need them for. Time, land, food, water, labour etc are all available in limited qualities. Therefore, we have to make a decision for each of these resources for which projects we do and for which we don’t use them.
Take time as a simple example of something that is scarce. We do not have enough time to pursue every project we are interested in. Life is too short as they say. For example, I might have many different ways to spend my Saturday night. Maybe there is a concert I would like to go to, as well as a birthday party of a friend. I also might want to travel to Paris that weekend or spend a nice romantic evening with my partner.
But because time is scarce, I will have to make a decision as to which one of these I am going to do. If I go to my friend’s party, I won’t be able to go to Paris. Whatever I end up doing, my decision to do X is a decision to not do A, B, C or D.
This is the nature of every economic decision. If I am using a resource for one project I, or someone else, cannot use it for another. The fundamental problem underlying economics is how do we allocate resources to projects in a way, so that as many of our most important projects can be fulfilled. The better we allocate resources the better off we are.
It turns out that the correct answer depends on the individual preferences of the people making the decisions. It matters for example whether the friend giving the party is my best mate or someone I don’t care too much about. I might prioritize a party of a good friend over going to Paris, but not any friend. Someone who is freshly in love, on the other hand, might prioritize a romantic evening over everything else.
The correct answer of how to allocate a scarce resource like time depends on a huge amount of factors, most of which are only known to the individual person. To make matter even more complicated, those preferences are also constantly changing.
Time, of course, is just one simple example of a scarce resource. The same is true for everything else that is scarce and valuable. There are two ways we can reduce scarcity. One is to reduce waste. If I can find a way to use less of something to complete a project, then I can use the amount I saved for another project.
An example of that would be cars becoming more and more fuel efficient. The same amount of petrol in a new car will drive a longer distance than in a similar car 20 years ago. I therefore have more money left from the same journey today than back then. That makes me better off.
The other way to reduce scarcity is production. Many things that are scarce can be actively produced. Say for example we are in a state of nature and we don’t have enough apples, because there aren’t many apple trees in the wild. An obvious solution to that is to actively start producing apples.
We can cut all the trees that are less useful to us and actively plant apple trees instead. That way we have more apples than nature has given us. And of course we can also produce things that we cannot find in nature at all, like houses or cars. With these things we went from a total scarcity of not at all available to ubiquitous.
The less we waste and the more we produce the better off we all are. But we need to keep on producing, as wealth is consumed. Once I have eaten an apple, it is gone and I need to produce a new one. This is true even for sturdy products like houses or cars. Over time they too fall apart and therefore need to be constantly re-produced or maintained. When we stop producing we end up poor very quickly.
The key question is, how can we optimize production so that we do not over or underproduce, but ideally produce just the right amount needed of everything. Getting that answer right is the key to being a rich society as opposed to a poor one.
People have tried various solutions to that problem. At the end, however, there is only really one solution to allocate resources efficiently and that is a market. This is very important to understand. The correct answer cannot come from a centrally planning authority. The reason is that a central planner cannot possibly have all the information needed to make these decisions.
Remember, the answer to these questions is often very individual. If a central planner wanted to plan the Saturday evenings of every citizen, it would end up as a disaster. How would they know my preference between going to a party, traveling to Paris, visiting a concert or having a romantic evening? The only way to know is to ask me personally. But that would be the same as me making the decision, so we might as well cut out the middle man.
Short of asking me directly, chances are high that that central planner would not even understand that those are the options that I am looking at. The authorities would probably end up sending me to something that I was not even considering doing, like going to a Bingo evening. I know they mean well, but Bingo would ruining my Saturday night, and possibly even the relationship with my best mate. Whenever central planning is pursued as a solution, we end up with an organized chaos. Everyone will have plans for Saturday night, but few people will enjoy their night out. There will also be plenty of unintended consequences.
And that is just a simple task like planning an evening. Imagine central planners making decision about complex production processes. Even if the authorities asked me what I like doing, that would not mean that they knew my preferences. Would you like to go to Paris? Yes! But that does not mean I would miss the birthday party of my best friend for it. The only way of knowing is to ask me what I would like to do, given all the alternatives. And even that only works, if I then really have to pay the price of missing out on one of the other things.
The latter is absolutely crucial. Politics is very good in making it look like that policies do not have a price. The question is only asked in a way as to what people want, not how much they want it in comparison to other things. The politician will only ask “do you want X”, like for example “do you want health care?” Of course I do.
But how much do I want health care? What am I willing to give up in order to get health care? Politics makes it look like the state can give something for nothing. We can simply decide that we want health care, which is priceless.
But of course it is not. Doctors will have to spend there time treating people. Hospitals have to be build, medicine needs to be produced etc. All these things use resources, and resources are factually scarce. So it is fundamentally an economic question and not just a moral one. Morally, everyone agrees that it would be nice to have health care for everyone.
