Freakonomics Radio - 344. Who Decides How Much a Life Is Worth?

Episode Date: August 9, 2018

After every mass shooting or terrorist attack, victims and survivors receive a huge outpouring of support — including a massive pool of compensation money. How should that money be allocated? We speak with the man who’s done that job after many tragedies, including 9/11. The hard part, it turns out, isn’t attaching a dollar figure to each victim; the hard part is acknowledging that dollars can’t heal the pain.

When something terrible happens, something truly terrible, a mass shooting or a terrorist attack, there is a man whose phone eventually will ring. My name is Kenneth Feinberg. I'm a lawyer here in Washington, D.C. Feinberg grew up near Boston, in Brockton, Massachusetts. Brockton High School graduate, University of Massachusetts graduate, New York University School of Law. And then I was asked by the chief judge of New York State to clerk for him. This was in 1970. As Feinberg's career progressed, he got to know many of the chief judge's other former clerks.

One of whom was the very distinguished, eminent federal district judge Jack B. Weinstein in Brooklyn. One day in 1984, Feinberg got a call from Judge Weinstein. By this time, Feinberg had put in time as a federal prosecutor and as chief of staff for Senator Ted Kennedy. Now he was in private practice. What did Judge Weinstein want? He put in time as a federal prosecutor and as chief of staff for Senator Ted Kennedy. Now he was in private practice. What did Judge Weinstein want? Santo, alleging certain physical injuries and deaths attributable to inhaling or swimming in the herbicide Agent Orange while serving in Vietnam. For those who don't recall or know, Agent Orange was an exfoliant meant to burn the shrubs off to give American soldiers an advantage.

That's right. So the Viet Cong couldn't hide and ambush American soldiers an advantage. That's right. So the Viet Cong couldn't hide and ambush American soldiers. Well, the Vietnam veterans came home with claracne, with soft tissue sarcomas, with other cancers. And Judge Weinstein had that case, very complicated, very complex medical case. And on the eve of trial, he asked me, would I be willing to come to Brooklyn to mediate a settlement of that case and then design and administer a compensation program for eligible Vietnam veterans? So Judge Weinstein knew that you very much admired him. Was that in any way putting his thumb on the scale in that case? Yes, he put his thumb on the scale to get it settled. I don't think he put his thumb on the scale as to what the amount should be or whether the chemical industry had a better case than the Vietnam veterans. He put his

thumb on the scale only in the sense that let's try and resolve this case rather than litigate the case and then appeals and five or six more years of uncertainty. He saw the necessity of trying to bring the litigation to closure. And he also saw that legally the veterans had a tough case. They may not win. Were you aware of any previous programs or any previous settlements that were even close to similar to that in terms of scope and really magnitude? No, unprecedented. Writing on a blank slate. So I accepted the assignment at the request, of course, of the court. And in eight weeks, we settled that massive complex litigation. Once I did that, everybody started calling me.

The Agent Orange settlement didn't please everyone. In fact, there's barely ever a settlement like this that leaves everyone happy because underlying each case is a tragedy that dollars cannot repair, a tragedy requiring a thankless and perhaps impossible calculus. But that's when Feinberg's phone rings. It might be a governor, a Hickenlooper in Colorado after the Aurora movie shootings. It might be a mayor, Menino, in Colorado after the Aurora movie shootings. It might be a mayor, Menino, in Boston after the Boston Marathon bombings. It might be the president of the Virginia Tech University. There was one tragedy that differed from the rest on several dimensions. The 9-11 fund was fascinating because Congress authorized unlimited funds. Whatever Feinberg thinks is appropriate, fine with us.

We don't know how to value these lives. Today on Freakonomics Radio, how do you put a monetary value on a human life? He looked at me. Mr. Feinberg, don't ever tell people like me that you know how I feel. You have no idea how I feel.

