The small risk of Covid-19 vaccines has translated into serious side effects in a number of cases. A few people even died. In the U.S. and elsewhere, governments are preparing to pay statutory “compensation” to the victims or their survivors. (“Covid-19 Vaccines Were Deadly in Rare Cases. Governments Are Now Weighing Compensation,” Wall Street Journal, February 19, 2022.)
Aren’t these costs low compared to the benefits of vaccination, as some cost-benefit analysis might have shown (had governments done any such analyses)? This question raises the basic problem of cost-benefit analysis: it aims at calculating the benefits to some individuals compared with the costs to other individuals.
The intellectual exercise of cost-benefit would be innocuous if the purpose were to inform each individual of his own risk. But then, isn’t this presumably what each individual does before making a decision: he weighs his own expected (ex ante) costs and benefits. Government economists cannot really calculate costs and benefits that they are largely subjective, dependent on individual circumstances, and unknowable by any external observer (see James Buchanan, Cost and Choice [1969] [Liberty Fund, 1998]). Cost-benefit calculations can only be useful if the government intends to force the estimated lower costs on some individuals in order to confer some estimated higher benefits to other individuals.
These ideas are not easy to grasp. (It took me several decades to realize their import.) They undermine a structural pillar of what has been the reigning political culture of the past century and a half—that the role of government is to help some individuals by imposing costs on others. An alternative approach in economic theory is not to “impose” anything except if it follows from a rule that each and every individual would consent to, as James Buchanan and Gordon Tullock explained in their seminal 1962 book, The Calculus of Consent; my anniversary review for Econlib tries to give an idea of the intellectual force of this argument. (Note that this approach does not necessarily justify a minimal state.)
Perhaps I can illustrate the problem with my own intuitive calculations regarding the Covid-19 vaccines. Given my preferences, my circumstances, and my probabilistic guesstimates, I determined that the benefit of a the vaccine was higher than its cost—for me. By the way, I also hypothesized that the principle of portfolio diversification must be a constant of the universe and decided to mix a Pfizer booster, which I could by then choose at Walmart, with a previous two-dose Moderna, the only choice I had first had under the government allocation system. I don’t pretend I can decide for any other adult, but I certainly can, and did, make similar recommendations to my friends and loved ones.
The quote marks I put around “compensation” at the beginning of my post may now be easier to understand. A compensation must be accepted in a voluntary trade or transaction (even if ex ante and in a probabilistic context), or it is not a full compensation.
The problem of weighing the benefits of some against the costs to others is related to attempts at comparing and adding up preferences across individuals. The opinion of the economic analyst or of the committee of bureaucrats writing the cost-benefit analysis is of no more scientific value than that of any Blue, Red, or Brown politician down the aisle. Consider the following illustrative question: Would the loss of one dollar by every American adult represent a higher or lower cost than the $250 million transferred to a single one chosen at random among them? And can the answer justify forcing the 250 million individuals pay $1 each in a government lottery ticket?
It is true that in most Western countries, there was no legal obligation, sanctioned by legal punishments, to be vaccinated against Covid-19. The coercion, though, was more subtle and worked through several prohibitions and daily hurdles for unvaccinated individuals. We are quite far from benevolent advice or motherly nudging from disinterested politicians and wise bureaucrats; but that’s how Leviathan works.
READER COMMENTS
Robert Schadler
Feb 20 2022 at 5:36pm
This seems close to substituting correlation to causation.
Governments collect the overall statistics, then impute the benefit to be equally distributed. But the costs and the benefits are not distributed equally, as your essay indicates. And it is, in part, a life or death issue. Many avoid death via the vaccine; a few dies from it. The uncertainties may be substantial, but an individual might well be better able to taken them better into account, knowing more (together with a medical professional).
Tom Hart
Feb 21 2022 at 8:01am
I did not think there was anyone with stupid opinions and comments left outside Trump-world, but I guess I missed Lemieux. I do not think I understand why he feels the need to express himself. I suppose it is the same reason I do. Ego.
Pierre Lemieux
Feb 21 2022 at 2:37pm
Note that I recommend books and articles only to people who know how to read.
Knut P. Heen
Feb 21 2022 at 9:33am
Isn’t this the discussion about Pareto efficient vs. Kaldor-Hicks efficient again? The argument for Kaldor-Hicks is that the winners may compensate the losers; hence, you simply add up all cost and benefits and leave the compensation question to politics if the sum is positive (it is a question of distribution rather than economics). A cost benefit analysis cannot justify anything because it leaves the compensation question to politics. A positive cost benefit analysis only tells you that the winners may compensate the losers. The politicians must justify the compensation scheme.
Suppose you collect $1 by force from 10 people and one of them win $11 as a result. You can in principle tax the winner $9.90, and pay $1.10 to the nine who did not win. Result: everyone pays $1 and get $1.10 back. A Pareto improvement.
