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At What Cost?

Since its inception, the Department of Homeland Security has spent (directly) about \$368 billion dollars. These are nominal dollars. If I apply a 3% discount rate to those historical values, that gets us to over \$400 billion in 2010 dollars (I exclude the 2011 figures).

Has it been worth it?

A standard tool in economics is to come up with an estimate of how much a “statistical life” is worth. There’s no point beating around the bush here. Despite how squishy the idea makes people feel and despite loud proclamations by many (including me at times) that life is invaluable and cannot have a dollar value assigned to it, the fact is that it does have a price. Every time we act we implicitly put a value on life. Every time we enact a government policy we implicitly put a value on life. For example, when the government decides to spend \$10 million to install a water cleaning system in your town that will be expected to save two lives per year, then we implicitly are spending \$5 million to save a life. When you get in your car to drive to work, you are incurring a risk of dying. And since you did not receive an infinite amount of compensation to get into that car, it means you too put a finite (and surprisingly small) value on your own life. We can post specifically on this topic later, for now I want to ask a simple question.

According to the standard cost-benefit criteria applied throughout various government agencies (such as the EPA) and the ones we implicitly apply ourselves every day, has the DHS been worth it? Ignore the ancillary costs and benefits of the agency and instead focus on its main objective: saving lives.

Let’s be as generous as possible too. Suppose that we would have, with 100% certainty, an event exactly like September 11th once every decade. Thus, the existence of the DHS has prevented the murder of another 2,977 people. Would you spend \$368 billion to save 2,977 lives?

I wouldn’t.

That amounts to spending \$123.6 million to save each additional life. There is no estimate in the entire history of the economics literature that places a value on a human life of \$123 million. The consensus estimates are in the \$6 million to \$15 million range. The government itself places the value of human life at \$7.5 million. Viewing the DHS as a way to save lives, it has to be viewed as a horribly inefficient way to do it. It spends over 16 times more to save a life than the government itself recommends we spend to do so.

Two points should be clear:

1. The DHS is not just about a cold cost-benefit calculation of saving lives. Estimates of the property damage from September 11 put the value at about \$100 billion (would you spend \$400 to save \$100 however?), so some part of the DHS budget is clearly saving us from future property damages, which could turn out to be much larger than \$100 billion (e.g. what would the costs of nuclear fallout in NYC be?)
2. The DHS, perhaps, spends its budget to alleviate fear. Is it worth \$400 billion? Not to me. Does it actually alleviate fear? I’m not sure. Does its very existence make a domestic terror event less likely? I am not sure. But we cannot discount these possibilities, and a cold look at my numbers above would be irresponsible. I use it for illustrative purposes.

Finally, a good economist always asks, “at what cost?” Suppose that the DHS does protect property, save those lives and alleviate fear. Could we have spent \$400 billion of our own money to get more bang for the buck? Nearly 1 in 1,000 Ethiopians dies of tuberculosis today. Over 1 million people around the world die from malaria every year. Those deaths could be nearly 100% averted for a minimal fraction of the entire DHS budget. Or looking closer to home, how would \$400 billion invested in better road and transportation infrastructure have improved human safety? After all about 34,000 Americans die on highways every single year. Would helping Americans eat healthier diets have gotten more bang for the buck? And given the pending bankruptcy of the federal government it is a wonder why questions like these have not made their way to the national forefront. All we keep hearing is that we have to have all of these things, and the problem is simply that tax revenues are not high enough to support them. I have an queasy feeling that even those folks that are supporting spending cuts to favored programs are only doing so for political reasons, and that in 10 years those cuts won’t amount to anything serious anyway, especially when the spotlight of a default is removed from the programs’ scrutiny. I hope I am wrong.

"1" Comment
1. What is the calculation for letting us keep the money and make our own risk calculations about flying? Would that wipe out the industry?