From Stitcher and Dubner Productions, this is Freakonomics Radio, the podcast that explores the hidden side of everything. Here's your host, Stephen Dubner. It's been happening with increasing intensity, if not quite regularity. The gun massacres at Sandy Hook Elementary School in Connecticut, at the Pulse Nightclub in Orlando, at the Country Music Festival near the Mandalay Bay Hotel in Las Vegas. When the call comes, Kenneth Feinberg sets aside his regular legal work and takes up the case, usually working pro bono. I know every case is different. There's a different set of victims. There's a different motivation. There's a different pool of money. There's a different public sentiment. Walk us through how you get involved, how you assess the landscape,

and then how you begin to make it happen. So on the agenda, one, somebody initiates it. Not me. I get the call to design it. Somebody initiates it. Then the very next question you have to ask, how much money do you have to distribute? That drives everything. Until you know whether you've got a billion dollars, five billion dollars, five billion dollars, twenty billion dollars, three million dollars, eight million dollars, there's nothing to plan.

You can't decide and design a program until you know how much money there is that you're going to allocate to victims. Then you ask, based on the amount of money, who's eligible? The dead? The physically injured? What about those who didn't suffer any physical injury but are now so mentally incapacitated they can't get out of bed? Are they eligible? Then you have to ask, very important, what is the methodology that will be used to calculate how much goes to each individual? Do we base it on our tort system? If somebody gets hit by an automobile or falls off a ladder, that system? Does one size fit all? All lives are equal. Everybody gets the same. You've got to decide what methodology will be used. And then after you've got eligibility and methodology decided, what proof does a victim alleged have to submit to me to corroborate the claim?

And then finally, do you want to give every eligible victim or their family at their option an opportunity to be heard, to come in and talk with me. Once I get that call, those are the issues that have to be addressed. In the time between the event itself and you getting the call, let's say it's the Vegas shooting or it's the Orlando shooting, what are you thinking? Are you waiting for the call? Are you thinking about that event? Are you assessing in any way? I'm not waiting for the call. I hope the call won't come. And if it does come, I hope that it will come later rather than earlier. The more time that goes by after a tragedy, you hope there'll be a dampening of the emotion of the survivors and the victims. Emotional trauma is the single biggest handicap families, was the lack of a body. Yes?

Did that surprise you? It surprised me, the depth of the emotional angst when mothers and fathers would come to see me and say, you know, Mr. Feinberg, you're offering me $4 million and they haven't even found my daughter's body and probably never will. hearing of a give and take and makes it all that much more difficult to talk in the cold world of dollars and cents. One of your most unusual settlements was after the 2008 financial crisis when the government essentially took over a number of firms and you were called in to set the limits on their top executives' compensation? Congress bailed out corporate America after the 2008-9 financial crisis in order to prevent Bank of America or GM or Chrysler or Citibank, AIG, from going under. Taxpayer money propped up the private American business economic system.

Congress passed a law, and the law said, well, now that we've protected these companies and bailed them out from bankruptcy, we are now a creditor. And until the companies pay us back with interest, we will appoint the Treasury Department to fix corporate pay, the annual compensation of private corporate officials. And they thought, what kind of guy could we get? Populist revenge. Yeah. Secretary of the Treasury called me up and said, we're a treasury. We don't want to be in this business setting private corporate pay. What would Alexander Hamilton say? So this was my job for 16 months to set individual corporate packages of compensation for the top 25 officials in the seven companies that received the most taxpayer bailout assistance. Yeah. And what kind of blowback did you get from them?

Tremendous blowback. I didn't realize. I did not realize how emotional this would get. Corporate officials, if I go to them and say, you are making $5 million a year, now I'm going to cut it back to a million. I waited for them to say, oh, that means I'll have to sell a third car. I'll have to get rid of our estate on Long Island at the beach. I won't be able to send my kids to Exeter and Andover. That's what I expected. I was wrong. Very emotional. Because these corporate officials viewed their compensation as the sole barometer of self-worth. And that surprised you? Surprised me. It was as emotional as 9-11. Mr. Feinberg, if you cut my pay by 90 or 80 percent, how dare you? I have worked for 25 years for this company. I have given up my sweat and my blood and all that I could.

