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Sun Oct 11, 2020, 05:48 PM

Colleges Are Fueling the Pandemic in a Classic Market Failure (NYT)

Financial pressures explain why many campuses have brought students back. But there is a textbook solution, two economists say: government intervention.

By Sarah Cohodes and Susan Dynarski

Oct. 8, 2020

A perfectly functioning market is a beautiful thing. It’s also vanishingly rare. The main work of economists is figuring out how to make markets function well when the messy, real world intrudes on our textbooks’ elegant models.

The pandemic, unfortunately, provides instructive examples of markets that are failing in predictable and harmful ways. The failures are particularly glaring in dozens of college towns across the United States that are coronavirus hot spots.

Introductory economics focuses on the “invisible hand of the market”: Independent actors, by pursuing their own interests, maximize the common good. In this idealized world, the best thing a government can do is get out of the way so the free market can work its magic.

But 95 percent of economics is about the imperfections of markets, and how the government can correct them. In fact, some market failures require government intervention for the invisible hand to do its work. Economic theory predicts when markets are likely to work with minimal intervention, and when they will fail without government involvement.

Pollution is the textbook example of a market failure. A manufacturer sending fumes into the air creates what economists call a “negative externality.” Simply by doing what it does — making its product — the firm harms others. Pollution reduces air quality for those living and breathing nearby, but since neighbors’ health doesn’t affect the bottom line that drives daily decisions at the factory, the pollution keeps flowing.

A pandemic is powered by the ultimate negative externality: The very act of breathing can spread a deadly disease.
more: https://www.nytimes.com/2020/10/08/business/colleges-pandemic-market-failure.html?action=click&algo=bandit-all-surfaces&block=trending_recirc&fellback=false&imp_id=694843697&impression_id=1f316835-0c0a-11eb-9dfa-1bd73345ce2e&index=8&pgtype=Article

The first few paras nicely sum up everything that's wrong with blind obeisance to the Invisible Bloody Hand of the Free Market.

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