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.