In the very long run there is no doubt, or ought not to be, that a decentralized economy produces better results than a centralized one. It can adapt better. It can innovate better. And it can thus grow better. What it cannot do, necessarily, is to allocate better. Yet, and this is the truly pernicious nature of modern orthodox economics, it is precisely it allocative power that modern theory lauds.
Why is this?
If you are trying to build an ideological defense of a particular worldview – in this case that markets ought to be left alone to get on with it – it is prudent to defend its weakest points mostly actively. This is the brilliance of neoclassical economics. Its entire edifice is built around ideas that make it appear as if markets will always outperform alternatives in the allocation of society’s resources. It does this by inventing and deploying specialized uses for common concepts like “efficiency”, and then restricting the set of assumptions used in the theory to ensure that it achieves its goals. Outside of academia most people don’t realize the extraordinary effort needed to distort the real world into conformance with neoclassical theory, they simply accept that, somehow, economists have “proved” the superiority of markets. They accept economics as being a sort of science, and that it has intellectual sincerity or objectivity.Spot on. The neoclassical economy's biggest weakness is the allocation of resources. It turns that into its biggest strength by defining 'allocation' in a way completely contrary to how it should be defined. Thus its own weakness becomes unthinkable in its own terms.
Philip Mirowski has made similar points and in this quite brilliant lecture he argues that neoliberals too (he distinguishes them from neoclassicals quite radically) are far more smarter than the left often give them credit for. Their incoherences are an assemblage of great power.