Wednesday, July 21, 2010

The perfect market

All economists and historians study the market.  It is the fundamental activity of human living in a community.  Exchange of goods and services is the basic force which shapes human civilizations.  There are so many explanations and analysis on market that we believe the goal of human civilization rests on a perfect market, where everyone is happily providing his goods and services for a reasonable reward, and receiving goods and services he needs for a reasonable price he could comfortably afford.  And everyone lives happily ever after.

But this is never the case.  From history and our day-to-day experience, the market is never perfect.  A perfect market is an illusion.  As human, we see the market equilibrium as the utopia.  Human has the ability to imagine and recognize perfection.  We can imagine and recognize that the ultimate state of everything is god: the ultimate happiness, ultimate power, ultimate love, and also the ultimate perfect market equilibrium.

People study the market and come up with a consensus that the market is imperfect owing to three reasons: scarcity, incomplete information and externality.  You may wish to take a look at a book review I wrote in 2007 on these elements.   Imperfect markets are everywhere.  We can always find out one and explain it with one or more of these elements.  Take the properties sale saga at present, the cause is first the scarcity of properties, and then the deliberate act of developers in making information incomplete.  Now we have government intervening.  Though with good intention or a political motive, it is externality.

However, the point I really want to make is that the reality of the real world (to emphasize that it is really real) is that there will never be a perfect market or a market equilibrium.  There is an ideal and we will try to work in that direction.  But it is a moving target which will never be reached. In the process, we live our entire life.  Our successors will do the same. We are like Sisyphus and this will go on forever.  The good news is, we will find pleasure and even the purpose of life while doing it.  So in the mean time, we need the government to tame the properties market; we speculate the movement of the stock market, and even try to strike a fair deal in the heaven market of happiness by doing charity.

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