Daniel Kian Mc Kiernan
Feb 24 2022 at 11:58pm
The Kaldor-Hicks test ignores the costs of extracting and of distributing compensation, and so is only a partial test even of the mere possibility of Pareto optimization. And, unless a scheme of such extraction is implemented, all that one has is a dandied-up presumption not merely that utility is commensurable across persons but that the marginal utility of the monetary unit is the same across persons.
Pierre Lemieux
Feb 21 2022 at 11:49am
Knut: First note that, unsurprisingly, your numerical example does not work. Redistribution does not create ressources. The winner-t0-be-later-taxed first lost $1, then won $10 (not $11), then lost $9.90, for a net loss was $0.90; this is what gets redistributed to the other 9 at $0.10 each. There is no Pareto improvement.
Besides that, you strike at the heart of the problem. But Hicks-Kaldor has been dead for some time. In his 1950 article “Evaluation of Real National Income” (Oxford Economic Papers), Paul Samuelson showed that the Hicks-Kaldor criterion does not guarantee a Pareto improvement (in the utility sense, of course).
Moreover, note that your argument for politicians’ arbitrariness would equally justify state redistribution if the total calculated costs are higher than the total calculated benefits—that is, even if their sum is negative. In Anthony de Jasay’s terms (a crucial conclusion):
Thomas Lee Hutcheson
Feb 21 2022 at 2:02pm
“Redistribution” does not create resources (by definition) but some state action can result in the creation of (non-destruction of) resources and both the resources created/not destroyed and the costs of creating them have to be distributed. Hence the need for something like “cost benefit analysis.”
Pierre Lemieux
Feb 21 2022 at 3:49pm
Thomas: I agree that preventing the destruction of resources is equivalent to creating them, in the absence of private property rights. If the government forbids me to cut down my tree, it is not thereby creating a collective tree: it is just taking it from me to give it to others. Moreover, your “something like” is important. Cost-benefit analysis is not geared to decide who will pay the costs but to evaluate if the benefits to some are higher than the costs to others.
Thomas Lee Hutcheson
Feb 23 2022 at 6:02am
The point of including the non-destruction of resources (I was thinking about avoiding net BO@ emissions) was to be inclusive about non-zero sum effects of transfers of resources.
Knut P. Heen
Feb 24 2022 at 11:37am
The investment in my example was $10, the project produced $11. It is good project independent of how you finance it.
robc
Feb 21 2022 at 1:01pm
Your analysis of the vaccine was similar to mine. I was 51 when I got it. I was mostly indifferent, I waited until it was convenient to get, but figured I was old enough the benefit was about equal to the risk.
Nearly a year later, my calculation might be a bit different, but I think that breakeven point is about the same (Over 40 or overweight is more shorthand advice for who should get the vax). I said a year ago if I was 70 I would be first in line to get it and if I was 30 I wouldn’t get it at all. That hasn’t changed.
Thomas Lee Hutcheson
Feb 21 2022 at 1:52pm
Any government action is going to create benefits to some people and costs to others. “Cost benefit analysis” is a way of trying to think through the consequences of the totality of the action. Subsidizing vaccine production is a standard cost benefit analysis with the additional element of needing to assign a value to the health effects, Taxing vaccine non-consumption is somewhat different in that the health benefits of the vaccine are not confined to the person receiving the vaccine. But as a framework it is still useful.
Pierre Lemieux
Feb 21 2022 at 4:32pm
Thomas: The seriousness of your (mainstream) objection is attested by the length of this reply, but I will try hard to keep it short.
To rephrase your first sentence, CBA is often seen as an organized way to “think through the consequences” of government intervention. I myself long thought that CBA was useful for this very reason.
I also thought that it was useful as a way to slow down trigger-happy governments, but it’s only a slowing down. It seldom, if ever, happens that a government declares about a pet project: “After a cost-benefit analysis, we have realized that the costs of our project is higher than its benefit. We have thus killed the bill or the regulation.”
But let’s ignore this problem and go back to the advantage of an organized way of thinking through costs and benefits. An organized but faulty way to think is not an advantage per se. For example, Marxism is certainly an organized way to think, but this does not make its conclusions valid or meaningful. The problem with CBA is that, even if the calculations are correct and it implements the Hicks-Kaldor test, the latter has been shown not to guarantee a Pareto improvement: see Samuelson 1950’s article “Evaluation of Real National Income” (Oxford Economic Papers).
The advantage of the constitutional-economy, public-choice approach is to compare every individual’s own costs and benefits as evaluated by himself. If you reply that that this is easier in theory than in practice, I agree. But this caveat is also true for CBA–which, besides that, is theoretically invalid.