And now you have made me worthless in my own eyes. What do you think of that argument? Did you find validity in it or no? I found validity in the legitimacy and good faith emotion that they exhibited. But with all due respect, that was not a rationale for me to say I feel bad for you and therefore I won't cut your pay. Congress passed a law. I was frankly astounded at the emotional mirror of self-worth that was reflected in what your check says every week? What about the church and your role on Sundays at the church?

What about your three children and how well they're being raised? What about the loving family that you've got? Nope. Nope. There is, of course, a big difference between a government clawback from corporate executives and distributing money to the victims and survivors of a mass shooting or terrorist attack. And in most of the latter cases, the funds are coming not from an institution or government, but from public donations. The One Orlando Fund, for instance, was set up to help victims of the Pulse nightclub shooting, in which 49 people were killed and dozens injured. The fund received more than $31 million in donations.

Of that, Feinberg distributed more than $17 million to the families of the people who were murdered. The victims who spent time in a hospital but survived got between $69,000 and $321,000. And people who were in the nightclub but weren't hospitalized got a bit more than $26,000 each. When it comes to putting a price on human life and suffering, Feinberg is hardly reinventing the wheel. There are actually lots of different ways to do it. That's W. Kip Viscusi. I'm an economist, and I'm a professor at Vanderbilt University. Viscusi's work has focused on a widely used metric called the value of a statistical life. The value of statistical life refers to how much it's worth to prevent one expected death.

Some people, especially if it's their own death they're trying to prevent, would put that number at infinity. Everybody who thinks that life should have an infinite value should instead ask themselves the question, how much would you pay for a car that's safer but by a trivial amount? And most people are not willing to pay an unlimited amount of money for this slightly safer car. There's another complication to statistically valuing a life, an even harder problem to solve. Lots of people say that even placing any dollar number on life devalues life. So we shouldn't be doing it at all. But as a routine practice, government agencies have to make decisions. So either implicitly or explicitly, they're going to be valuing life, and we want them to use the right numbers. Okay, so what are the right numbers?

How do you get there? Let's start with the way it used to be. So it used to be the government agencies, such as the Occupational Safety and Health Administration, did not want to explicitly say that they're placing a value on life. So instead, they called it the cost of death. Well, the cost of death figures only capture the income lost to survivors. They don't capture how much you value your own life and how much you value staying alive. So what you really want to know is how much are people willing to pay and how much is society willing to pay to prevent the risk of one expected death? And the way I've looked at it is by examining how much workers require in terms of compensation

to face extra risks of death on the job. And if you do that, you come up with a number in current dollars of about $10 million. In a perfect world, the compensation for risky work would inevitably price in that risk. But as Viscuzzi explains, the world is far from perfect. So what I've found is that whether you get paid or not depends in part on who you are. So immigrant workers, particularly Mexican immigrants who are not fluent in English, work on jobs that are 50% riskier than the average job, and they don't get extra pay for the risk. So these are the areas where we need more government

regulation and more vigorous enforcement of the regulatory standards. I would not place a lower value on their lives simply because they have fewer opportunities. If you gave them these opportunities, they would have different values. Viscusi's calculations are, well, calculated, even rational, perhaps. The problem is that rationality often dissipates once a terrible thing happens, when people are hurt or killed by a company's product and there's a lawsuit. I've done studies with mock jurors, hundreds of mock jurors, where I presented them with different case scenarios. And some case scenarios, the companies didn't place a value on life at all.

