Both the libertarians and the socialists have a point when they accuse each other’s favored economic systems of catering largely to fake demand. 

A government acquires its wealth through coercion and spends it according to the logic of internal politics, which is often insane, and which often has nothing to do with doing any real good for anyone.  See, e.g., absurd bloated procurement contracts for jet fighters that the military won’t actually use.  Or, to go slightly farther afield, @slatestarscratchpad‘s pointless extra years of required training for doctors (which is feasible because medical schools have a government-backed guild monopoly on doctoring jobs).  This kind of distortion would not occur in a truly free market!

…but in a truly free market, vast swathes of the economy would be devoted to helping the stupendously rich compete in zero-sum status games against each other, or (at best) to helping them to gain trivial increases in personal welfare at staggering cost.  It’s more profitable to build gold-plated yachts than to feed the poor, since the poor don’t have any money.  But a sane civilization is not going to dedicate lots of resources to meeting the demand for gold-plated yachts, because from a dictator’s-eye standpoint that demand basically isn’t real, it’s a psychological triviality that happens to be backed with absurd resources. 

I am honestly not sure how you navigate this Scylla-and-Charybdis setup in a world of severely limited resources. The best I’ve got is pretty much the same as the local conventional wisdom: “a largely unregulated market with colossal jackboot-enforced levels of wealth redistribution.”  But, at the very least, I always get a bit antsy when I find myself agreeing with the conventional wisdom.