JAL777, some economist, I can't remember his name came up with a curve that showed how countries when they are poor and first industrialized don't worry too much about polution, but as they become more affluent pollution begins to decrease because it is more of a concern amoung the weathier, not driven only for survival populace.
This is called the Kuznets Curve, and for many pollutants, it's shaped like an inverted U: low pollution at very low income levels, rising pollution as a country industrializes, and then falling pollution as high income levels allow the public to "buy" a cleaner environment.
It's really a shame that the Austrian School was buried by the Keynesian revolution, even though Keynes could never rebut the Austrian business cycle model - he just ignored it (ask a Keynesian where savings goes in his/her model and this becomes very clear). Ludwig von Mises' Economic Freedom and Interventionism
is a penetrating explanation of how government policies, even well-intended ones, almost always make a situation worse, thus requiring further interventions to "correct" the very problems the government has created. Coase, Friedman, and others have argued among similar lines.
Many cases of "market failure" have been created or supported by the government. It's almost beyond dispute that highway system is overused because it is a free good. The average user of a highway shoulders no more responsibility for building and maintaining the roadways than a mass-transit commuter. The public has no incentive to conserve its driving or use alternative transportation because the costs have been externalized. Meanwhile, the highways are deteriorating and choked with traffic for lack of funding.
the debate above, even the Chicago and Austrian Schools (except maybe the anarcho-capitalists) would agree that intentionally selling fake baby food, defrauding investors, or continuing to make a defective product is criminal
behavior - fraud, reckless endangerment, whatever - and should be dealt with by the courts. Given that the court system exists to prevent and punish these behaviors, I tend to doubt whether the alphabet soup of regulatory agencies is a net benefit to the country.
Keynes is dead and we are living in his long run.