February 2019


What the government thinks you’re worth

By Richard Denniss
What the government thinks you’re worth
Our nation’s economists have a price on your head, dead or alive

Human life isn’t priceless. Yours might be, to you, but as a society we put a price on human lives all the time. Courts, insurance companies, actuaries, CEOs, consulting firms, public servants and government ministers all make decisions about the value of life, and the value of death. It’s not secret, but we don’t talk about it. And while our collective silence allows us to avoid painful truths, collective denial impoverishes our decision-making. Indeed, our fear and silence empower the tiny minority of people (most of whom are economists) willing to put a valuation on your life.

Fear doesn’t stop death. More often it harms life. Fear of talking about death makes things so much harder for so many. Fear makes it hard to talk to our family about their deaths, or ours. Which in turn makes it hard to talk about euthanasia laws.

Our fear of death allows governments to remove freedoms and overspend billions protecting us from terrorism, while simultaneously exposing us to the risk of climate change. It’s easier, and politically more valuable, to prioritise a tiny number of potential high-profile deaths today over an enormous number of likely deaths in the future. Economists have a term for this phenomenon: it’s called discounting. When comparing the value of future lives with current ones, the value of those yet to be born is literally “discounted”. While the morality of this is widely accepted among economists, the size of the “discount rate” for future lives is hotly contested.

Fear makes it hard to have a public debate about why we spend so much to prevent deaths from terrorism or shark attacks but “can’t afford” to militate against more common deaths from family violence or diabetes or of Indigenous people in custody. All untimely death is terrible, but while many politicians say they will “stop at nothing” to prevent particular unlikely deaths, they take pride in their fiscal conservatism when it comes to the prevention of deaths on worksites or in aged-care centres.

Until we can openly discuss what kind of lives and deaths we want, we will continue to live in a society that spends millions rescuing sailors who enjoy placing themselves in extreme danger while we pretend we can’t afford to spend more on medicines or mental health policies. Put simply, we never get to talk about how people get to live, who is allowed to die, and whose lives must be excruciatingly lengthened.

Fear drains the life out of democratic debates. The day after a fatal shark attack, it’s hard for scientists and community leaders to remind people that sharks are endangered and attacks are rare. And the day after a senseless terrorist attack, it’s hard to remind people that tetanus kills more people than terrorism. But the uncomfortable truth is that good politicians and lobbyists exploit those difficulties. When environmentalists mention climate change after a bushfire, they are howled down by conservatives for “politicising” a tragedy, but the minute a bomb goes off (in a rich country), many of those same conservatives demand tougher laws to “fight terrorism”. Death brings opportunity – and as the saying goes, “Never let a good crisis go to waste.”

Many of the current crop of Australian politicians have confused the art of dividing, conquering, wedging and framing with that of building new coalitions, persuading new constituencies and implementing good policy. The result is an Australian democracy that is comatose – existing in the space between life and death. The vital signs are still there but there is no vitality.

If only people recognised that behind all the theatrics their elected representatives were actually making decisions about their lives. And their deaths. Perhaps then they would see the value in re-engaging in our democratic project.

According to the Department of the Prime Minister and Cabinet (PM&C), an Australian life is currently worth $4.5 million and each year of premature death is worth $195,000. This number is not top secret – on the contrary, it is contained in a short and eminently readable memo entitled “Best Practice Regulation Guidance Note: Value of statistical life”. And the first words in the memo assure public servants that “Willingness to pay is the appropriate way to estimate the value of reductions in the risk of physical harm – known as the value of statistical life.”

“Appropriate”. Think about that word. According to an unnamed employee at PM&C, not only is there an accurate dollar value for your life and those of your loved ones but there is also an “appropriate” way to come up with that estimate. Lest there be any room for doubt, the memo goes on to state that “This note provides guidance on how [public sector] officers preparing the cost–benefit analysis in Regulation Impact Statements should treat the benefits of regulations designed to reduce the risk of physical harm.” To summarise, the central coordinating department of the federal government publishes precise estimates of the value of human life, it assures public servants that the estimates were calculated with the “appropriate” methodology, and it goes on to tell them that they “should” use such numbers when advising ministers and the public on the implementation of new policies designed to save our lives.

