On Perfect Markets

There is no such thing as a perfect market. Information is never perfectly symmetric. People are never perfectly rational.  This fact is often used as justification for government intervention. But that is not an argument against markets.  It is not an argument for government intervention.

As markets grow, as people become more and more involved, as trial and error helps people determine the best course(s) of action(s), a market will move closer and closer to perfection. But it is asymptotic. Markets will forever move closer to perfection, but never quite reach it, just as humans will move ever closer to medical knowledge but never fully achieve it.

Take, for example, information.  Consumer information is never perfect for goods and services.  For many years, consumers relied on word-of-mouth to get information on items.  As anyone who has played the telephone game can tell you, it’s hardly perfect.  But then along came printing, that allowed for things to be put into word.  Newspapers arose, which allowed for critical reviews from places like Good Housekeeping, imparting more information.  Still not perfect.  Now, we have the Internet and countless services like Angie’s List, Yelp, consumer reviews, blogs, etc etc etc.  Information asymmetry has diminished.  Has it been eliminated?  Heck no.  But it has moved even closer to perfection.  This is one of the primary virtues of the market.

When something comes along to interrupt the market exchange of ideas, methods, and outcomes, it disrupts that process toward perfection.