AP IMPACT: An American Life Worth Less Today

By SETH BORENSTEIN AP Science Writer

It's not just the American dollar that's losing value. A government agency has decided that an American life isn't worth what it used to be.

(ABC News Photo Illustration)

The "value of a statistical life" is $6.9 million in today's dollars, the Environmental Protection Agency reckoned in May — a drop of nearly $1 million from just five years ago.

The Associated Press discovered the change after a review of cost-benefit analyses over more than a dozen years.

Though it may seem like a harmless bureaucratic recalculation, the devaluation has real consequences.

When drawing up regulations, government agencies put a value on human life and then weigh the costs versus the lifesaving benefits of a proposed rule. The less a life is worth to the government, the less the need for a regulation, such as tighter restrictions on pollution.

Consider, for example, a hypothetical regulation that costs $18 billion to enforce but will prevent 2,500 deaths. At $7.8 million per person (the old figure), the lifesaving benefits outweigh the costs. But at $6.9 million per person, the rule costs more than the lives it saves, so it may not be adopted.

Some environmentalists accuse the Bush administration of changing the value to avoid tougher rules — a charge the EPA denies.

"It appears that they're cooking the books in regards to the value of life," said S. William Becker, executive director of the National Association of Clean Air Agencies, which represents state and local air pollution regulators. "Those decisions are literally a matter of life and death."

Dan Esty, a senior EPA policy official in the administration of the first President Bush and now director of the Yale Center for Environmental Law and Policy, said: "It's hard to imagine that it has other than a political motivation."

Agency officials say they were just following what the science told them.

The EPA figure is not based on people's earning capacity, or their potential contributions to society, or how much they are loved and needed by their friends and family — some of the factors used in insurance claims and wrongful-death lawsuits.

Instead, economists calculate the value based on what people are willing to pay to avoid certain risks, and on how much extra employers pay their workers to take on additional risks. Most of the data is drawn from payroll statistics; some comes from opinion surveys. According to the EPA, people shouldn't think of the number as a price tag on a life.

The EPA made the changes in two steps. First, in 2004, the agency cut the estimated value of a life by 8 percent. Then, in a rule governing train and boat air pollution this May, the agency took away the normal adjustment for one year's inflation. Between the two changes, the value of a life fell 11 percent, based on today's dollar.

EPA officials say the adjustment was not significant and was based on better economic studies. The reduction reflects consumer preferences, said Al McGartland, director of EPA's office of policy, economics and innovation.

"It's our best estimate of what consumers are willing to pay to reduce similar risks to their own lives," McGartland said.

But EPA's cut "doesn't make sense," said Vanderbilt University economist Kip Viscusi. EPA partly based its reduction on his work. "As people become more affluent, the value of statistical lives go up as well. It has to." Viscusi also said no study has shown that Americans are less willing to pay to reduce risks.

At the same time that EPA was trimming the value of life, the Department of Transportation twice raised its life value figure. But its number is still lower than the EPA's.

EPA traditionally has put the highest value on life of any government agency and still does, despite efforts by administrations to bring uniformity to that figure among all departments.

Not all of EPA uses the reduced value. The agency's water division never adopted the change and in 2006 used $8.7 million in current dollars.

From 1996 to 2003, EPA kept the value of a statistical life generally around $7.8 million to $7.96 million in current dollars, according to reports analyzed by The AP. In 2004, for a major air pollution rule, the agency lowered the value to $7.15 million in current dollars.

Just how the EPA came up with that figure is complicated and involves two dueling analyses.

Viscusi wrote one of those big studies, coming up with a value of $8.8 million in current dollars. The other study put the number between $2 million and $3.3 million. The co-author of that study, Laura Taylor of North Carolina State University, said her figure was lower because it emphasized differences in pay for various risky jobs, not just risky industries as a whole.

EPA took portions of each study and essentially split the difference — a decision two of the agency's advisory boards faulted or questioned.

"This sort of number-crunching is basically numerology," said Granger Morgan, chairman of EPA's Science Advisory Board and an engineering and public policy professor at Carnegie Mellon University. "This is not a scientific issue."

Other, similar calculations by the Bush administration have proved politically explosive. In 2002, the EPA decided the value of elderly people was 38 percent less than that of people under 70. After the move became public, the agency reversed itself.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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How Fallout Could Affect Main Street

The stock market swoon over Fannie Mae and Freddie Mac this week has left many consumers scratching their heads, wondering if buying a home is a worse idea than it was seven days ago or whether to take down the “for sale” sign in the yard.

So now is a good time to step back and assess the landscape.

Thus far, the biggest damage has been mostly to Fannie’s and Freddie’s investors, though the overall stock market has recoiled as the companies stumbled. In the housing market, consumers are still moving into new homes, and people continued to close on new loans Friday.

