Very, very economically efficient with huge economic diversity and competition, but nonetheless unpleasant (and unsafe!) in many ways.
Complete freedom is likely not the right answer, but neither is the extremely prescriptive type of planning that has dominated American cities since the 50s, the type that Jane Jacobs rails against in her famous book.
Oddly enough we were really good at this between the late 1800s and early 1900s. The places in America that people continue to enjoy being (and now have become enormously unaffordable) have almost all come of age in that era. I'm still not entirely sure what the x-factor was, but part of it was probably a more "gardener/enabler" philosophy to urban planning than the "prescriptivist/masterpiece" thought that dominates now.
Planning in many places in that era was more about setting the foundations for the market to grow productively, rather than monumental projects designed to micromanage the conditions of every day life. See for example the Commissioner's Plan of 1811 in NYC.
I agree with you completely: I'm not a 'markets' guy because I think they're the answer to all problems all the time, but because I think in this case we could use more of them.
Back then there was no metro, there was a sea of private jitneys and buses fighting each other for bus stops. Traffic safety was utter shit.
The government had minimal involvement in food safety. Private "certifiers" sprung up to plug the gap, but piracy of food safety certification stamps was rampant, and the whole having to check the packaging to see if some product was certified safe by your preferred certification provider was a persistent stressor.
Building codes technically existed but enforcement was non-existent. Partial building collapses were common. The skies were a tangle of wires running overhead from competing TV, phone, and other companies, each of which needed their own set of last-mile infrastructure. A lot of it was poorly installed, accidental electrocutions weren't uncommon. It was all kind of Blade Runner-esque in hindsight.
The way I see it, I lived in the libertarian paradise some HNers dream of creating, and it wasn't really all it was cracked up to be.
I think this is one of the most insightful comments here vis a vis YC's plans, and it's one of the reasons I'm in the "markets" camp. I know I'd prefer to see more mixed-use, bike/pedestrian friendly cities, but ultimately I'm wary of even my own "plans" and think the freedom to have people doing different things, and let cities evolve naturally beats even the best of plans.