What I would very much like before I die would be to have your opinion on this sort of issues in light of the following reading list: (1) Buchanan’s and Tullock’s The Calculus of Consent (my review at https://www.econlib.org/library/columns/y2022/lemieuxbeware.html), (2) Buchanan’s The Limits of Liberty, (3) de Jasay’s The State, and perhaps as a final straw, Buchanan’s Why I, Too, Am Not a Conservative (on which I have an anniversary review in the forthcoming issue of Regulation). Perhaps your comments would set me to right before it’s too late.
Thomas Lee Hutcheson
Feb 23 2022 at 9:18am
I remember Calculus of Consent from my Junior year, the year I was supposedly majoring in Political Science at University of Texas. I’m pretty sure I did not read it (maybe parts?) but recall that it seemed very exciting as an application of logic and theory to the subject as opposed to just describing historical trajectories of thought.
I was much more sympathetic to the idea of finding ways to constrain government to avoid bad outcomes at that time than I have later become. For all the critiques of liberal democracy (and I see an agent acting out some version of cost benefit analysis as a micro-application of liberal democracy) as the best alternative for practical purposes.
I almost literally cannot conceive of a way to think about, say, would it be good to tax net emissions of CO2 or require a person to show proof of vaccination in order to enter a venue, except to try to think about the cost and benefits that the potential emitter or enterer faces benefits plus the costs and benefits the emission/entry imposes on others and trying in some way to sum them up. And going up a meta level to ask if anyone should have the ability to decide to tax or deny entry only amounts to deciding for the status quo without addressing whether the status quo can or should be improved.
Pierre Lemieux
Feb 23 2022 at 11:58am
Thomas: The books I listed in my previous comment on yours (The Calculus of Consent and the other ones, except for de Jasay who argues that there is no way to do this but with the arbitrariness of political power) explain how to think about such problems if you accept the moral postulate that all individuals are equal. The order I recommend for the readings is important, especially I think from your skeptical point of view. (The most difficult of the books is probably The Calculus of Consent.)
Monte
Feb 21 2022 at 2:37pm
I would argue that U.S. Covid policy in the early stages of the pandemic was more an exercise of Command-and-Control (C2) than a genuine concern for public health. Using Public Health policy as a pretense for C2 must be positively intoxicating for progressives, having now discovered an effective means for circumventing the Constitution and civil rights.
Aside from that, there is a growing consensus that Cost Benefit Analysis (CBA) does not adequately address the challenge of estimating the value of a human life. Taking into consideration basic human rights, CBA and calculations regarding the Value of a Statiscal Life (VSL) fail to account for the full impact to minority populations in the decision-making process.
From a normative perspective, Cost Effective Analysis (CEA), which attempts to express costs in natural units (human lives), or Cost Utility Analysis (CUA), where benefits are compared in terms life years saved adjusted for loss of quality, are more suitable for determining which Public Health policies (ie. Non-Pharmaceutical Interventions), are most efficient for implementing on a global scale.
Pierre Lemieux
Feb 21 2022 at 4:40pm
Monte: Don’t forget that “in the early stages of the pandemic,” it was Trump and the Republican Party who ruled this country–besides California, New York State, and a few other states, admittedly. My main point in reply to your comment, however, is that CEA and CUA are even more arbitrary than CBA because they have no foundation at all in standard welfare economics. You might find my replies to Thomas Hutcheson above of some use.
Grand Rapids Mike
Feb 21 2022 at 3:12pm
The discussion of cost versus benefit needs to be broken down by age group and or those with other health issues. For people like me ie 70 +, the value of the vaccine is clearly in place. However for those in lower age groups and no other heath issue there remains a question of its benefit, particularly as the age decreases. Also there is a lingering issue of the near and long term vaccine side effects of the vaccines. These are issue the CDC won’t touch with a 10 foot poll.
Don’t get me wrong I am thankful for the benefit of the vaccines, but its application to groups less impacted by covid and the vaccine side effects must be included in the analysis.
Also has the emphasis on vaccines seems to have deterred the development of medicines to help those with covid.
So the issue of cost/benefit for the vaccine really needs to be expanded to address where subsidizing non vaccine approaches to covid etc.
Monte
Feb 21 2022 at 9:50pm
That’s true. Trump reluctantly deferred to his task force advisors on lockdowns in the beginning. However, it was shortly thereafter that he became a vocal critic of lockdowns and openly called on state’s governors to end them. And it was primarily blue states that continued the lockdowns, ignoring any science or data that ran counter to their policy mandates.
I’m not sure I agree that CEA and CUA are more arbitrary. In fact, where CBA assumes all benefits can be monetized, CEA/CUA provide more appropriate metrics for measuring non-pecuniary costs and benefits, certainly in matters of public health policy. Decisions based on CBA using VSL calculations fail to take into account the sanctity of human life. Efforts to monetize human life and other human rights face huge challenges because such rights are not easy to quantify.
