Market vs Government.

Due to the severity of the latest credit crisis, there will be plenty of soul searching in the coming years. As usual the process of learning from crisis will be hijacked and sacrificed for personal agendas. Those popularity contests might end up in pointing into the direction of Mr/Ms Market and rise of the populism.   Hence the simple truth has got to be addressed - why market and what is the role of government?

While the main battlefield will be debate regarding how rational the market is, it will be missing the man point. It does not matter how rational market is in the short term, what matters is the efficiency of the system and its long term rationality. So in the end the market had prevailed and will prevail in the future for two simple reasons.

First, a market represents the choice of many. And any government entity while claiming to be working for the good of many will always represent the choice of few. And while those few might have more expertise, a better vision, clear goals,  designs for better for humanity at hearts  their means will not be able to achieve the flexibility needed to reflect most wishes of a majority in a complex system such as the human society. Neither those designs will have the flexibility to adjust in timely manner the way a market system adjusts to changes in a human society.

Second, a market has the greater capacity for self correction embedded by its somewhat anonymous nature. It's unique ability to self destruct and self correct any short term rationality comes with a great ease because the market participants carry dissolved responsibility for their actions. Hence they are more likely to self correct their actions (by selling or sheer panic) and achieve the long term rationality - efficient distribution of resources and pricing. While a government or regulator no matter good intentions
will always hesitate protecting its reputation, such is the human nature.

So what is the role of government? Ideally the first agenda would be making sure none of the market participants can influence the government (lobbying). Enforcing all applicable laws equally for all to promote competition while staying away when possible would be wise. And finally understanding the limits of few humans to oversee and appreciate the complexity of society when compared to the same job done by the whole market would be appreciated (by us, majority of humans).