Economists have many models that exist in highly stylized theoretical settings (this is just a fancy way of saying “perfect settings”). When we compare real-world institutions and situations to these stylized models, the real world often looks awful in comparison. There are externalities, corruption, misallocation, a general lack of equilibrium, asymmetric information, etc etc etc. Thus the models compared to real life look ever more better. It’s severely tempting to use the flaws of the real life outcomes to justify moving toward theoretical approaches (eg. using market failures to justify government intervention).
But, as was discussed the other day in the Alchian quote, alternative institutional arraignments have flaws, too. To compare a flawed institution to an ideal alternative is what Harold Demsetz called the “Nirvana Fallacy” and can lead to mistaken conclusions. We need to compare institutions using the same assumptions about each one. For example, market…
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Utopia, you are standing in it! 
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