Hi Jason,
I think the basic disagreement is this: you believe that the price set in the market for certain goods is not correct, and you believe you know the direction in which it's incorrect (for example, the market price of fossil fuels is less than it should be), and you ascribe the difference between the market price and your judgment regarding the "correct" price to a failure of the market; the alternative, of course, is that it's your judgment that's incorrect.
To be clear, I've literally never met (or heard of) any human being who believes that any market is “all-knowing” or a “perfect discounting mechanism,” or that markets “cannot be criticized” or “are above reproach,” or even that any market is perfectly “free” or “efficient.” Still, the most important question is whether any superior mechanism exists, not in theory but in the real world given that human beings are fallible, exhibit cognitive biases and other behavioral imperfections, and may even be stupid.
As with democracy (see Churchill) the answer very clearly appears to be “no.” Various ways have been proposed to supplant (“improve”) markets, just as various ways have been proposed to supplant (“improve”) democracy: what they all seem to have in common is substituting one person’s judgment for the very definitely fallible collective judgment of others. And I’m not talking about central planning as the only alternative: even the smallest “nudge,” intended to move the market price back toward somebody’s idea of the “correct” price, will be done by somebody who is no less fallible than any of the other participants in the market, and no less subject to cognitive biases—and who was given the power to adjust the markets through a different collective decision-making process that was subject to its own problems (for example, democracy). That’s the problem: not that markets aren’t imperfect, but that there’s no way that is actually likely, in the real world, to improve on them.
To address the active/passive debate as an analogue, there has long been empirical evidence that many active managers are, in fact, able to outperform the market on a gross-of-fees basis. Again, I’ve literally never met anybody who thinks that it’s impossible to beat the market. Where active management fails—if it fails—is that clients can EXPECT to underperform the market on a NET-of-fees basis. Translation: the market price is not perfect—but there has never been evidence that it can be beaten without giving up something of even greater value.
--Brad