You are on the correct track and another problem is substitutions.
If bicycling is made illegal for safety reasons, at least some percentage of current bikers will simply take up running, and running is very hard on the knees. So the total aggregate of knee pain will increase by X vs the decline in bike injury related pain Y. The relationship between X and Y is unclear and probably unknowable, but also probably "about the same magnitude". So all the social engineering and gnashing of teeth would not improve the overall human condition.
Studies have repeatedly shown that running is NOT hard on the knees. Instead, the risk of osteoarthritis (knee problelms) is more associated with aging.
Plus, I don't think that's a particularly cogent argument to make. You can say that about anything, pretty much. If you increase gas prices, then a percentage of those drivers will start biking/walking/running. Better not increase gas prices... Or you can replace "gas prices" with anything that affects mode of travel: taxes, congestion, surplus of bike frames, health fads, etc.
If bicycling is made illegal for safety reasons, at least some percentage of current bikers will simply take up running, and running is very hard on the knees. So the total aggregate of knee pain will increase by X vs the decline in bike injury related pain Y. The relationship between X and Y is unclear and probably unknowable, but also probably "about the same magnitude". So all the social engineering and gnashing of teeth would not improve the overall human condition.