This model of perfect competition describes a world that agrees with Republican ideology. In this model, there is no role for government intervention in the economy beyond setting the institutional structure for free markets to operate. There is nothing government can do to improve the ability of market to provide the goods and services people desire at the lowest possible price, or to help markets respond to shocks.Loosely, that's the normative implication of the first optimality theorem. But the creation of mediating institutions, such as property rights and rules of contract, also raises the possibility of governmental involvement. Thus, without those mediating institutions, and perhaps without sound money, there are no market responses.
The great majority of economists, Democrats and Republicans alike, believe in the ability of markets to perform the “magic” of coordinating the desires and productive activity of millions and millions of people without the need for a central authority to guide them, and to provide the correct incentives for innovative, robust economic growth. Thus, in order to make the case that there is a role for government, one must first provide a strong case that there is a significant market failure that results in a departure from the assumptions needed for markets to work their magic, and then explain how government policy can improve upon the outcome.
The greater challenge, however, is in that "significant market failure" and then the "government policy can improve." Does a set of facts on the ground contrary to the sufficient conditions constitute the market failure? Or is the failure in a demonstrable allocative inefficiency that follows directly from the facts on the ground, e.g. the canonical textbook monopoly? Then, if there is a demonstrable allocative inefficiency, does it follow that a specific government policy corrects it? Much more easily done on a chalkboard, than in practice. That's the controversy. Perhaps Professor Thoma correctly argues that the controversy is not being taught properly.
There is a substantial and influential block of mostly conservative economists who always stand ready to defend the idea that markets work best when they are left alone. They will acknowledge that market imperfections exist, but they argue that given enough time market forces will fix the problem. If government tries to help through regulation or more direct measures, it will undermine these forces and make things worse.That concluding sentence might be too strong. Because what the Welfare Economics Paradigm identifies as "market failure" often involves an allocative inefficiency, the presence of that inefficiency provides an incentive for self-interested agents to harvest the unexploited gains from trade. Social engineering by Wise Experts might work well on a chalkboard, but that may not be the only, or even the transaction-cost-conservingest, way, to create a Pareto improvement.
It's up to the professor, though, to teach the controversies.