But if you are shopping for a home or a mortgage or considering selling a home, you may wonder what will happen next if things get worse for Fannie and Freddie. Will mortgage rates rise, and home prices fall further? Could the troubles affect the rates you are charged for other loans? Answering these questions starts with a brief (I promise) primer on what the two entities do and why they’re important.

In the beginning, there’s a mortgage lender. It can lend you money it has taken in from deposits on checking accounts and certificates of deposit if it wants. But many lenders choose to sell most or all of their home loans once they make them, and then use the proceeds of the sale to make even more loans.

Fannie Mae and Freddie Mac are the buyers for many of these loans, which makes them crucial to the continued ability of companies to lend money to you and me for a house. Freddie likens itself to a wholesaler supplying a retail store: the retail store is a bank selling money.

Once Fannie and Freddie have bought enough loans, they turn many of them into bonds and sell those bonds to investors. Your mutual funds may hold many of them, something many consumers may just be noticing, after letting out a sigh of relief because they were not planning to buy or sell a home anytime soon.

The mortgage financing system hums along until Fannie and Freddie have trouble raising money to buy loans, or it costs them more to raise the money. And that’s what is happening now. “That increased cost must be passed along; it’s the nature of the beast,” says Keith T. Gumbinger, vice president of the financial publisher HSH Associates, where he has tracked mortgage rates for more than two decades.

The question then is how, if at all, any of these higher costs will be passed along through the mortgage lenders to consumers.

As of Friday, not much had changed, and mortgage bankers were putting on a brave face. “It is business as usual, and rates have held steady for the past two days,” said David G. Kittle, chairman elect of the Mortgage Bankers Association and chief executive of Principle Wholesale Lending in Louisville, Ky. He said the company locked in rates for one buyer and two people who were refinancing on Friday morning, as the stocks plummeted, and that the hand-wringing over Fannie and Freddie amounts to a “media feeding frenzy.”

Karen Shaw Petrou, managing partner of policy consultant Federal Financial Analytics, sees a remote possibility that mortgage rates could in fact fall. If the federal government took control of Fannie and Freddie, a possibility that the Treasury secretary, Henry M. Paulson Jr., seemed to discount in a statement Friday, the companies’ financing costs would probably drop some because government control suggests a government guarantee. Until now, the government has provided credit lines to the companies but stopped short of such a promise.

Many mortgage experts, however, expect rates to rise a quarter percentage point to half a point in the coming weeks. The average rate on Thursday for a prime 30-year fixed-rate nonjumbo mortgage was about 6.45 percent for someone not paying special fees known as points to lower the rate, according to HSH Associates data. That kind of spike wouldn’t be too unusual at a time when rates often rise and fall by at least that much over a period of weeks, for any number of reasons.

Over the longer term, a dysfunctional Freddie and Fannie could send mortgage rates higher than they would have been otherwise, relative to key market rates like Treasury securities.

For now, if you’re considering buying a house or refinancing a mortgage, and that rate rise is enough to make a difference, then maybe the deal is not affordable. “If someone is so tight that a quarter point kills a deal, they probably ought to be rethinking what they’re doing,” says Bert Ely, a banking consultant in Alexandria, Va.

For mortgage shoppers comfortable with loans at today’s prices, now is the time to lock in, or guarantee, an interest rate with the lender, which can effectively set the rate over the life of a fixed-rate loan. Given the current uncertainty, there’s always the possibility that lenders will be less willing to offer rate locks in the coming weeks.

Outside the mortgage industry, there is some concern that a further crippled Fannie and Freddie could make it harder for consumers to borrow in all forms. “There is a contagion effect. If investors in various kinds of loans get concerned about one kind of capital market, it can spread to other markets,” said Mark Kantrowitz, who runs the college financing site FinAid.org and saw this firsthand in student loans over the past year or so. “They tend to pull back from everything, not just their initial area of concern.”

All the consternation this week only highlights how much rests on the value of our homes and shows that loan pricing and availability can keep the value from falling further. “The implications run everywhere, through to consumer spending and state and local governments,” said Mark Zandi, chief economist of Moody’s Economy.com. “Anything that exacerbates the problem is very bad news. It’s just sticking a finger into an already deep and festering wound.”

Mr. Zandi said he thought the federal government would step in to stabilize the situation if mortgage rates rose much more than that quarter or half point.

The government might take any number of steps to buck up the two ailing entities. The bonds that Fannie and Freddie sell are held all over the world, by mutual funds and foreign governments. Any hint that those securities are in peril could further undermine faith in the United States economy, given that Fannie and Freddie were created and chartered by the American government.

In an election year, meanwhile, with the housing market already lousy in most places, the federal government will almost certainly do everything in its power to make sure that banks have continued access to Fannie and Freddie funds for loans to creditworthy home buyers.

Send mortgage rate predictions to rlieber@nytimes.com.

