Sari, Ed.

My friend Edward Lopez, who blogs here, linked on Facebook to a great story from the New York Times about an entrepreneur’s solution to the challenge of dry-cleaning saris. It’s neat and the piece is short.

Then Ed went on to say:

Most economists stop at the first blush, say “market failure,” and conclude that governments should subsidize dry cleaners. But entrepreneurs look at “market failure” and see dollar signs. The profit motive is what solves market failures — not bureaucrats.

My policy is never to reveal on this blog, without permission, what people wrote in the privacy of FB. So I got Ed’s permission, telling him up front that I would be criticizing his statement.

First, I agree with him that entrepreneurs often do wondrous things. In doing so, they often solve what many non-economists might see as market failures. But would “most economists” see as market failure the fact that, before this entrepreneur came along, there were no apparent low-cost ways of solving the problem? I don’t think so. When I talk to economists who see market failure in many areas, they at least try to make the case that the market failure is one of public goods or externalities. I don’t think they would see either in the sari case.

But I’m interested in what you think, especially if you’re in one of two categories. First, If you’re an economist, what do you think? Before this solution came along, was the market failing? Second, if you follow what economists write, can you give an example where an economist looked at such a situation and claimed market failure? Please “show your work.”