While some consider it immoral to put a price on a human life, many economists believe it is essential in many cases to properly evaluate public spending decisions. Discuss with at least one example.
Introduction
After the Great Depression, of 1929, the role of government increased in the political-economic system. It is because, after the Great Depression, many mainstream economists concluded that a capitalist economy was inherently flawed, which necessitated the role of government to not only regulate markets, but also improve quality of life, which directly impacted economy in the long run. In post-Great Depression period, government proactively interfered in the political-economic system to realize identified political-economic objectives. For instance, to increase the level of employment in an economy, the government did not rely only on Central Bank; it boldly used expansionary fiscal policy to realize said objective (Watkins, 2017).
Another fundamental rationale for the increase in the size of government was that the state must protect and nurture life, as it was its fundamental duty. However, to protect and nurture life, financial resources are required, which are limited. Therefore, public spending is a serious issue, and this spending requires methodology. Before discussing the contemporary methodology that is used for public spending, it is essential to learn about the prevailing understanding regarding the public spending (Fisher, 2015).
Public Spending
Generally, public spending is understood as government expenditure on defense, education, health and other such projects. However, for this academic exercise, we intend to reduce the size of context to health and the environment. It is because reducing context too few subjects will allow us to aptly address the question, which pertains to the importance / immorality of putting a price on human life (Moreno‐Dodson & Bayraktar, 2015).
Objective and Method of Spending
Government spending has not only a method, but also objectives. For instance, the government decides through a process how much it would spend on particular social-political sectors. Also, a government spends money on its institutions, and this spending of money has an ultimate objective(s). For instance, governments spend money on education to develop its human capital into human resource. As the human capital develops, economy performs better, which is the essential or primary objective of any government. Similarly, governments around the world provide health coverage (to its citizens), which is also directly correlated with the economy. However, to decide how much it must spend on the individual, it has to decide the worth of human life (in monetary terms) (Fuguitt & Wilcox, 1999). This assessment that how much a life worth, in monetary terms is necessitated by cost-benefit analysis, as cost-benefit analysis forces to monetary evaluates a life.
Worth of a Life
For cost-benefit analysis, it is essential that the government must know the worth of value in monetary terms. Different government institutions use different methods to evaluate the value of life. For instance, Environmental Protection Agency estimates how much people are willing to pay an additional dollar(s) to reduce the risks that are associated with dying because of aggravating environmental conditions. Generally, agencies ask how much individual will pay, over the year, to reduce chances of dying from various kinds of environmental deteriorations (Paternostro et al., 2005).
Healthcare agencies would estimate the worth of life on similar patterns. It would ask a randomly selected group of individuals how much they are willing to pay to reduce health-related risks that could increase the chances of their death (Frank Partnoy, 2012).
It is generally the method, which is used by different government institutions to evaluate the worth of life. However, it has issues, which pertain to morality. It is generally understood that human life is priceless. It is considered priceless because human life has tremendous potential, which is why it is quite difficult to put a price on it. However, when a government has to invest or raise taxes to improve life and reduce the risk of death; it becomes almost imperative to evaluate life. This cost-benefit analysis is primarily used in decision-making processes (Watkins, 2017).
Public Spending Decision Regarding Health and Environment
There are two ways of looking at public spending. One of the ways of looking at it is from an economic perspective. Governments understand that they must invest in health and the environment as it has social, political, and economic benefits. The other reason for spending on health and the environment is various surveys, such as EPA survey about the value of life, which provides an understanding to the government regarding the willingness of people to pay to reduce the risk of dying from health and environmental deterioration (Fisher, 2015)
Health
Health is a serious issue for both government and public. The government understands that providing health care to the average citizen, at an affordable rate, would positively affect the economy and society in long-run; therefore, spending on health care is a significant and relevant decision (Fisher, 2015).
Individuals also understand that living a healthy life is essential; a healthy lifestyle would increase social and corporate prospects. Therefore, we are seeing that individuals in both developed and developing countries are investing in healthcare, which indicates the willingness to pay more to reduce health risks in their lives.
From above information, it is apparent that health care is an important subject for both government and public and studies infer that both parties are willing to spend on it. However, the question is how much of limited financial resources to be spent.
This answer can only be found by methods, such as Value of Statistical Life and Cost-Benefit analysis. For instance, as Food and Drug Agency, the worth of life is $7.9 million. However, these estimates regarding the monetary or the statistical value of life, regarding health, are not very precise, but still quite helpful (Moreno‐Dodson & Bayraktar, 2015).
Environment
Environmental Deterioration has a great cost, and its preservation has enormous benefits. Both state and individuals are of the view that environmental preservation is of great benefit and the preservation’s benefits outweigh costs of environmental preservation. However, it is still essential to know how much a government must spend or how much individuals are willing to pay to reduce environmental deterioration related risks that cause deaths.
To address this question, EPA regularly estimates the statistical value of life. For instance, during George Bush’s presidential period was $6.8 million (Applebaum, 2011). Recently it was revised to $9.1 million (inflation adjusted), which suggests that as the environment related awareness is increasing, so does the worth of life (Frank Partnoy, 2012).
Conclusion
In this academic exercise, we discussed why it is important to put a price on life, and we learned how different institutions use various methods to evaluate the value of life monetarily. It is also evident that in public spending decisions, which are usually based on cost-benefit analysis, such information is of great relevance.
The public spending decisions are based on two inquiries or questions; 1) on what subjects or projects, a government must spend and how much it should spend. These answers lie in surveys that are regularly conducted, which provide evidence regarding the willingness to pay (by the public) on subjects such as health, environment, and education. Willingness to pay, which constitutes the monetary worth of life, is, in fact, an indicator regarding the public spending.
A government avoids raising taxes, which are a source of public funding, more than the willingness to pay. It is because, an increase, which is more than the willingness to pay, may have political, social and economic ramifications.
From this academic discussion, which is based on the scrutiny of evidence, we have concluded that pricing a life or determining the monetary value of life is essential in public spending. It could be immoral in particular contexts; however, it also has benefits.
References
Applebaum, B., 2011. As U.S. Agencies Put More Value on a Life, Businesses Fret. [Online] Available at: https://www.nytimes.com/2011/02/17/business/economy/17regulation.html?hpw [Accessed 8 June 2018].
Fisher, R.C., 2015. State and local public finance. 1st ed. Routledge.
Frank Partnoy, 2012. The Cost of a Human Life, Statistically Speaking. [Online] Available at: https://www.theglobalist.com/the-cost-of-a-human-life-statistically-speaking/ [Accessed 8 June 2018].
Fuguitt, D. & Wilcox, S.J., 1999. Cost-benefit Analysis for Public Sector Decision Makers. 1st ed. Greenwood Publishing Group.
Moreno‐Dodson, B. & Bayraktar, N., 2015. How can public spending help you grow? An empirical analysis for developing countries. Bulletin of Economic Research, 67(1), pp.30-64.
Paternostro, S., Rajaram, A. & Tiongson, E.R., 2005. How Does the Composition of Public Spending Matter? World Bank Publications.
Watkins, D., 2017. The Great Depression And The Role Of Government Intervention. [Online] Available at: https://ari.aynrand.org/blog/2017/02/01/the-great-depression-and-the-role-of-government-intervention [Accessed 8 June 2018].
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