Eric

Economic theory is a lot more ambiguous on the unadulterated benefits of free markets than you imply. While general equilibrium theory suggests that a perfectly competitive market will lead to efficiency, it does so on the basis of highly unrealistic assumptions, as its creator, Ken Arrow happily acknowledges (also see an interesting - and uncomfortable for libertarians - interview with him on the mixed effects of free markets at http://minneapolisfed.org/pubs/region/95-12/int9512.cfm).

I find the "informational benefits of markets" arguments that you tout wishy-washy and unhelpful. They completely fail to explain why competitive markets, supposedly the most efficient form of coordination and information exchange possible, persistently generate internal hierarchies in the form of firms. Why should firms be necessary if free markets and price signals on their own provide all the information that you need to coordinate economic action?

These - and other - fundamental problems, are why the cutting edge of economic theory is the theory of infinitely iterated games, which lends itself to power, culture, and other external factors as explanations of economic phenomena, and does not get hung up on free markets as perfect generators of efficiency. Not to mention the literature on increasing returns, which you must be familiar with from your stuff on open source software.

Final (tedious for non-economists) factual point - you say that Keynesian demand management was discredited b/c people started to game it. Not so - what was discredited was the Phillips curve empirical relationship between inflation and employment - which does not flow from Keynes' general theory of disequilibrium. Current non-Keynesian macroeconomic theories of long lasting unemployment have notoriously problematic basic assumptions - cf, for brief discussion, the Arrow interview urled above.