Should the government collect data on the economy and society? with Diane Schanzenbach | VIEWPOINT

Michael: So, the data are obviously important,
and we’ve talked about how this is actually a constitutionally mandated function of government,
to gather these data. But of course, the world was different in
the 18th century when the Constitution was written. Today somebody might ask, “Well, we have all
this technology, we have big data, companies are collecting data, we have electronic records
and all sorts of stuff. Does the government still need to be involved
in this? Why can’t we just rely on the data that private
businesses collect? Why can’t we have a Kickstarter campaign,
where everybody chips in five bucks and all of the sudden, we have all the data that we
would ever want?” Economists have a good answer to this and
I think the answer is right, and I wonder if you would like to discuss that. Diane: Sure, there are a couple of answers
to that. The first is we know that whenever people
get together and try to find a way to sort of build something for the common good, there’s
incentives for some people to shirk. And so, we can say, “There’s a Kickstarter
campaign, and we’re each going to throw in $5 to collect these data.” But maybe I would prefer to take my money
and go buy a really nice latte, and so then I’m not going to send it. Or maybe I’ll just going to send a dollar
or two. And so, every individual has the incentive
to do that. And so in economics, we’ve got a strong prediction
that then we just won’t be able to collect enough money to do this optimally, so we’ll
under-provide that. Michael: It’s a feature of the good, right? Diane: Exactly. Michael: So, if this good exists, then I can
use it. There’s no way to stop me from benefiting
from economic statistics. The Fed is going to make decisions based on
high-quality economic statistics. I’m going to benefit from those good decisions. Businesses are going to make decisions about
where to locate stores and what products to put on the shelves based on good official
statistics. I’m going to benefit from those decisions
when I walk into a store, or when a new business opens up in my neighborhood, because entrepreneurs
know that people of my demographic are starting to move to Northern Virginia. Diane: Exactly. And the important piece is that you and I
are going to benefit from that whether or not I kick in my $5. Michael: Exactly. Exactly. Because I know I’m going to benefit from those
things, I have a strong incentive not to chip in because I’m going to get it anyway. Diane: And then you can keep your $5. Michael: Then I can keep my $5 while still
enjoying it. The problem is that that makes rational sense
for me. That makes rational sense for you. If makes rational sense for everybody… Diane: Individually, that’s right. Michael: …then you end up with the idea
that the Kickstarter campaign would work, the idea that we could rely on private businesses
to do this on their own suddenly starts to fall apart because nobody has an incentive
individually to actually chip in. Another example of this is national defense. Diane: That’s right. Michael: Everybody wants a military that can
protect the country. Everyone wants a police forces that can protect
our neighborhoods. It’s impossible to stop me from benefitting
from a good police force in my local city, it’s impossible for me not to benefit from
a really well-funded and well-trained military. That takes away the incentive for me to chip
in voluntarily, which is why we think of national defense, and why we think of police forces
as goods that need to be provided by government, where government has to catalyze that collective
action. Diane: Exactly, because we all share the benefits,
then we all have to share the costs and that’s a very difficult, probably impossible to do
with just voluntary donations. Michael: There are other reasons as well,
I think. So, it’s true that a big retail store has
this strong incentive to produce good statistics about that retail store, about its customers,
about its products, about trends in a local economy or whatever that affect the business. But that retail store does not have an incentive
to provide nationally representative data, data that are true about the population as
a whole regardless of whether members of that population shop at the store, regardless of
whether members of that population are affecting the trends that affect the particular business,
too. So, somebody has to be keeping an eye on what
is true and accurate for the economy as a whole and for society as a whole, and businesses
just don’t have an incentive to do that. Now, the incentives that businesses do have
to collect data about their own activities provide a wealth of really useful information
that can complement official statistics and vice versa. So, the official statistics are better because
of what private businesses are doing, and private businesses are able to better gather
data for themselves because of what the official statistics are doing. So, we should think of these as complementary
and not as one or the other. Diane: I agree wholeheartedly.


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