CEA and CUA may currently have no foundation in standard welfare economics, but they’re starting to gain momentum.
Jon Murphy
Feb 22 2022 at 7:56am
There’s another point about CBA that is implicit in your post, but I think should be made explicit:
CBA is a positive analysis. It cannot tell us what should be done. Just because some project passes CBA does not imply it is desirable. Considerations of morality, virtue, law, etc., must be taken into account.
Pierre Lemieux
Feb 23 2022 at 11:37am
You are right, Jon. But for somebody who believes that interpersonal comparisons of utility (estimated through willingness-to-pay calculated by government economists) are possible and that maximization of welfare is the goal of government, CBA produces a policy prescription.
steve
Feb 22 2022 at 12:47pm
There is a lot wrong with the article you cite. The bait and switch of the headline saying deadly and then never quantifying “deadly” but switching to the 11/100,000 serious complications. Then they never define serious. They say that a lot fo what is called serious is stuff that never requires treatment of any kind. Granted that my background is heavily tilted towards critical care (ICU) so I have a different outlook about what is serious but how do you call something that requires no treatment or care of any sort serious and per the article is quickly resolved? That is then compared with hospitalizations when you are talking about vaccines. Since they haven’t defined serious but looking at what they do provide it seems like any covid infection that is not asymptomatic should be considered serious.
Anyway, using the numbers you provided in your own article the benefit:risk ratio is so high that for almost anyone the risk favors the vaccine. If you normalize the definition of serious it goes even higher. The exceptions would be if allergic reaction to the vaccine or its components. Many places are also excepting people who have had myocarditis after a prior m-RNA vaccination. I am not sure data really justifies that but its not totally unreasonable until we know for sure. (I am talking relative risk here. Absolute risk is another topic.)
That said, I totally support the idea of CBA or risk benefit for all medical interventions. The problem there is that you are trying to take data that is generally done with large groups of people generating averages and trying to apply it to an individual who will never be exactly the same as the average in the study. Fortunately we are actually dealing with biological systems and not doing quantum mechanics so the differences are actually pretty small most of the time and things work the way they think they will the huge majority of the time.
Query- It looks like this is all slanted towards the individual not contracting covid. Should there be some analysis of reducing the risk of spreading covid ie the unvaccinated or vaccinated person being the vector to pass it on? Is it my imagination or do I never see libertarian economists evaluate this?
Steve
Pierre Lemieux
Feb 22 2022 at 4:37pm
Steve: I agree with many of your criticisms of the WSJ story. It remains that some individuals died. On your last point, you may find some answers in my Reason Foundation primer on public health. On the sanctity of life, I am curious about the following: (1) What do you do with somebody who gets a better paying job that increases his chances of death? (2) What do you do with the Trolley Problem (reminder: https://www.cato.org/regulation/winter-2021/2022/wide-ranging-libertarian-philosopher-reasonable-radical)?
steve
Feb 22 2022 at 8:18pm
Some is also an important word. That some is so low that when you do your analysis the benefit:risk ratio is very high since the number of deaths is close to zero.
My view on the trolley problem, excluding all the weird extra people like to add into the scenario is that you are a murderer either way. Sins of omission and commission are both sins. (Sorry, I am a Christian.) What I expect is a rational justice system that evaluates intent and the options available in real time. In that case I would not expect the person to be prosecuted.
This is a real life dilemma for me in my practice since I do trauma and critical care. I often take care of people for whom I have no known medical history. If I say that I dont know their history so I wont make any decisions that might result in harm then the pt dies. I have to make decisions, I make them using a combination of guidelines, protocols and best medical judgment based upon my training and judgement. I do that knowing it is inevitable I will sometimes be wrong since the history was not knowable and I might cause harm. What I rely upon is a rational justice system that acknowledges that intent matters and that not intervening was not an option and the option chosen was the reasonable option given what was knowable.
(Couldn’t get to your link but I suspect you would probably agree with Block.)
https://www.researchgate.net/publication/304896016_The_trolley_A_libertarian_analysis
Steve
Pierre Lemieux
Feb 23 2022 at 11:46am
Steve: Sorry for the error in my link. I have now corrected it.
steve
Feb 23 2022 at 4:41pm
Fairly nicely written. At the risk of shoehorning what I believe into what you are saying I think the purists just cant make things work. Utilitarian, deontology, anarchy in their pure forms whatever I think all only work in some sort of utopian concept of the world.
Look the idea of killing one pt to take 5 organs for five people. In reality you have no idea how many of those 5 people survive surgery and for how long they live. Do their new organs stop working. As an honest, or at least modest utilitarian you have no idea if you would really increase utility. You need to make up a world to make it work.
So back to my question, in the real world in every case except for these with allergic responses it is safer to be vaccinated than not vaccinated. Making it less likely that you infect others is real bonus and if you are going to talk about absolute risks should be added in.
Steve
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