For me, this post of Tim's raises a thought: could it be that much of the left and right are stuck in an out-dated mindset?

Tim points out that of the many ways in which UK banks failed, none would have been prevented by a financial transactions tax. I think he's right; the banking crisis was not due to a simple, single market failure. But what Tim doesn't point out is that the fact that banks failed in so many different ways highlights a systematic organizational failure. The problem wasn't (isn't) just that banks were (are) too big to fail. It's that they were too big to manage.

In other words, the issue is not one of 'markets vs. state' - 'free' markets vs. 'sand in the wheel' transactions taxes. It is: how can banks be better organized? And not just banks. The issue of NHS or schools reform poses the same questions.

In this sense, the traditional statist left and free market right are both wrong.

The right is wrong because it overlooked issues of the organization of private companies because it believed that the market would select against bad forms of organization and in favour of good ones. This belief ran into two problems - that bad organizations were (are) widespread*, and that selection against them can be a hugely disruptive and costly process.

The statist/Keynesian left is wrong because its faith that the state can manage the economy by macroeconomic policy and regulation ignored the organizational failings of the state - that there's a danger of regulatory capture, or that inadequate knowledge would yield bad regulation and policy.

Neither side, then, is naturally well-equipped to address issues of organization. To make a start, here are four principles:

1. Institutions are brittle, and prone to sudden collapse. The question is: how to minimize the costs of such collapse? In many cases, ordinary market forces are useful here: when Woolworths collapsed, people just got their pick n mix elsewhere. But in the case of banking collapses, market forces are not enough.

2. Behaviour is context-dependent. One reason the NHS works as well as it does is because of the power of conditional reciprocity; many staff provide unpaid overtime and many patients don't make huge demands on the system. The trick is to maximize this gift exchange.

3. Power should flow to knowledge. Decisions should be taken by those in the know. The argument for the coalition's NHS reforms, for example, is that GPs should have more power because they are closer to the patient. The question is: is this true?

4. Principal-agent problems are ubiquitous. The alleged dumbing down of education and banks' excessive risk taking might look like different issues. But in a sense, they are not. Both arise from misaligned incentives which result in teachers teaching to the test and traders or mortgage originators taking on too much risk.

Although the principles are general, their application is not. But it is here - rather than in the paradigm of 'markets vs. states' - that so many key issues lie.