Free markets have built-in incentives to create distorting errors. Economists call these “negative externalities” which Paul Krugman says are “costs that people impose on others...yet have no individual incentive to” factor into their decisions. And these needn’t be small errors (e.g. the $200 hamburger). Pollution is a classic example. Two cures are known: Either regulate, or tax to adjust incentives. Yet many market-lovers resist that simple logic, usually for non-market reasons. Only if selfish gain didn’t trump collective harm, or if prices perfectly included full costs (no externalities), could markets collectively optimize. Neither condition applies in any real market. Though many market lovers hate the idea, only an independent government-like entity can police and correct real markets. Without guidance, markets coordinate mindlessly (see “Markets Dumb as Trees”). - http://bigthink.com/errors-we-live-by/market-lovers-commit-the-fallacy-of-composition