As I've said before, certain types of goods -- public goods -- simply cannot be allocated efficiently through market mechanisms alone, even if we get prices right. Now this is not a "government good/private sector bad" post. It is a suggestion, as was my original post on this subject, that a market system requires not only regulation but large-scale public investment, and that one of the places we are making way too few public investments is energy infrastructure.
Again, this is not to say that public investment is the way to run everything; just as there are public goods, there are private goods. But we are trying to meet needs that are clearly public goods via private means. Full social pricing, though needed, will not change that.
Before focusing on energy, consider health insurance. The U.S. spends more on healthcare than any other nation, and gets worse results. There are various reasons for this, but one is that a competitive market in health insurance tends to provide more insurance and less healthcare than public insurance mechanisms. (When I gave this example back in October, biodiversivist argued that our healthcare system "does not resemble any free market I know of." That does not change the fact that our healthcare system is less regulated than healthcare systems in any other rich nation.)
Every intervention that can be cited as possible government over-involvement in our medical system can be found in other systems that spend much less on healthcare and get far better results. If I have to, I'll do a whole post on healthcare -- but the bottom line is that moving a large part of the health insurance system from private to public spending would improve efficiency. Note that we are talking health insurance, not health care.
A major part of fighting global warming will consist of switching from polluting to clean energy. That is largely a matter of major infrastructure, and infrastructure, at least since the fall of feudalism, has always required large public investment, not just regulation.
