It's very expensive to build (especially large) space telescopes (JWST is already costing more than 8 billion at this point), and astronomy is not very well funded.
It's fascinating to me that the telescope costs so much more than the launch.
A high-quality 24" or 1-meter university-grade observatory telescope can be had for well under $1 million. If you multiply that by a factor of 100 to mount it on a satellite, you're still at 'just' $0.1 billion and can buy a whole Ariane-5 launch just like the JWST to put it at your desired orbit for $0.15B, for a total of $0.25B (a Falcon Heavy runs about half the cost for a launch). You could launch 30 of those (hopefully improving your factor-of-100 cost increase to something more manageable) for less than what the JWST will cost.
I get that JWST is a 6.5 meter telescope, not a piddly backyard 24" device, but why do we have to launch the best single scope possible?
JWST is being built to do things that are truly impossible on Earth. It is an infrared telescope that will image things that cannot be seen through Earth's atmosphere.
JWST is not the first IR telescope (Spitzer Space telescope, retiring this month comes to mind, 0.85 m diameter primary), but its size will allow both improved resolution (diffraction limit falls like 1/diameter) and improved collection efficiency (grows like diameter^2). Without constellation-flying and interferometric telescopes (see Keck Observatory), one cannot get either one from an array of small telescopes.
There are a lot of scientists grumpy about JWST because of its huge budget, but as long as JWST works, the view it gives of our universe will be spectacular. At this point, I think everyone really wants JWST to work, as so much has been sacrificed to make it possible.
Your $1 million university telescope probably wouldn't work long in space without maintenance, the ability to regulate temps, and rad-hard electronics.
See https://doi.org/10.1117/1.2031216 for the scaling of cost with size. It is very much not linear. Rather if you double the diameter the cost goes up by about a factor of 3.5 (closer to the area that went up by 4).
The university grade telescope, not sure what the entails, but I'm guessing it isn't hardened for radiation exposure and heat cycles seen in space. You can't use some off the shelf product unfortunately.
Making things survive in space is hard. Working functionally for the lifespan of the telescope is really hard. There's not a lot you can do once it's up there.
Aren't they mainly large so they have less hindrance of earth's atmosphere? Couldn't telescopes that are in space be smaller and have similar performance?
The are mainly large to increase resolution and sensitivity. Atmosphere limits how large you can make the mirror before hitting diminishing returns, but that is mitigated by good site selection, adaptive optics and lucky imaging (taking many exposures and keeping the least blurry ones).
Telescopes in space could have better performance, because you are not limited by atmospheric conditions for your angular resolution. But you still need a larger aperture to increase your theoretical angular resolution (see the Rayleigh criterion), and increase light gathering power.
For radio we might be able to make it work. But we currently don't have the ability to position satellites to within 10 nanometers, which would be required to make this work in the optical range that you have just killed off on the ground.
Large aperture means more light makes it into the telescope. JWST has a mirror assembly bigger than most ground based systems. It comes down to cost vs performance. For the cost of putting a small-mid sized satellite in orbit you can build one hell of an observatory that will function longer and have a much bigger tube. At a certain point it makes more sense to use orbital systems but only for certain types of experiments.
