What you can never know: Arguments for Biden’s Build Back Better show limitations of data

It has been said “In God we trust, everyone else needs data.”

Unfortunately for economic policy, the necessary data rarely exists. Both sides in a debate over what should be done about a particular problem in society will bring their statistics to the table, but economists know that we can’t really measure the full costs of any action.

Consider two fundamental principles of economics.

First, the full impact of any policy action, at any level of government, cannot be seen. Frédéric Bastiat, a 19th-century French economist, distinguished between the “seen” and the “unseen” in any action. Bastiat wrote extensively about the unanticipated, or unintended, consequences of new laws or regulations.

To illustrate the problem, Bastiat told a parable about a broken window. A rock was thrown through a shop window. As community members viewed the damage, they began talking about the economic benefits that would flow to the glazier and other businesses in the area when repairs were made.

The fallacy in this line of thinking is that the money spent to repair the break could have been spent or invested elsewhere on new and otherwise more productive ventures. This “broken window fallacy” is an easy mistake to make when we focus solely on the immediate impact.

The fact that we can’t know where the money for the new window could have been spent leads to the second principle: opportunity costs.

The true cost of what we choose to do is the total value of the foregone choices. We all face tradeoffs, especially with our time. Who knows what valuable exercise you’re missing out on at this time by trying to understand economics a little better?

With the collective action of government policy, the opportunity costs are magnified well beyond our individual decisions. When the government decides to borrow and spend for a new or existing social goal, we can never know what may have been achieved had the same household savings been lent to private firms and invested in their operations. What new consumer product, life-saving drug, or technological innovation could have been created with the funds removed from the private sector? We’ll never know.

Both sides are bringing their data to the current debate over President Joe Biden’s proposed “Build Back Better” plan. But no matter what may be said about the plan’s impact on clean energy production or family budgets, we can’t measure the total economic cost of the proposals. Most of this legislative action is unseen.

Therefore, keep your trust in God and don’t be swayed by data in a policy debate. The fundamental principles of economics demonstrate the need for God-fearing humility.

Peter Crabb is a professor of finance and economics at Northwest Nazarene University in Nampa, Idaho. prcrabb@nnu.edu