While it's true that the field of economics is moving toward models that better incorporate the irrationality of man and away from the Adam Smith "invisible hand" of complete information and perfect decision making, they are doing so not for the purpose of deciding what should be, but rather, what is.

Moreover, some of these models call behavior that fulfills unquantifiable physic needs "irrational", thus exposing their underlying prejudice against such choices.  Others, which tend to be more accurate in their forecasting, simply don't care - in this sense they're agnostic.

It's the desire for the philosopher/king state that makes an appeal for an entity who knows what's better for an individual than the individual himself.  Such a desire combines a desire for power and control, empathy, a belief in superiority, and a play on others' fears and inadequacies in an attempt to convince people that's there's someone else who knows better than they do about what's best for them.  This is, after all, the foundation of Western religion.

The Hobbesian Leviathan presupposes that man is inherently "bad".  What "bad" includes has been debated, but essentially it requires an all-powerful entity to keep individuals from tearing each other to shreds. In contemporary terms, Saddam Hussein was such a figure.  In historical times, it was used to justify the omnipotent power of the King, and subjects were born into this state, and his protection.  Western religion has always attached itself to this model, for it provides a philosophical foundation to justify the control of others, and do so on the basis of proclaiming a monopoly on knowing "what's best", both for the individual and society as a whole.

Locke, et. al., challenged the fundamental underpinning of this structure by asserting that men, while imperfect in any given action, are inherently good.  Society's are primarily organized not to protect individuals from one another, but to gain further good that cannot be achieved without such organization.

At the foundation of this view of society is the axiom that each person is a free and independent agent who gets to decide what's best for himself by whatever means he desires.  There is no entity that "knows better".

Then, in forming a society, that individual begrudingly sacrifices as little of his complete freedom as possible in order to achieve the highest return on that sacrifice.  Individuals come together and agree as free agents to be bound by certain agreements, but each has the ability to agree or abstain.  Contrast this with the precept of Hobbesian society that says man is born into a state of dependence and obediance to the King.

It is the Lockian model that inspired the political philosophy that is at the foundation of the United States.  And such philosophy is not without a moral component; rather, it rests on the concept of natural law vs. positivism.

But this moral component is at its best when the sanctity of the individual is most protected.  Men are inherently good.  They inherently know what's right.  Other factors certainly act as forces that pollute the decision-making process, but deep in every person's soul, only the truly sociopathic are incapable of such knowledge.

The futher we move away from individual freedom of choice, and its requisite acceptance of personal responsibility, the further we move toward a Hobbesian model of authority, however benevolent that authority may be.  And if history has taught us anything, the power that comes from such authority is anything but benevolent to those subjugated by it.

I don't disagree with your observation that we increasingly live in a time of the id.  I believe, however, that this is the result of using the power of government to absolve personal responsibilty, regardless of the motivation for doing so, be it economic efficiency (no-fault insurance) or perceived moral superiority (theocratic legislation).  The only way out, in my mind, is to stop doing so, not because I believe that the society that will result will match my personal ideal of what the best society should be, but rather because I have no preconceived notion of such that I desire to bend other's choices toward.

Rather, I believe the best society is whatever results from free individuals making their own choices by whatever means they desire, and that same society holding them accountable for their choices.  This is the only type of society that truly respects each and every person for who they are and what they do.

Today, we have competing schools of economics, as you've noted.  They compete for attention and influence.  One favors the process, the other the outcome.  And we see their respective approaches reflected in our political sphere as well.  Some people want only the opportunity to succeed while others want the guarantee of success.

Historically, I'm hard-pressed to think of an example of a western society that succeeded on the basis of guaranting outcomes for its members.  For instance, what Utopian society still exists today except as an historical museum?  In every instance, when the ability of free individuals to make their owns choices and live with the consesequences has been subjugated, the authority doing so eventually is either overthrown or implodes.  This does not bode well for our own future.

Will some individuals suffer more than others if required to shoulder the responsibility of their own choices?  Absolutely.  But the alternative is to require, by the force and power of government, that some individuals shoulder the responsibility for choices to which they were never a party.  The only political philosophy that justifies such an approach is Socialism.  Socialism not only subjugates the individual for the collective "good" of the society as whole (which immediately disqualifies it in my book, both because of where it places the individual in the order of things and because there's no one correct definition of what "the good" is), its track record as well is one of either eventual brutal totalitarianism (the vast majority) or self-defeating ineptitude.

To be sure, I'm not an absolutist like Ayn Rand, who lived and wrote with far more personal experience as to the realities of Socialism than most of us will ever witness.  She is, essentially, a personal isolationist.  I welcome whatever appeals there may be to perceiving society in general as a shared struggle in which some days we help the person beside us and some days he helps us.  And I believe most people respond to such appeals because they speak to our common humanity.  But I refuse to require by law that he do so, or expect him to either suffer or benefit from my decisions.  And I reject that I should be made to do the same.