Phil, I have a few arguments to throw at you, in no particular order:
-regarding pure capitalism, there has never been pure capitalism. The united states (before they became the United States) came closest to pure capitalism but even then, there was some government intervention. Since pure capitalism has not yet actually been tried, it remains theoretical and cannot be dismissed as a failure. The US is a socialist/capitalist hybrid, as is Canada and the European countries. The difference is that they all vary in how much is left to the market and how much is either directed by or directly provided by government. Economists continually observe that countries with freer markets do better. They have lower crime and unemployment, wealth and resources are more evenly distributed (big middle class), lower infant mortality rate, greater income mobility, generally a happier and healthier societies. It's like a sliding scale...the more resources and wealth are centrally provided, the less the society, as a whole, benefits. The more resources and wealth are left to independent entities (the market), the more society, as a whole, benefits. There are some very bizarre, divergent economists, like Paul Krugman, who is the darling of unions and other "we want our share of government welfare too" groups, who favor socialist or Keynesian economics, but the vast majority of economists favor free markets because the evidence that they, by profession, observe and analyse, continually shows that controlled economies just don't achieve the desired results and mixed economies have a tendency to gradually become more controlled over time.
Note that "work better" is not the same thing as perfect or "cures all ills". This is a strawman from the Left. Aside from the Randists, who have some bizarre, "moral" philosophy about capitalism, most of us who favor free markets do so simply because, when compared to the alternatives, free markets continually show better results and have fewer and more easily solvable problems. Fewer and more easily solveable does NOT mean zero or easy.
What we are witnessing that is destroying everything is corporatism, which is not capitalism and did not arise from it. To put it plainly, if liberals are afraid of Big Business and conservatives are afraid of Big Government, then both should be afraid because corporatism is essentially Big Business and Big Government fused together. The major turning point in the US was the lobbying for and achieving, incorporation licensing. The lobbying comes from the private sector but the actual granting of incorporation entitlement is granted by the government...not the market. Incorporation, loosely translated, means that the business, which is a non-living operation, will be recognized by the Federal Government as a legal person, separate from its owner, and held responsible for the decisions that the owner will make. There are different types of incorporation, all with their own fun packages of entitlement that allow them to screw not only the customers, but any small businesses trying to compete, because they are no longer personally accountable for the damages their incorporated businesses may incur.
So give that a century or more to grow and develop, like a tumor...and you have what we have today: enormous, multi-national corporations that really cannot be regulated partially because they can use their money and resources to fuse their interests into governments all over the globe...ala WTO...AND because whatever tightened down regs the US government throws on factories will not apply to the factories in other countries, owned by businesses who will then sell the product to the US, for far cheaper than the domestic made ones, because the lack of regulation in the other country made the production cost cheaper.
Get that?
BECAUSE businesses are now multinational and the operators are safely removed from accountability for the directions they take their businesses, and BECAUSE they have their fingers in governments themselves, the method of regulation not only does not work and hasn't, but it even strengthens the corporate power structure by crushing small business competition.
Next:
You made a bunch of statements about the role of government and what they are supposed to be. Well, that's just it. Everyone has their own ideas about what a government is supposed to be and yet, the reality is that government is an institution of centralized power and authority...and so it naturally attracts those who seek power and authority. It doesn't matter what it's supposed to be. What matters is the pattern of what is and what does happen. And the pattern is that the more power and authority a government has, the more oppressive it becomes and that authority can be partially granted by the people themselves by asking the government to shut down market functions and provide a service in replacement. If that service is poorly constructed and executed and more people do without than with...what is anyone going to do about it? In the market, a competing business can check the ethics of another. But in government, the money is forced through taxes and then spent by authorized people and if that money is wasted, then it's wasted and there's nothing we can do about it.
This is why your statement about needing to watch them like a hawk holds no water. When the government gets this powerful, we can't watch them like a hawk because they now control what we see and hear (media) and even if we catch some corruption, there ain't a damned thing we can do about it!!
Case in point: The Bush Administration did many things that render it guilty of treason and many of the men in that administration should be tried and publicly executed. Had we, the people, the power to vote on something like that, it might have happened.
But no. They just resigned and will still get government pensions on top of their hefty profits. What you are witnessing there has nothing to do with free markets. It is the fusion of Big Business and Big Government and it was born from Big Government. In the past, this is how religion got big too...the power of the state.
It's like this: the more you ask a centralized institution to provide for you, the bigger and more powerful it gets, the more dependent you become upon it and cannot prevent it from abusing you and controlling your entire life. Those who succumb to authoritarian mindset will eventually find their way into the ranks of such institutions and once there, they will eventually rationalize how to totally enslave the ones they were supposed to be protecting and providing for.
So yeah, watch those politicians like a hawk and then...? What you gonna do about it? Cheney got off the hook. Even does interviews to shoot off his opinion of Obama on CNN.
The liberal, progressive, Democrat view continually asserts that neither people, nor businesses, can be trusted to operate on their own so all kinds of things are regulated or licensed or or simply provided outright by the government, and, furthermore, that IF you get good people in government, all will work out well. Unfortunately, that view seriously overlooks how big the IF is. With government naturally attracting those who feel they are "leaders" and therefore want to be in positions of authority and control, we may find our choices to be the tamest of the wolves, rather than a genuine artifact of fairness and compassion.
If anyone is wondering, I would consider my views anti-nationalist/mini-societalist. I tend to agree more with libertarians and paleoconservatives, since they understand economy, order by principle and pragmatic thinking better than neocon/fascists, progressives, liberals and socialist, who are all concerned with idealizing and using the power of the state to direct cultural changes and who tend to view society as a whole as being of greater value than the individuals within it.