Intriguingly, while PM&C thinks that your life is worth $195,000 per year, the head of PM&C, Dr Martin Parkinson, earns $896,400 per year, which suggests that a year of your life is worth less than a quarter of a year of his working life. Just saying.

So where do these numbers come from? Economists have many ways to estimate the value of a human life, but the “willingness to pay” approach is as common as it is straightforward: economists ask people questions about how much they would be willing to pay to extend their life. Who said economics was complicated?

Economists are completely aware of the problems with using random surveys of citizens to answer a question that has puzzled philosophers and ethicists for millennia. But hey, you can’t do a cost–benefit analysis without putting a value on everything, and, being members of a pragmatic if not principled profession, economists are happy to use $195,000 in the absence of a more accurate figure.

Even so, this figure is selectively applied.

This is because, contrary to popular belief, not all lives are equal. Just as everyone knows a Mercedes-Benz is worth more than a Mitsubishi, most economists also accept that some lives are worth more than others. Take the elderly, for example. Because the elderly are less likely to work, and more likely to have low incomes, the United States Environmental Protection Authority (EPA) once tried to apply a “senior discount” to the value of their lives. The agency responsible for deciding whether it was “worth it” to clean up the air and water assumed the lives of those over 70 years were worth 60 per cent of that of a US citizen under 70.

After an uproar from older citizens, the EPA renounced the use of what became known as the “senior death discount”. An agency official declared that the “EPA will not, I repeat, not, use age-adjusted analysis in decision making”. But they didn’t promise to stop valuing human life to the dollar and nor did they promise to value all human life evenly. No government agency would make such a pledge.

Here in Australia, that PM&C memo mentioned above makes clear that it is important and necessary to “discount” the value of lives saved in the future. Indeed, the memo actually includes a table that shows that when faced with a choice between killing three people this year or five people in eight years’ time the right thing to do is kill the extra two people.

I’m not joking. The memo literally says that saving three lives today delivers benefits of $13.5 million and saving five lives in eight years’ time delivers benefits of only $13.1 million. While folklore might tell us that “a stitch in time saves nine” and that “prevention is better than cure”, PM&C tells public servants that lives in two elections’ time are worth a lot less than lives today. Now you know why governments put so little money into preventive health – it’s not that they don’t know it works, they just don’t think saving lots of lives in 40 years’ time is very valuable.

The idea of “discounting” future benefits makes some sense, sometimes, for the simple reason that most people are impatient. For example, if you had to choose between receiving $1000 today or $1000 in a year’s time most people would take the cash now. Indeed, even if you didn’t need the money now, an economist would tell you to take the money now, put it in the bank, and in a year’s time you will have a little over $1000 thanks to the interest you can earn.

It is, however, a giant moral and intellectual leap from the assertion that $1000 today is worth more than $1000 in a year’s time to the conclusion that saving three human lives today is “worth more” than saving five human lives in eight years’ time. But just as we have never had a public debate about the value of human life we have never had a public debate about the morality of discounting future lives.

And just in case you think these issues are abstract, such a calculation is not just at the heart of policy-makers’ disinterest in preventive health. The discounting of future lives is also at the heart of many economists’ apathy about climate change. When you hear someone say that the costs of reducing greenhouse gas emissions are greater than the benefits of avoiding dangerous climate change, you can rest assured that the “benefits” from saving human lives in the future have been heavily discounted. In fact, using PM&C’s preferred method, if a human life worth $4.5 million was saved in 100 years’ time, then the “benefit” of saving that life would only be $5186.03. Put another way, according to PM&C one life today is worth 867 lives in a century’s time. And if the life saved was that of someone in a low-income country, then there are plenty of economists who would argue that we shouldn’t use the high value of an Australian life to quantify the benefits of saving a poor person from a climate change–induced death.

While the calculation of the net present value of future lives saved might seem technocratic and esoteric, there is nothing abstract about the decisions made on the basis of “cost–benefit analysis”.

The logic that it is “efficient” for rich countries to outsource environmental pollution to poor countries is neatly summarised in the infamous “Summers memo”. Lawrence Summers was chief economist at the World Bank, treasury secretary to Bill Clinton and president of Harvard University. When it comes to economic orthodoxy it is hard to get more established than Lawrence Summers, which is why the memo he signed and sent to colleagues when he was at the World Bank, albeit later claimed to be sarcastic, is so illuminating. The memo, which is now easily found online, ironically begins, “Just between you and me, shouldn’t the World Bank be encouraging MORE migration of the dirty industries to the LDCs [least developed countries]? I can think of three reasons.”

