I'm also not trying to make a moral point. I'm trying to show that these kinds of problems are one of the possible failure modes on the free market, and whether one of the actors happens to be a government is immaterial - you could (like you personally just did) draw an equivalent scenario involving only private businesses.
When people talk about "free" markets it usually means markets where these types of problems are effectively managed or mitigated, not "markets with no rules".
There's of course lots of debate about what the right policies to manage and mitigate these are but it doesn't mean that markets aren't a good mechanism just because there might be trade-offs or imperfect solutions.
I always understood "free" markets to be ones run by supply and demand, without authoritarian interference. That does not exclude principal-agent problems, though.
I'm also not saying markets aren't a good idea. Just I don't believe they're the core of the solution to the problem I outlined upthread.
