One thing many people fail to realize is that many so-called "market failures" are nothing of the sort. Instead, they demonstrate markets' successful reaction to realities that some people don't like.
The government's reaction to most "market failures" would be analogous to that of a person who reacts to to steam coming from a hot water heater's safety valve by welding the valve shut. Sealing the valve will solve the immediate problem, but as the Mythbusters® brand television program has repeatedly demonstrated, it may cause damage far more severe than ignoring the original problem, much less fixing it properly.
Incidentally, another thing many people fail to consider is that while the price of something will generally fall when it is found to be worth less than expected, its value generally will not. If an object which was believed to have been worth $500 is discovered to really be worth $100, its actual value would have been $100 before the discovery and $100 after. Many people seem to think that if something is believed to be worth $500, events that would reveal its worth as only $100 would in so doing destroy $400 worth of wealth. The reality is that resources will be allocated most efficiently, generating the most wealth, when things are accurately valued. Inaccurate valuations cause inefficient resource allocation, thus reducing wealth generation. Further, the only limit to the amount of money that can be spent trying to maintain an illusion that something is worth more than it actually is, is the amount of money one has to spend. Governments can and do spend truly insane amounts of real wealth in their efforts to avoid having imaginary wealth be recognized as such.
Of course your arguments are correct. The problem is that you are trying to convince people that believe destroying assets (e.g. cash for clunkers) will make them wealthier. You, my friend, have a long uphill battle.
There really isn’t such a thing as a “market failure” as you point out. The market, the free market, is the people themselves. Government is political by its very nature. When the people complain government reacts.
The biggest failure among conservatives is our inability to counter the liberal themes of economic downturns. Let the market rise and fall and stability will be found. There is alway pain. Creative destruction is healthy and observed in nature.
Many market “failures” are simply the correction to a previous governmental fix to the natural market. Take housing for example. Why should a specific percentage of Americans be in homes? Why would that very arbitrary number be the concern of government, given that American government exists for the general not the specific welfare?