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Human Events...
Gasoline and Onions
by John Stossel
05/04/2011
The speculators are ripping us off!
“The skyrocketing price of gas and oil has nothing to do with the
fundamentals of supply and demand, and has everything to do with Wall
Street firms that are artificially jacking up the price of oil in the
energy futures markets. ... (T)he same Wall Street speculators that
caused the worst financial crisis since the 1930s through their greed,
recklessness and illegal behavior are ripping off the American people
again by gambling that the price of oil and gas will continue to go
up.”
Here we go again. That quote was Sen. Bernie Sanders doing what some
always do when the price of oil spikes: complain about speculators.
Now, President Obama says he’ll investigate them: “We are going to make
sure that no one is taking advantage of the American people for their
own short-term gain.” I assume that his new Financial Fraud Enforcement
Working Group, like its predecessors, will uncover nothing untoward.
In America, we don’t have a free market -- we have a
government-saturated economy in which oil companies and other
corporations have a cozy relationship with politicians and bureaucrats.
That’s wrong, but even that can’t explain the recent run-up in prices.
Oil companies today are no more greedy or clever than they have been
all along.
We have to look for a better explanation -- and it isn’t hard to find.
Demand for oil rises with the growth of China, India and other
developing countries. When poor people get a little richer, they buy
cars, computers and refrigerators. They burn more fuel to make them and
to run them. Rising demand, other things being equal, increases prices.
And other things have not been equal. Japan’s nuclear plants are out of
commission, and Libya, which accounts for about 2 percent of world oil
production, is wracked by civil war. This is small compared to previous
disruptions in the region, but it still affects the price.
The evil oil-speculator theory also runs up against the fact that the
Federal Reserve’s inflationary policies (QE2) and other factors have
continued the dollar’s slide against foreign currencies -- to a
three-year low. As the dollar loses value, oil sellers demand more for
their product. “Commodities, along with most traded goods globally, are
priced in dollars,” former Federal Reserve official Gerald P.
O’Driscoll of the Cato Institute writes. “It is the old story of too
much money chasing too few goods.”
If Sanders and other economic illiterates get their way, we’ll have new
laws banning “speculation.” That will raise prices further. Don’t
believe me? Think back to a previous time when a Senate committee said
that “speculative activity causes severe and unwarranted fluctuations
in the price. ...” That was in 1958, when people got upset about the
price of onions. Fools in Congress addressed that problem by banning
speculation on onion prices.
The result? A Financial Times analysis found that the ban made prices
less stable. This year, the retail price of onions rose more than the
price of gasoline -- 36 versus 24 percent. Most years, the price of
onions fluctuates more than other goods. No mystery there. Speculators
help keep prices stable. When they foresee a future oil shortage --
that is, when prices are lower than anticipated in the future --
speculators buy lots of it, store it and then sell it when the shortage
hits. They know they can charge more when there’s relatively little oil
on the market. But their selling during the shortage brings prices down
from what they would have been had speculators not acted.
Speculators are like the ants in Aesop’s “Ants and the Grasshopper”
fable: They save resources for lean times. Everyone benefits because
everyone has a chance to buy from them in those lean times.
Speculators don’t “artificially jack up the price of oil” -- they take
risks. Those who guess wrong lose a lot of money.
Historically, speculators have been convenient scapegoats, and they
have suffered greatly for it. So have the rest of us.
While government should never create political opportunities for
speculation, it should also stop interfering with its legitimate
economic function.
We all are harmed when central planners take charge.
Read it at Human Events
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