Other scenarios, the company placed a value based on the lost earnings. Another variant was the company placed a value on life based on the government's value of statistical life. What I found is that you get a seemingly perverse result, which is that if the companies value lives more, let's say they value lives at $5 million or $7 million instead of a few hundred thousand dollars, jurors want to send companies a signal that they disapprove of what the company's done. So they want to punish them with an award that exceeds whatever dollar number the company used. So if the company used a number of $300,000, then punishing them a million dollars would send them a price signal. But if they valued life at $5 million, you have to punish them with a penalty of $10 million

in order to let them know that they've undervalued life. And there's another complication. Are all lives valued equally? This is a capitalist society. Ken Feinberg again. Money has always been the vehicle to lift up the innocent or the victim. And that is something that is American. Gee, you're giving different amounts to different individuals. That doesn't sound very American. It is very American. If somebody gets hit by an automobile or falls off a ladder, the stockbroker and the banker get more than the waiter, the busboy, or the fireman. That's the American capitalist system, and that's the role of money in trying to temper the unfortunate. Coming up after the break, that system gets put to the test after the 9-11 terrorist attacks.

I was angry. I was very angry. Yet, at the same time, I didn't want to bite the hand that would feed me. Kenneth Feinberg is a lawyer in private practice in Washington, D.C. And I have the task, after certain tragedies, of trying to calculate what amount of public or private compensation should be allocated to particular victims. If you've heard of Feinberg before today, it's likely because one of the tragedies he worked on was the 9-11 terrorist

attacks. He sought out that job. That's correct. Once the legislation was passed by Congress and signed by President Bush saying there would be a fund, I suggested to both Senator Kennedy and Senator Chuck Hagel, a good friend of mine from Nebraska, Republican, I'd be interested. Well, that's all it took. They together contacted John Ashcroft, the Attorney General, the President, Bush, and I got the job. This job was, for many reasons, different from any other. The scope of the tragedy, the political, economic, and emotional tensions, and perhaps most distinctively, the source of the settlement money. The 9-11 fund was fascinating because Congress authorized unlimited funds.

Whatever Feinberg thinks is appropriate, fine with us. We don't know how to value these lives. And in that program, I spent taxpayer money, $7.1 billion. I thought that the Congress would hang me. And instead, the Congress was very, very satisfied. There were a lot of things about the 9-11 Victims' Compensation Fund that were unique. The airlines and other industries, for instance, didn't contribute one cent. The legislation was written essentially to protect the airline industries and other industries, maybe insurance firms, from going out of business. It basically, although the program was voluntary, it encouraged all victims who lost loved ones in the World Trade Center, the airlines,

the Pentagon, to divert themselves out of the legal system, come in for a special award, and promise on a signed piece of paper, I will not sue. If you are giving immunity, in effect, to the airlines, who can't be sued for negligence or Boeing, the cockpit door wasn't secure, the security system was negligently installed, if you are giving them sort of immunity from suit, well,

what about the victims who paid the price? Congress decided we better balance it. We will make it very difficult to sue the airlines or the World Trade Center, but at the same time, we'll make it very easy for victims to get compensated without suing. So that was the balance that was struck. That meant the minute I saw that, that voluntary applicants have to sign a paper, I will not sue. Well, that means everybody who filed a claim has to receive a different amount of money. A stockbroker or a banker or a high priced lawyer or accountant, their survivors expect more from the 9-11 fund in return for a promise not to sue than the waiter, the busboy, the fireman, the cop, the soldier. The minute you

take a program with public money and join the litigation at the hip of the program, everybody's getting a different amount. And that causes tremendous divisiveness. But I believe it was Senator Kennedy who said to you, listen, you need to understand that a life is a life. And that while you do need to recompense more in some cases, can you talk about that balance you tried to strike? Of course. Senator Kennedy said flat out, privately, now Ken, this is all taxpayer money coming out of the U.S. Treasury. Make sure that 90% of that money doesn't go to 10% of the victims.

That will be a real mistake. So what I did under the statute, I had discretion. And I could say to a stockbroker's widow, you know, if you run the numbers, purely the calculation of lost earnings, your husband over a lifetime after taxes, et cetera, would have made $21 million. Well, this fund was not designed. Congress never intended to give you $21 million. So I'm exercising my discretion under the statute and I'm going to reduce it to $6 million. Now there are very, very few people even getting $6 million. But based on the data and what your husband was earning and what he was $800,000, I'm going to raise you in my discretion closer not to $2 million, but closer to the median of about $1.5 million.

