Glad you are bringing this up and it is getting some up-vote love. There is definitely a lot of spammy and low-quality posting on Steemit that could use more curation IMO. Any number of people desperate for you to upvote them and follow them, any number of people trying to promote some get-rich-quick kind of service and any number of people just spouting BS that wouldn't last 10 seconds on Wikipedia.
I also like how you linked it to the free-market and illustrated how the free-market can do a lot of harm before the supposed feedback mechanism kicks in. And I say supposed because in the real world there is seldom anything approaching the transparency and freedom of information to allow feedback to work properly. Wealth, market power, and legal intimidation can be used to bury information that would allow consumers, or the buyers in the market to correct their erroneous behavior based on negative outcomes.
In most of my reading of Steemit docs I have seen the Flag button described to be the same as a downvote for whatever reason. If this is the case I think the UI should be changed, if only to update the text describing reasons to Flag.
The problem with a downvote is it can easily be abused by a small but dedicated minority. Think of those cases where there is some negative news story about a restaurant or business and their Yelp page immediately gets inundated with one-star reviews from people who have never even been there. Similar things could happen here and I'm sure already have to some extent.
Before you know it we'll have warring camps of Trump supporters downvoting all left-wing posts and liberals downvoting all Trump posts. Gun vs. anti-gun. Flat-earth vs the world. One religion against the others. All religions against atheists. Etc. Etc. I actually come from Google Plus and Google deliberately chose not to have a downvote option to avoid this kind of downvote bullying. But they do support flagging, comment removal by post owner, and moderation within communities.
Possibly the voting-economics of Steemit could discourage that or at least make it less effective, but I don't know and wouldn't rely on it. Anyway, thanks again for bringing this up, it deserves some discussion and I'm sure this won't be the last time.