While the reasons suggested in the memo are expressed in some complicated econobabble, a close read reveals the logical power, and ethical emptiness, of the underlying approach to economics.

The first reason for why it makes sense for rich countries to dump their toxic waste in poor countries is as follows:

The measurements of the costs of health impairing pollution depends on the foregone earnings from increased morbidity and mortality. From this point of view a given amount of health impairing pollution should be done in the country with the lowest cost, which will be the country with the lowest wages.

The assessment seems brutal and harsh, but the point is both honest and important. Modern production processes create pollution that will kill people who live and work nearby. Given that someone will have to die for people in rich countries to have the mass-produced consumer goods they take for granted, shouldn’t we discuss who should be killed in the process? And while you might not like the assertion that it makes economic sense to kill people in low-income countries, what criteria do you think we should use? Do you want a polluting factory near your local shopping centre?

The memo goes on: “I’ve always thought that under-populated countries in Africa are vastly UNDER-polluted.” Given that a little bit of exposure to forms of pollution doesn’t do much damage but a lot of exposure does a lot of damage, it makes some sort of sense to “even out” the distribution of pollution across the world. Put simply, even though the rich countries get most of the benefits of manufacturing, Summers’s thinking is that the costs of the pollution should be “shared” with poor countries.

The third reason is the one that most people find most callous: it makes sense to pollute in poor countries because rich people care more about clean environments, and because poor people die so much earlier than rich people they probably won’t live long enough to develop the cancers and other illnesses that come from long-term exposure to pollution.

While the economic calculus embraced by PM&C and the likes of Lawrence Summers might seem harsh, at least they are willing to confront the hard choices that societies make. And unless more people, and more professions, are willing to confront the uncomfortable truths about the value judgements being made about life and death there can be no debate and no change.

While Australian politicians rarely talk about it, the assigned worth of human life is regularly used to ensure that we get “value for money” in the design of our health, disability, workplace safety and transport industries. Imagine if we spent $190,000 to save a life that was only “worth” $180,000 … we’d have wasted $10,000! And in a country so often in a state of “budget emergency” and “record public debt”, we obviously can’t afford to waste money saving sick people from dying. Or can we?

Australia is one of the richest countries in the world. The national income of our 25 million residents is about the same as the entire national income of 144 million Russians. Think about that – the Australian economy is about the same size as Russia’s, yet most Australians feel we are too small to make a global difference, and too poor to afford the kind of health, education and transport systems enjoyed by other rich countries. It is no accident that some of the richest people in the world feel poor. Imagine the quality of health, education and transport services we would demand if we knew how collectively rich we were.

For decades Australians have been told to tighten their belts and live within their means. If neoliberalism has taught us anything it is that we have to lower our expectations – which presumably is why so many Australians accept that our health system “can’t afford” to provide some life-saving drugs to people or that our National Disability Insurance Scheme (NDIS) “can’t afford” to cover the cost of a wheelchair for someone suffering degenerative illness. And lurking in the background of these decisions to deny Australians access to services is an economist’s assumption about the value of human life.

Dr Justin Yerbury is a molecular biologist based in Wollongong. He conducts academic research into motor neurone disease (MND), which not only afflicts him but has also claimed the life of his mother, Pauline, and one of his sisters, Sarah. He now requires around-the-clock care and a ventilator to help him breathe, the cost of which is supported by Australia’s public health system and the NDIS. But despite the fact that Australia’s health system is generous compared with that of many countries, our collective generosity to those in need has its limits. And unfortunately for Yerbury, our system was not generous enough to provide him with the kind of electric wheelchair he requires.

Before the NDIS was implemented in 2016, the ability of people with disabilities to access support services was governed by a wide range of arbitrary categories. People were entitled to different services and supports based on the severity and classification of their disability. The NDIS was supposed to change all that by giving each person their own “budget” to spend on the services they most needed. But guess what? The budget is arbitrary as well. And it’s based on an assumed value of an average human life, a value that means some people who aren’t average don’t get the care they might expect.

