Everybody’s agin’ ‘em.
Obama,
McCain*, etc., essentially proving that economic ignorance rarely hampers a political career.
Let’s review our Econ 101, shall we? There are only two ways to set prices: through the market, or by the diktat of the commissar.
The diktat method, sometimes known as socialism, communism, or fascism, has been a miserable failure where ever it’s been tried. For example,
India,
China, and
other countries have artificially set low oil prices for years to subsidize important political groups. Now, because of the change in the world market price for oil, they are having to raise those prices, risking political turmoil, or ruin their treasury.
The market method relies on consumers and producers to trade, and the resulting interaction between demand – what consumers are willing and able to pay – and supply, what producers are willing to create and sell – determines price levels.
Now, the market for oil, gasoline, kerosene, diesel, and related petroleum products is far from what an economist would call ‘perfect’, creating additional instability.
The important thing to remember about the market price is that it conveys information. Not only about the current state of supply and demand, but the expected future state as well. In the short run, prices are completely independent of the actual costs of production, and only reflect the valuation of the potential consumers.
In a nutshell, prices also serve to ration existing supply.
On to the Evil Speculator. Speculators perform a critical market function – they assume price risk from people who don’t want that risk. The speculator buys and sells based on his expectation of the future price of the commodity. If he expects prices to rise, he buys. If he expects prices to fall, he sells. In either case, he as a partner in the exchange who either expects the opposite to occur, or who does not want to incur the risk if it does.
The general trend of speculation as reflected in commodity prices reveals important information about the likely future conditions of supply and demand for a commodity. Often, this information reveals market information that embarrasses the political classes, thus earning additional opprobrium for the speculator.
Sooner or later, all speculative bubbles, whether in tulips, dot coms, silver, housing, or oil, if not supported by underlying fundamentals, burst.
Let’s consider what objective market forces may be pushing the price of oil above it’s theoretical “marginal cost”:
Potential production peaks in Saudi Arabia.
Iranian acquisition of nuclear weapons to intimidate neighboring countries, and control the Straits of Hormuz.
Continued Iranian and Syrian meddling in Iraq, disrupting oil production from that country.
Political instability in Russia, or Russia’s relations with the EU.
Economic growth in China and India.
Unrest in Nigeria, a major oil producer.
The U.S.’s refusal to develop existing resources, either offshore, ANWR, nuclear, oil sands, or clean coal.
Worldwide environmental movement to make oil consumption more expensive through carbon taxes, cap and trade schemes, and increasing regulation and political interference in the markets .
Increased regulation of oil markets, and threats of windfall taxation.
Potential
nationalization of refining and production capacity.
Seems like a pretty safe bet that the price of oil is going to go up, no? Especially since increasing the price of gas beyond the normal consumer’s means is a staple of the environmental movement’s policy.
Short answer: the speculators are hated because the point out the inevitable impact of official policy. And if there’s one thing politicians really, really, hate, it’s for the effect of most of their policies to become widely felt before they can blame someone else.
So it’s time to blame the speculators. Apparently, “speaking truth to power” isn’t always appreciated.
* Yoicks! Some sensible commentary by Paul Krugman! Satan’s thermostat on its way to 32 deg. F.