And that way, exactly as you point out, I managed exercising my valid discretion to narrow the gap between the rich and the poor. Did you hear a lot of complaints from the families of the highest earners? Some. A few sued. They went to federal court claiming that I was violating the statute by not giving them their full economic lost wage or earnings. They sued within the corridor of the settlement, having agreed to the settlement? No, they didn't accept the settlement. I said,

I'll give you $6 million instead of $21 million or $24 million. And they said, you're violating the statutory language. They went to court. They all settled their cases five years later. There was never a trial. And people ask me all the time, did they get more or less? Well, some may have got more, some may have got less. Hard to know. It's confidential. But don't forget, those families lived with this for five years and relived it and relived the tragedy. And at the end of the day, whatever they got, 25% of it went to their lawyers. Do you feel it's a more complicated calculation to do the kind of calculations that economists like Kip Viscousi do that try to put a price on, among other things, public goods, right? Clean air and water and so on. Do you think that's inherently a much more... Oh, much more difficult. You know, what I do in all of these programs is not rocket science.

The tough part, the debilitating part is the emotion. The stories you hear, you wouldn't believe. Lady comes to see me, 24 years old, sobbing. Mr. Feinberg, I lost my husband. He was a firefighter and he died at the World Trade Center. And he left me with our two children, six and four. Now, when you cut the check from the 9-11 fund, I'm going to get $2.4 million tax-free. I want it in 30 days. Mrs. Jones, why do you need the money in 30 days? This is public money. The Treasury has to do its due diligence. It might be 90 days. You'll get your money. I want it in 30 days. Why? I'll tell you why, Mr. Feinberg. I have terminal cancer.

I have eight weeks to live. My husband was going to take care of our two children. Now they're going to be orphans. Now I've got to get this money while I still have my faculties. I've got to set up a trust, get a guardian, make sure they'll be provided for. I don't have much time. You've got to help me. Well, we ran down to the treasury.

We accelerated the program. We got her the check. Six weeks later, she died. Did you try in the beginning to be more empathic, perhaps, than you realized was a good idea? Yes, and I make mistakes. You see, you make mistakes and you learn your lesson. I remember one 83-year-old man came to see me after 9-11. He said, I lost my son.

Mr. Feinberg, a father should never bury a son. I'll never be the same. Doesn't matter how much money you give me. I made the mistake of saying to this very nice man, this is terrible. I know how you feel. He looked at me, nice man, tears. Mr. Feinberg, don't ever tell people like me that you know how I feel. You have no idea how

I feel. You have a tough job, but those words ring hollow. They're pretentious. They're robotic. Well, I'll never do that again. I was angry. I was very angry. Yet, at the same time, I didn't want to bite the hand that would feed me. That is Charles Wolfe, whose wife Catherine died on 9-11. He is an Amway distributor. Catherine worked with him on that business and just started a new job as an executive assistant in the North Tower of the World Trade Center. We asked our friend Anna Sale, host of the Death, Sex and Money podcast, to talk with Wolf about his experience with Ken Feinberg and the 9-11 fund.

Congress takes action. Ultimately, there is one person, one man, whose job it is to be the person to give you an answer on what of this fund, this money from the government, what will be your share because of your loss. No, that's not the way it worked. Real simply, this did not have a fixed amount of money allocated to it. He had the entire United States Treasury at his disposal. It was not based on how much of this money were you going to get. They made it exactly like it would happen for a wrongful death lawsuit.

They calculated it based on lost future earnings and pain and suffering. Did that feel like, if he tells me he's calculating, I feel like there could be more potential for frustration if you feel like he's underestimating. I understood that. So my mind was, I needed to prove how much Catherine was worth based on her current income, what her absence in our business

would result in, and hopefully that everything would work out. And when you say had to prove, are you sitting with spreadsheets and doing the numbers yourself? A lot of it, yeah. I'm gathering information. I'm gathering past information.

