Earlier this week President Obama announced his Administration’s redoubled efforts to crack down on oil speculators. The only problem is, he failed to explain a single thing that these people are doing wrong. The President’s pronouncement is impossible to analyze, since it was devoid of content.
Successful speculation in the commodities markets serves a useful role in reducing price volatility and providing liquidity. By jacking up the penalties on ill-defined crimes, the Administration will actually make oil prices move more erratically. The president’s finger-wagging at the big bad speculators is just a rhetorical ploy to distract attention from his nonsensical energy policies. …
[B]laming speculators for rising oil prices is like blaming thermometers for a heat wave. If some people have a strong view that oil prices do not adequately reflect (say) the danger of a supply disruption from the Middle East, they will enter the oil futures market and bid up the price. This ultimately causes oil producers with excess capacity to ramp up current output, and it causes users of oil to reduce current consumption. This allows for the physical stockpiling of inventory (perhaps on oil tankers) which is exactly what we want the market to do, in the face of an interruption of Iranian exports.
Remember the motto of the speculator is to “buy low, sell high.” By definition, successful speculation makes prices less volatile—speculators push up prices that are too low, and push down prices that are too high. By cracking down on speculation, the president will ironically make oil prices more volatile. …
GMU economics chairman Don Boudreaux nailed it when he wrote that the president “behaved very much like a North American version of a banana-republic Generalisimo: posing as a tribune of a People besieged by nebulous devils, he blames those devils for the ill-consequences of his own bad policies.”
Cracking down on speculators for high prices at the gas pump is a classic example of blaming the messenger.
For more, see this video from Bob Murphy.
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