20
Apr
2012
Thoughts on Obama’s Crackdown on Oil Speculators
I’m a hot little tamale over at IER’s blog today. An excerpt:
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.
http://www.youtube.com/watch?v=95SYdjRVCR0
The only objection I have is that you refer to yourself as a ‘hot little tamale.’ This seems awfully feminine.
The proof that blaming speculators has nothing to do with economic science, and all to do with political posturing, is the simple realization that there is never any blaming of speculators when the price of oil falls.
Oil speculation is occurring 24/7. When they speculate the price down, they are ignored. When they speculate the price up, they are evil and must be stopped.
News flash to bobbleheads: They’d stop speculating the price up if they had fewer dollars in their pockets. I wonder who’s giving those dollars to them?
I strongly object to the “providing liquidity” as one of the reasons often stated for the usefulness of speculators. It’s a perfect example of a non sequitur. So what if they provide liquidity to the oil markets,..it just means others are deprived of liquidity. We cannot infer any such benefit from this fact alone.
Why don’t we infer also that government spending is useful by stating that they provide liquidity to such and such industry..?
Liquidity risk is a huge problem for markets of all types, so the provision of liquidity is, itself, a benefit.
It’s not clear that providing liquidity to some markets causes other markets to be deprived of liquidity. Not that some markets wouldn’t benefit from more liquidity, but there is a reason markets are separated. People who understand and want to be in oil markets may not want to be in other markets where their knowledge of the industry isn’t as deep/broad.
That may be a positive side effect of government spending. But then that’s just another element to be analyzed. At least speculators are doing so with their own or with invested moneys, so they have to recognize the opportunity costs of other uses of the money.
Liquidity is a non-conserved property.
We blame murderers when murders increase, but do we ever praise them when the murder rate goes down?
This would be a good metaphor if murderers could create life.
No, we thank Jesus.
Big hole in your theory. Murder requires positive action, whereas non-murder simply requires inaction. Obviously, in the market, speculators are actively playing both sides of the action thus smoothing out volatility. Murders couldn’t really make the same claim unless they were also reproducing like sex-crazed bunnies.
So if someone built a “killing machine” that killed people automatically, they’d be murderers. But then they’d have to actually go and do something to deactivate it.
Analogy stands?
I don’t think so.
We blame murderers for murder; not because they increase murders.
Do we blame speculators for buying or selling for a profit? Or, just when it happens to “drive up prices”?
It’s not just positive action and inaction (which applies to your previous example), but the fact that the final results are opposites. Speculators can drive prices up or down. Murders can kill or not kill.
So the metaphor would only be correct in cases of:
1) Speculators would drive up prices and wouldn’t drive up prices. (in other words, they could speculate up or not speculate). Driving prices down would not be a possibility.
2) Murderers could murder and create life.
If you guys keep trying to rationally convince joeftansey of the inapplicability of his analogy, I may have to start murdering people.
Bob,
I’ll stop – and let you take the credit for reducing the number of murders.
I speculated you’d say that.
Strangely, the number of killing-machines has risen.