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.
Arguendo, let us assume the opposite, let us work with Blinder; you enjoy this vision, do not pay for it, and thus the gardener invests too little in it. You do benefit from the schooling of other people’s children, and don’t have to pay for it under free enterprise, so too few funds flow in this direction. This is still not any market failure. Prof. Blinder reckons in the absence of the concept of internalizing externalities. If this were an economically significant issue, the original owner of the land would have sold pieces of this real estate in the form of condominiums; he would have charged everyone for these flowers and paid these funds to good gardeners, thus internalizing, obviating, the supposed externality.
This Princeton economist properly points to smoke pollution as the most widely used example of a negative externality, or external diseconomy. But again he is mistaken. Setting off cinders and dust particles into the air, and, then, onto the property and into the lungs of other people, is nothing of the sort. Rather, it is a blatant trespass. If I go out into the street and start spraying bullets every which way, hitting many people, ruining property, I am not at all an example of a negative externality. I am a menace, a murderer, a property destroyer, a criminal. The only difference between me and the non de minimus polluter (hey, we all exhale carbon dioxide, a poison) is the size, chemical makeup and degree of rights violation perpetrated by the two of us.
What about the present pandemic? This applies, possibly, to going maskless, not maintaining social distance, failure to wash hands, get tested, etc., in the age of Covid. I emphasize the word possibly, since I take no position on the veracity of the claims made about it. I wish here, only, to focus on the teachings of economics 101.
What, then, is a more accurate example of an external diseconomy? I paint my house pink and blue polka dots with all sort of graffiti splashed all over it. This lowers the property values of your domicile next door. Did I violate rights, as is the case of pollution, random shootings and possibly spreading Covid? Not a bit of it. Why not? That is because while you indeed own your home, its physical aspects, access to it, etc., you cannot count as your property its market value. That, instead, is determined by supply and demand; the evaluations of many potential buyers and other sellers. How, then does the free enterprise system obviate this type of threat? Again, we mention the internalization of externalities, something seemingly not in Blinder’s vocabulary. To the extent this is a serious problem, entrepreneurs will issue restrictive covenants, or sell property in the form of condominiums, which prohibit all members from painting the exteriors of their holdings in any such manner.
