Policy by anecdote

At the 9:30 mark of the Peter Schiff video in this post, Mr. Cummings of the Congress on Jobs Committee says of “stimulus” spending:

You can say what you want about the stimulus bill, but I can bring in a room full of people who would say if it were not for the stimulus the would not have had jobs.  I know it has an effect.

I believe even the staunchest Keynesian (people who actually believe government stimulus works under certain conditions) may advise Mr. Cummings that his anecdote does not actually address the key point made by critics of so-called stimulus spending.  The key point was made by Frederic Bastiat in 1850.

It says that while it’s easy to see the beneficiaries of any specific spending or program, it’s not so easy to see what might have happened without that spending or program, and to determine if the spending helped or hurt on whole.

While we tend to credit that spending amount as 100% beneficial, we don’t consider what would have happened anyway.  Bastiat called this the broken window fallacy.  We see a broken window and say, the silver lining is that the window maker will benefit by selling an additional window.  We easily forget (or are easily distracted) that the money spent to replace the window could have been spent on something else, something even more productive and valuable than replacing something that you already had.

Unfortunately, neglecting what would have happened anyway permeates political and business decision-making.  We focus on what is easily seen and set policy by it.   I call this management-by-anecdote.

Anecdotes are powerful political tools.  If a picture is worth a thousand words, then anecdotes are worth ten thousand.  And, if you can mention the name, place, or show the face of the person in the anecdote, that ups the value of anecdote another 10 fold.  Notice all the anecdotes that sit in the balcony during the State of the Union address.

It concerns me that we have so many people in leadership roles, like Mr. Cummings, in business and government in this country that so easily succumb to the anecdote.