[asift]

How do monopolistic entities full of self-interested humans solve problems of externalities?

The economics research on public choice has done a great deal for setting aside the common yet inaccurate assumption that government agents pursue the interests of society. It's not appropriate to compare real world markets to utopian governments. Both are imperfect. The real question is which is superior under realistic assumptions.

[TeMPOraL]

> Both are imperfect. The real question is which is superior under realistic assumptions.

And I'd say, why not both? It's obvious that the market is superior in many cases. It's also obvious that the government is superior in others. They both cover for each others' failures.

[asift]

In a very narrow view (i.e., how the world exists at this moment) I agree that both are necessary.

Over a longer time horizon, I'm not certain how "obvious" it is governments are superior. It takes time for alternative institutions to develop, but the institutional problems that are inherent to governments are avoidable through private institutions. The presence of governmental institutions causes a lot of distortion and disincentives to create alternative forms of governance (governance that could surpass governments in terms of quality provided), so I'm not certain we should simply look at the world as it is today and conclude that governments are inherently superior.

[TeMPOraL]

But who says that governments are superior? It makes no sense, it's like saying that a heart is superior to a lung. It's not, you need both!

Governments and markets cover for each others failures. Where a government is inflexible, a market can find an efficient solution. When a market is trapped in a race to the bottom, the government creates coordination. They complement each other.

As for the argument that keeping the current government prevents us from experimenting with alternative forms, you could say the same about free market keeping us from experimenting with different forms of markets...