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Delta: Sorry Your Lung Collapsed, But You Should Have Used Your Voucher Sooner

Trevor's lung collapsed last year, flummoxing his plans to travel with Delta from New York to Toronto. Delta issued a voucher and promised Trevor that it could be redeemed anytime within one year. What they didn't tell him, at any point, was that they started counting not from the date of his planned travel, or from the date he requested the refund, but from the date they issued the original ticket.

Trevor sent us his exchanges with Delta. His initial letter:

Dear Delta,

In June of 2007, I experienced a collapsed lung. At the recommendation of my thoracic surgeon to avoid flight for three to six months from the time of my operation, I was unable to use tickets booked on June 11, for a flight from NY JFK to Toronto—flight XXXXXXXX.

After being made aware I would not be able to use the tickets, I called a Delta representative who informed me that once receiving a signed letter from my physician, I would be given full cred ($365.58) for the flight. The credit would be available for one year. On both occasions I spoke with Delta representatives—when canceling the flight and when confirming my letter was received—I was not made aware that the credit expired on the date the flight was booked (June 11) and not the date of departure (Aug. 3). This information was only relayed when I attempted to use the credit on June 24, 2008. No email or letter acknowledging the restriction was ever offered, just the instruction to call when I wished to apply the credit. On top of that, nowhere in the confirmation information given to me by Travelocity is the booking date listed, only the flight date and I’m sure you can imagine, given my health circumstances, how that is unsatisfactory if you expect me to consider June 11, the key date in this situation.

I understand Delta must have restrictions and expiration dates for credit; however, I feel my medical condition was taken advantage of by inadequate customer care that neglected to communicate the central piece of information. I am using the credit in a window well within a year of the flight date. This is the first time I’ve booked a flight since my injury and am dismayed by a lack of sensitivity by Delta’s policies and customer care representatives.

I appreciate your consideration and understanding.

Delta's response:

Thank you for your correspondence to Delta Air Lines.

We realize you expect to receive accurate information when you call us. Our Reservation Sales representatives are carefully trained in all our procedures, including providing a positive experience for our valued customers.

Please be advised most unused international tickets can be applied towards new travel, domestic or international, to commence within one year from issue date of the original ticket.

Delta tickets and other travel-related documents are valid for one year from the date of issue. Once a ticket or other document has expired, it has no further value and cannot be refunded, extended, or exchanged.

While we would like to offer special consideration in cases such as yours, we are unable to honor the many requests that we receive from others in similar situations. We follow a consistent policy to ensure that Delta is fair to everyone who travels with us. Accordingly, we must respectfully decline your request.

Again, thank you for writing. We recognize this was not the response you expected to receive and trust you will understand our position. We value your business and hope you will continue to choose Delta. Should you need to contact us in the future, or find information about our service or operations, please visit us at delta.com.

Sincerely,

Irene M. Roberts
Manager
Customer Care

Can't you feel the love and care of their velvet-covered sickle?

Trevor responded:

Dear Ms. Roberts,

I’m sure it comes as no surprise that your response is completely unsatisfactory and no, I do not in any way understand your position. Due to human error, Delta has stolen—that may sound like a strong word, but is in fact the ONLY way to refer to it—almost five hundred dollars from me.

You can claim your “Reservation Sales representatives are carefully trained”; however, all experience in this situation points to quite the opposite. Just one example, it took two hours and the escalation of the issue to a supervisor before anyone could even figure out how to locate my reservation. I understand the challenges of staffing qualified people to low-paying positions, but don’t screw your customers when they slip up. If you have many requests from “others in similar situations” than you have an institutional problem that needs to be fixed and I do not feel I should pay the price for that failure. It is certainly not Delta being “fair to everyone who travels” with you. Quite the opposite in fact.

In a business whose success and failure hinges on the ability to create customer loyalty—one ticket, just one, bought by me could erase any loss you’d take from giving me MY MONEY back—it’s shocking to me that you’ve decided to give me the middle finger and I'm sure, a contributing factor to Delta's struggles. I will NOT “continue to choose Delta.” In the internet age, I’m just shocked Delta doesn’t understand this costs more than it saves. You have no right to this money and with poor customer service from top to bottom, have taken advantage of my illness.

Attached you’ll find signed statements from just a few of the people who’ve heard my story and agree that Delta has abused its corporate powers and hidden behind policies that avoid accountability. This will be just the beginning as I feel it’s important people hear how your company approaches its customers.

I will be happy to forgive and forget if you decide it’s worth actually considering my case individually and realize the importance of respecting your customers especially when they are confronted with life and death health challenges.

We've shown that a well-crafted, reasonable Executive Email Carpet Bomb can decimate arbitrary airline deadlines. Send an EECB to Delta's executives using previously published contact information, and don't forget to cc the Department of Transportation.

PREVIOUSLY: EECB Scores Direct Hit On Delta's $25 Extra Bag Fee
(AP Photo/David Kohl)

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