Yerbury, for example, is tall, too tall for a standard wheelchair. Customised wheelchairs aren’t cheap, and MND significantly reduces life expectancy. That’s a dangerous combination when decisions about care are being made on the basis of cost–benefit analysis.

Of course, not all decisions are made on the basis of a cost–benefit analysis. Former attorney-general George Brandis spent more than $20,000 of taxpayer money on bookshelves because he was “entitled” to do so. Barnaby Joyce spent more than $670,000 to fit out two electorate offices because he was entitled to. Powerful people don’t even have to ask.

Yet the fact that the powerful don’t use cost–benefit analyses to make their own decisions doesn’t mean the rest of us never should. Obviously we wouldn’t spend $1 billion to look after a citizen for a year, and obviously we would spend $100. But what’s not obvious is who determines the threshold at which we switch from harsh to generous, and how that is determined. In the words of Yerbury’s sister Naomi to the ABC: “They put in the statistics of life expectancy and they’ve just said it’s not worth their while to support him with that amount of money. It’s absolutely disgusting.”

It should come as no surprise that a country that is willing to lock up children on Nauru to “deter” other refugees from seeking help would be similarly calculating when it comes to the design of services for vulnerable Australians. And, in turn, it should come as no surprise that Yerbury is not the only citizen to be told he is not worth helping. The ABC reported that Sally Wade, a registered nurse who also suffers from MND, was told that it was not worth investing in making her car more accessible because she might not live long enough to justify the expense.

Of course the NDIS isn’t the only policy that uses the value of human life to decide who should be helped and who should not. Australia’s Pharmaceutical Benefits Advisory Committee makes recommendations about which medicines will be subsidised via the Pharmaceutical Benefits Scheme (PBS) and which vaccines will be made freely available via the National Immunisation Program (NIP). It relies on an assumption about the value of human life in order to make these recommendations.

Meningococcal disease is caused by the meningococcus bacteria and can kill within hours. Although most people will fully recover from an infection, about 10 per cent will die and about 20 per cent will experience permanent disabilities, such as kidney failure or blindness. Luckily it is possible to vaccinate against meningococcal disease, but, unluckily for Coffs Harbour’s Thorn Pochyly, the vaccination for the B strain – unlike the vaccination drugs for the A, C, Y and W strains – did not pass the cost–benefit test and is not available Australia-wide on the NIP.

Thorn was infected by the B strain of the meningococcus bacteria when he was a baby, and while he survived to become a healthy 17-year-old he lost the lower part of his left leg, his right thumb and part of an ear. He was fed by a tube for the first 10 years of his life, needed a kidney transplant and has learning difficulties. Needless to say, the cost of providing Thorn with the health care he needs is likely to be far greater than the “value” figure used to decide which immunisations are free. But luckily for Thorn the way hospitals decide who gets an operation is quite different from the way advisers to the NDIS, the PBS and the NIP recommend preventive care and life-saving medicine.

There is no doubt that most people prefer to spend money rescuing a specific person than preventing harm to an abstract person. After media coverage of Dr Yerbury’s circumstances led to a public and political outcry, the NDIS decided to cover the costs of his wheelchair. Public awareness of the specifics of his case meant that he was no longer abstract and, in turn, was worth spending more money on.

A more extreme case of this phenomenon was apparent last year when governments around the world (and Elon Musk) were willing to spend tens of millions of dollars to rescue the 12 Thai boys and their soccer coach who became trapped in a flooded cave. The same amount of money spent on food and medicine to help children dying of malnutrition in Syria, South Sudan or Yemen would have saved far more lives. But most people value heroically saving a specific life than procedurally saving anonymous lives.

Humans seem to love rescuing people. Tony Bullimore was a British yachtsman who was rescued in the Southern Ocean in 1997 after his yacht capsized while competing in a solo round-the-world yacht race. The cost to Australian taxpayers of deploying a frigate with a helicopter on a five-day mission to find him was estimated at (and this seems to be conservative) $6 million.

