Economic Models and Market Behaviour

From the happenings in last two years, more and more economists have to accept that the assets markets are irrational in nature and people have started to abandoned the use of mathematical models to research the development of future trends. In fact, the accumlated wealth of rich people in developed countries has reached a level which is beyond anyone's imagination and governments cannot hardly control. The actions and reactions of the big institutions which manage the wealth of these rich people have been working almost independently of basic economy of our world. The events in last few months have told people that even the bankers at Wall Streets were all making decisions by following herd instincts.

Simply speaking, there is too much money moving around to chase for profits. The acts of hot money flows are directed by the big fund houses and the activities do not reflect the state of general public. Give you one example is that even there was a great jump in property and stock markets in US for the years before financial crisis, the incomes for middle class had barely moved up during this period.

We are living in a world of two compartments. One is for general public who are working hard to earn living. The other is for the well off to play around with their wealth. Understanding this background, people should not cry loud to say that the property prices have gone away from fundamental economic development.