A diligent (and, in my view, quite perceptive) reader of this blog, STS, was curious about my views on equilibrium.
I marvel a bit at the confident use of the term equilibrium in a case where a system spends so much of its time out of equilibrium. It's almost a kind of magical thinking. But your point about the timescale of equilibration (or trend reversal, at any rate) is well taken. Markets have timescales which relate somewhat inversely to their depth and liquidity. I suspect a better way to think of market equilibrium would draw upon an analogy with the rather turbulent 'vacuum' in quantum field theory -- full of spontaneous creation and annihilation and anything but 'settled'.
Before addressing his views directly, let me warn that discussion of words such as "equilibrium" which are used alternatively to describe both external natural world phenomena and the relation of human consciousness thereto is fraught with great peril of miscommunication. It would perhaps be better to use different words for each: a) to describe a stasis in a physical system as an equilibrium b) to describe the human condition of one-ness with reality with another word, perhaps the Greek eudaimonia, or the Buddhist enlightenment to avoid confusion. For the sake of brevity, (and because I'm too lazy) I'll use "equilibrium" and hope this warning will be sufficient to express my meaning.
(Whew!, who knew pedantry would be so exhausting)
Onward and forward.
To directly answer STS's comment, my argument was not that markets specifically or human consciousness of reality, of which markets are but a small subset, more generally were at equilibrium but that they tended thereto. The distinction noted above comes into play here as the path of human consciousness to equilibrium with reality is, at times, non-linear, and sometimes quite violent. Moreover, the, in my view, tendency of human consciousness to equilibrium with reality is a process, not a state- it can always be improved.
The Greek word, apocalypse, speaks to the non-linear path of equilibration when false views long believed are suddenly exposed as such.
There is a Zen Koan (riddle-story) which might explain this point.
There once was a young man who wished to be enlightened as to the secrets of life and death. He went in search of a monk who lived alone near the summit of a mountain who was thought to know such things. After a long search, the young man found the monk and asked his question. The monk though for a while and then told the young man of a large tiger who lived in the valley below. "Put your head in the mouth of the tiger and you will learn the secrets you seek," advised the monk.
I'll play Bodhisattva and share my views on the koan- the true purpose thereof is to inspire the listener to think, thus its apparent unfinished-ness.
If the young man does not seek out the tiger, but instead contemplates the likely outcome of such an action, he chooses a path of less apocalyptic enlightenment. One "secret" of life and death is that we all die. Another secret which often remains hidden is how. If you young man seeks out the tiger and puts his head in its mouth, both that we die and how he dies will be revealed. This would be an apocalyptic path to enlightenment.
In either case the tendency is for human consciousness to equilibrate to reality, gracefully or violently.
Now, if we could only find the monk who advised world leaders seeking the path of monetary enlightenment to adopt the policies of the past few decades...for the tiger's jaws are closing.
Next up: Gordon Brown, who sold Britain's Gold for, in hindsight, peanuts, as Cassandra. He saw it coming.