Of course, the idea that one could get something for nothing is a lot more attractive, which is why markets often have a bad reputation. In reality they are just more honest than politics, as there is no such thing as something for nothing. Someone will have to pay for it, meaning some other projects won’t be done, because the resources have been allocated towards health care.
Again, when we are dealing with something scarce, that means that when we use it for X we cannot use it for A, B, C, D etc. And the things we have to miss out on is the price we pay. There is always a price. And without people making the decision who are paying the price the whole allocation process of resources will end up being extremely inefficient, if not outright chaotic.
Some people might be confused at this point. I am talking a lot about prices, but have not mentioned money. Cost always means that someone is paying money, right? That, however, is a misunderstanding of what money is.
Money is just a facilitator to allocating scarce resources to projects. Money is a fantastic invention which allows us to cooperate with strangers on a global scale. But it really is just a tool to facilitate transactions. It is the underlying reality of resources and products changing hands that is important. Being alone with a suitcase full of dollars in the middle of a desert is of no use.
This is crucial to keep in mind when we hear the government promising everyone money to compensate people for economic losses in the corona crisis. In reality the government just prints that money. It does not change anything on the underlying reality that during the lockdown we stopped producing many things. And if we do not produce, then these things will be more scarce and we will be poorer. Printing money does not change anything about this underlying reality.
There is always a price to pay. If we stop producing in order to save lives then the things that we are missing out on is the price we pay. That gets us back to the original question of whether a human life has a price. In economic terms, it has to have a price. It is certainly an interesting question of how many resources we want to allocate to saving someone’s live. We can even come to the conclusion that we want to allocate a lot of resources towards that problem.
But we cannot allocate unlimited resources. Firstly, even if we allocated all resources available that would still be a limited pool, as we live in a scarce world. That alone puts a price on a life.
Secondly, by allocating resources towards the rescue of lives, they are then not available for other projects anymore. The problem is that a lot of these other projects are not just fun toy projects, but essential projects. The average joe spends a lot of his salary on essential things like shelter and food. If we are taking resources away from these projects then some of these people will get into existential trouble.
We are seeing this play out at the moment. The UN estimates that worldwide up to 265 million people are at risk of starving, twice as many as normal. This is because of our decision to allocate more resources towards rescuing our vulnerable from Covid19. In particular, we have decided it is best when we spend a lot of our most valuable resource, which is time, to stay at home. That way we stopped producing many things.
This sudden reallocation of resources has caused a huge disruption in food supply chains. The resulting decline in food production makes food less available. Consequently, the people with the least buying power will run low on food. And again, this is not a money problem. If there is not enough food for everyone then some people have to go hungry.
By disrupting supply chains and food markets, we have decided to essentially kill some people in order to rescue others. To some this might sound unfair. The people in charge probably do not see it that way, as they are not aware of what they are doing. They are focused on saving lives from Covid19 and overlooking that they have allocated resources towards solving that problem which other people need to survive.
This is a typical outcome of central planning. The central planers have such limited information that they cannot possibly know all the consequences of what they are doing. There is no escaping the fact that in a world in which most things are scarce, everything has a price. The price for rescuing some people from Covid19 is to destroy the livelihoods and even the lives of others people.
Is this a price worth paying? Personally I think it is outright evil to let politicians make these decisions. Who are they to play god like that?
It is important to understand that these terrible outcomes come from good intentions. Some people like to believe that the reason we see so much suffering in the world is because bad people are in charge of it. Sure, that is not entirely wrong. There are certainly some bad people involved in politics. The worst rise to the top as they say.
Time and time again, however, we find that the worst policies come from good intentions. People who are well intended and try to save everyone by force, like lockdown supporters. They simply do not understand what they are doing. They are so focused on their good cause that they are overlooking the consequences of neglecting other things.
The economy is very complex. It is not easy to see that forcing people to socially distance in Europe will lead to millions of children dying in other parts of the world. Everything is too complex for central planners to figure that out. And it is the use of force that leads to the really bad outcomes. If people where left to freely decide how much to socially distance they would stop doing it once the price becomes too high. It is the price that tells them to stop. But when talking about prices becomes heresy everything will have to end up badly.
In the real world, everything that is scarce and valuable has a price. And so, human lives, which are scarce and valuable also have a prize. The fact is we do not live in paradise, meaning we do not have an unlimited amount of resources available to fulfill every of our projects, even if these projects is to save a life. The resources we are allocating towards saving lives are not available for other projects. And these other projects might be just as valuable as saving those lives. There is no escaping these fundamental economic realities. If only more people understood this, we would not be in this horrible mess we find ourselves in at the moment.