Those nasty speculators are at it again! They’re running up gas prices to make themselves rich! Do you believe that?
Actually, the ones who are “at it again” are the politicians and bureaucrats whose failed energy polices are the real culprit. Avowed socialist and senator from Vermont Bernie Sanders put it this way:
“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.”
Nothing to do with the “fundamentals of supply and demand” he says. Well, if Sanders’ socialist aspirations keep being implemented step by step he’ll be right about that. Socialism changes the laws of supply and demand drastically, mainly because the supply of most everything disappears leaving only a whole lot unsatisfied demand.
Using speculators as a scapegoat is an old government trick to deflect blame for what economically ignorance politicians and bureaucrats do that raises prices and creates shortages. In 1958 the government outlawed speculation in onions because there had been wide swings in onion prices. The result was even wider swings in prices. Today onion prices are extremely volatile because there is no futures market in onions. It’s still illegal, 53 years running now.
Futures traders try to guess the future price of a commodity. If they think today’s prices are lower than the likely price at some date in the future, they will load up on that commodity at today’s prices so they can sell it later at a profit. When they are right they make money. They are just as likely to be wrong and in that case they lose money. Often, its lots of money.
What this does for consumers of the item in which futures traders are speculating is maintain steady supplies of that commodity at prices less volatile that if, as with onions, no futures trading were allowed. The past 53 years of no futures market in onions has shown the folly of what the government did in 1958. So why hasn’t that policy been reversed? The answer is easy. Unlike speculators who lose their shirts when they are wrong, the government pays no price for being wrong and can go on being wrong forever by passing the cost of its foolish policies on to consumers and taxpayers.
Obama says he’ll investigate the speculators: “We are going to make sure that no one is taking advantage of the American people for their own short-term gain.” If this leads to outlawing “specualtion” in crude oil and gasoline prices, i.e., outlawing a futures market in those commodities, we can expect price volatility in gasoline to mirror that of onions. It will be a costly boneheaded move for which consumers will bear the brunt. And like other stupid acts of government, it will go on and on for decades to come.
Final note: Democrats see high gasoline prices as an opportunity to raise taxes on oil companies. Who do we think will be paying those higher taxes? Will the oil companies hold the price of their product steady and fork over the money to pay those taxes out of their corporate stash? Their profits? Will they reduce executive bonuses to pay the additional tax? Of course not. You and I and everyone else who ever buys gasoline will be paying those taxes every time we put gas in our car. So just who is it, Mr. Obama, that is “taking advantage of the American people for their own short-term gain?”
Gasoline and Onions, by John Stossel
What Can Onions Teach Us About Oil Prices, Carpe Diem