I'm gathering data. Yeah. Because the whole thing, the whole thing, the issue was the non-economic damages, the pain and suffering. What was that worth?

That was the question. Yeah, exactly. He had picked a number at that time that was 27 years old. Based on a 27-year-old formula. Correct. And with no adjustments or anything.

Because I learned that lawyers like to work on precedents. They don't like to probe new ground. Did you feel like he knew how to communicate with people who were in deep grief? No, not at that time. No. So I had to, shall we say, be very diplomatic about it. I had to say things in a certain way. But I'd already done my homework. I knew the ins and outs of the whole thing. And I'm making sure that I attack his policies and rules, not him personally. I do remember, though, because at this point, you don't know who to trust or who not to trust.

And I remember, because I went after him several times, and he says, he says, Charles, in his Boston accent, he says, Charles, I've heard this all before but I've never heard it said so eloquently. I'm like, is he giving me BS? Is he trying to placate me? Is he trying to soften me?

Is he, well, what's going on here? And as he walked out of the room afterwards, I mean, he was just walking by me like this. I says, you picked the wrong benchmark. I don't know if you use the word closure when you're thinking about your own grief. I just had a dream about her last night. Closure might be for something like you go through in a divorce. And you remember that old song, I'm going to wash that man right out of my hair? Yeah.

Okay. I felt that. Yeah. Okay. All right. You know, that might be closure. All right. It's done. That's closure. No, there's be closure. All right? It's done.

That's closure. No, there's no closure in this. What you do is you move on in your life. But when there's somebody that you've loved, deeply loved, does that love ever go away? Would you want Ken Feinberg's job? I will tell you this. Looking at it now, he had one hell of a hard job. He and I had breakfast together in 08.

He says, Charles, he says, my lawyer training taught me how to deal with other lawyers. It didn't teach me how to deal with grieving widows six weeks after they lost their husbands. He says, I get that. He had to learn. People have their spouses taken, their siblings taken, their parents taken. See, this is the thing. Unless you've been through this there were times that i just wanted to be with her i actually never thought of committing suicide

but i knew that i wanted to be dead so i could be with her when you get to that level it's about having something in return. It's about something. Who can value a person's life? So what they did is they gave us what they would have made in the future. The best estimation they could. That's the way it was. I still think that's a fair way to do it. I'll defend the 9-11 compensation fund to my grave.

I think it did exactly what the American people wanted to show the world. We take care of our own. They wanted to demonstrate their sense of community with the victims. So I think it was the right thing to do. But I think the 9-11 fund better studied in a history class, not a law school class. You will never see another 9-11 fund, I do not believe. Nor should you. Because why? Because you're taking public money.

What if there's an event that necessitates? There's an event every day that necessitates. There's this word that I'm sure you've heard a million times. The word is closure. Does it exist? No. I hear that all the time. I mean, you know, you hear this argument,

here's a check for $2 million. It will bring you some small closure from the incident and the grief. Dollars don't do that. They're a hollow substitute, I can tell you, for loss. Thanks to Kenneth Feinberg for speaking with us today. If you want to learn more about his settlement work, he's written two books, What Is Life Worth? and Who Gets What? Thanks also to Charles Wolfe, Anna Sale, and Kip Vescuzy. Coming up next time on Freakonomics Radio, is it really true that Scandinavia is the happiest place on Earth? Yeah, I definitely am happier.

It's about togetherness. It's about pleasure. It's about warmth. I regularly forget to lock car and or house. I do leave my children outside to sleep. And why even economists are getting on the happiness train and putting aside traditional measures like GDP. My God, let's get serious about the quality of our lives and stop this nonsense.

That's next time on Freakonomics Radio. Freakonomics Radio is produced by Stitcher and Dubner Productions. This episode was produced by Max Miller and Andy Meisenheimer, with help from Alvin Melleth and Annabelle Bacon. Our staff also includes Allison Craiglow, Greg Rosalski, Greg Rippin, Harry Huggins, and Zach Lipinski. The music you hear throughout the episode was composed by Luis Guerra.

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