But while it is hard to imagine a more dangerous position to put yourself in than sailing a yacht solo through the most treacherous ocean in the world, most people seem to think that rescuing such a person in (the rather predictable) times of trouble is the “right thing to do”. Maybe it is. And yet many Australians also seem to think it is acceptable to keep children incarcerated on Nauru lest releasing them provides an “incentive” to other refugees. By that logic, rescuing sailors must surely …

So what’s it to be? Should we use our heads or our hearts to decide which lives to save?

Australia’s PBS and NIP are far from perfect, but there is little doubt that their reliance on cost–benefit analysis gives our health department a strong bargaining position when it comes to negotiating a price with multinational drug companies for our medicines and immunisations. Put simply, if the drug companies are too greedy, their drugs are not listed for subsidy on our PBS. As a result, Australians often pay much lower prices for drugs than US citizens do. But the other side of that coin is that some drugs don’t make the cut, and patients like Thorn pay a very high personal price.

Far from being an obvious villain, there is clear evidence that if we used cost–benefit analysis more we might save ourselves a lot of money and a lot of lives. It’s all in the application. The major causes of truck crashes in Australia are speed and fatigue, which means preventing most truck crashes is quite straightforward. If all trucks were fitted with systems monitoring their speed and the time since their driver took a break, then detecting dangerous driving would be simple. But installing such technology would cost, monitoring it would cost, and slower driving would cost. If we want to avoid most truck crashes, we simply have to decide whether the lives saved justify the cost.

Or consider junk food advertising to children. Australian kids are now among the fattest in the world, and the medical evidence suggests they will grow up to be some of the fattest adults in the world. While there is no silver bullet when it comes to tackling obesity, it’s quite clear that interventions such as banning junk food advertising to kids, banning sugary drinks in schools and imposing a sugar tax deliver significant health benefits at no costs to the government. But despite the fact that the benefits of such policies dwarf the trivial costs, there is no rush to introduce such policies. On the contrary, there is virtually no chance that they will be introduced any time soon.

If we paid more attention to the technocrats with their preference for cost–benefit analyses, our politicians would find it a lot easier to spend money preventing a lot of diabetes and a lot harder to spend it avoiding almost no shark attacks.

No spreadsheet, cost–benefit analysis or quantitative indicator can make hard decisions easy.

Cost–benefit analysis can be a powerful tool for organising, categorising and evaluating the pros and cons of decisions as diverse as which bridges to build and which lives to save, which technologies to subsidise and which to mothball. However, no matter how complicated the maths or economics that sit behind such analysis, the fundamental point is that no economist actually knows the value of a human life. Rather than help a society understand the consequences of policy decisions, cost–benefit analysis increasingly serves to conceal the options we face.

For decades, citizens have been told that economic models, cost–benefit analysis or the measurement of gross domestic product gave our societies the tools they needed to “scientifically” answer tough moral questions. Nothing could be further from the truth. While such decision-making tools could be used to highlight the options and trade-offs that our societies face, in reality they have more often been used to conceal both the range of options that are available and the ethical implications of the options we have been choosing.

Chemical factories pollute the waters and the air, and, as a result, people die. When we decide to cut taxes and cut spending on disability support services, people die. And when we decide not to monitor the speed and rest times of trucks, people die. Whether we pollute the air that consumers in rich countries or workers in poor countries breathe is a choice we face. As is how much to spend on pharmaceuticals or ambulances, protecting women who fear family violence, or the number of guards and bollards around Parliament House.

As one of the richest countries in the world, we can afford to do anything we want, but we cannot afford to do everything we want. If we choose to cut company taxes, spend billions detaining children on foreign islands and pretend we can’t afford to spend more on medicines, we can do so. There is nothing in the Constitution that says we should be nice to sick people or spend money wisely. But there is nothing in an economics textbook that tells us which lives are most worth saving either. Ultimately such choices are democratic ones. But in telling ourselves that they are solely technocratic choices we have both spared ourselves from addressing the hardest questions and undermined the importance of the democratic decisions that we must all collectively make.

Ultimately, all big decisions about life and death, from war and medicine to state funerals and euthanasia laws, will be made by our elected representatives. The decisions will be made with reference to judgement and values, not algorithms or economics. How can anyone believe that democracy and elections are not matters of life and death? How can anyone believe elections don’t matter?

Richard Denniss
Richard Denniss is the chief economist at The Australia Institute.

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