In the view of Professor Alan S. Blinder, “Individual choice is a bad for Covid safety.” (Wall Street Journal, August 13, p. A15). Why so? This is due to the fact that there is such a thing as externalities, which in his opinion constitute a market failure. How so?
There are two types of these supposed errors of the free enterprise system, positive externalities and negative ones. An example of the former is your neighbor’s beautiful garden. You paid not a penny for its care and feeding, and yet you benefit from your view of it. You are a free rider. If you paid your fair share for this enjoyment of yours, it could be made even more lovely; more resources could be poured into its further beautification. In the event, the neighbor under invests in this property, compared to the funds that would have gone into it were there no positive externality; thus there is an economic misallocation. This is an example of the market failure of external economies. For example, let us suppose that the neighbor invests $200 in his garden. According to this New Jersey economist, that is too little; it only encompasses his own joy from the flowers. It does not take into account the externalities benefits, that spill over onto neighbors. The proper investment, then, might be $300. One solution is that government tax the neighbors $100 in total, and give this amount to the gardener. Seriously.
A less obscure example would be education. Yes, it benefits the student in the form of better jobs, more enjoyment from learning. He will only spend $20,000 on this. But his learning spills over to others, since he is less likely to be a criminal, more likely to vote more intelligently. These benefits amount to $10,000. So, again, the state should tax all of us to the latter amount, and give the student this fund in the form of scholarship aid.
There are difficulties here. First of all, how do we know you actually gain from viewing the garden? For all we know as outsiders, as economic theoreticians, you have hay fever and/or hate flowers for some other reason and this garden is a detriment to you, not an advantage. If so, you are not a free rider, but rather a victim. As to education, the student takes courses in sociology and grievance studies, burns other people’s property as an Antifa member and supports socialism at the ballot box. No benefits spill over to the rest of society, rather, the very opposite.
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