The Obama administration believes that the price of oil is fluctuating too much, and it blames speculators - whom it wants to rein in ("U.S. Considers Curbs on Speculative Trading of Oil," July 8).The only problem with this solution to the "problem" of price fluctuations is that if Team Obama did it, they would not, of course, risk their own resources. They would like all politicians and bureaucrats use other people's money, and waste a huge amount of it in the process.
Rather than issue new regulations that might distort prices - prices that typically convey important information about market conditions - Mr. Obama and his lieutenants can better address this problem by themselves becoming speculators. Whenever they believe that speculators are driving oil prices too high (and, thereby, setting the stage for these prices to "fluctuate" back downward) Team Obama can go short in oil. Likewise, whenever they believe that speculators are driving oil prices too low (and, thereby, setting the stage for these prices to "fluctuate" back upward), Team Obama can go long in oil.
Not only will these brilliant public servants earn personal fortunes in the oil market, they'll also, in the process, mute the allegedly excessive price fluctuations (because, for example, selling oil short when its price is rising adds supply to the market today, thus relieving the pressures pushing today's price upward). And because Mr. Obama & Co. would use their own resources, we the public will be better assured that their actions aren't driven by opportunistic politics.
Thursday, 9 July 2009
A market solution
Don Boudreaux writes to the New York Times on the subject of oil speculators and their effect on the fluctuation in oil prices,