Is Boettke right here?

A lot of people have been critical of recent bad interpretations of the Austrian school (say, by Matt Yglesias most recently) including me. I wonder what those of you who criticized him think of Peter Boettke's recent criticism of mainstream and Keynesian economics. It seems to me to be very similar to Yglesias's, in that it doesn't really tell you much about mainstream economics, but it does tell you a lot about where Boettke is coming and how he views economics. I was most surprised by this paragraph:

"Imagine a two-by-two matrix, in which the rows are defined by whether you are dealing with a simple problem situation, or a complex problem situation. The columns are social order or social disorder. Then you look at the individuals pursuing their individual self-interest. What’s going to result? In simple problem situations – where agents are perfectly informed, they live in large number situations and are dealing with homogeneous products – you can get social order, because no one individual can influence the effect on any other individual. But once you introduce complexities into the system, the system no longer generates the invisible hand, and you can get disorder. So in a simple problem situation with free markets everything is popcorn and candy canes, and then we move to a complicated problem situation and we get unemployment and irrational exuberance etc. This is Keynesian economics and market failure theory – all very mainstream.

What Marxists believe is that even under simple problem situations, the market can’t do its job – you get monopolies, you get exploitation. Classical economists, Austrian economists, and New Institutional economists reside in the box that starts with a complex problem situation but nevertheless gets you social order. The way you do that is not based on the behavioural assumptions of the actors, but on the institutional assumptions underlying them, ie things like the political, legal and cultural context within which individuals engage and exchange. If that context is the right context, then even in the most difficult of situations, individuals can generate social order. They can cope with their ignorance, they can take care of uncertainty. When the market goes astray, it’s not because there is something wrong with the market mechanism, it’s because the rules under which the market mechanism operates have got distorted."

It surprised me for two reasons. First, because if you had asked me I would have put modern mainstream economics and Keynesian economics in the box that thinks markets can solve complex problems. I'm certainly in that box.

But the second astonishing thing is why Boettke puts us in the other box - because note that sometimes we get outcomes that we don't like from market economies. I definitely think this too. The issue is, when people like Matt Yglesias or Brad DeLong or Paul Krugman or other alleged neanderthals come around and criticize the Austrians for thinking that the market offers a panacea these same guys protest against the accusation! They point out proudly the George Mason mantra of "markets fail - use markets". Free competition is not the same thing as perfect competition. Markets with "inefficiencies" in the lingo of welfare economics exist but there are also emergent solutions to those problems. So sometimes markets don't give us exactly the panacea that we would all like but (1.) that's no reason to be against markets, (2.) institutional solutions emerge to address these problems, and (3.) market solutions can even emerge over time to address these problems.

How come when someone working at George Mason University makes this claim and notes (1.), (2.), and (3.) they're in the pro-invisible hand box, but when someone like me makes this claim and notes (1.), (2.), and (3.) they're in Boettke's anti-invisible hand box?

Hell if I know.

But Boettke's been making claims like this for years.