So many imaginary villains and so little time.
This week, President Barack Obama is taking the fight to "oil speculators" and "market manipulation" (nee "free enterprise"), demanding that traders put up more money for transactions and government ratchet up enforcement and monitoring. "None of these will bring gas prices down overnight," Obama helpfully explained in his news conference. "But they will prevent market manipulation and help protect consumers."
No, they won't. They'd probably hurt consumers, and they would doubtlessly raise the cost of doing business. So for a few hundred words, let's treat populist agitation as if it were earnest policy.
Let's start by being thankful for oil speculation -- no matter what the motivation of those involved might be. To begin with, speculation allows companies with exposure to fluctuating commodity prices to hedge against rising costs by locking in. Sometimes the bet pays off; other times it doesn't. But risk and profit are not yet crimes.
Oil speculation also offers consumers and investors information about the future that can help them make informed long-term decisions. Speculators trade commodities based on the information available in the marketplace. They reflect reality; they don't create it.
But sometimes, unfortunate as it is, prices will rise. "Gouging," the close scaremongering cousin of "speculation," helps persuade consumers not to use what they don't need. It incentivizes to modify behavior -- our driving habits or the size of our cars. We conserve more when prices are higher, so we avoid shortages, and producers intensify their production. (Funny how Democrats get this concept when writing energy policy designed to artificially spike fossil fuel prices.)
The president surely understands, as well. He knows that a fungible commodity's price is driven by demand and geopolitical events beyond the control of speculators or, for the most part, Washington. There are billions of people in China, India and elsewhere who are new consumers of oil -- and they are better off for it. We are better off for it.
Or put it this way: Natural gas prices are trading so cheaply that it's no longer profitable to drill for most companies. According to Businessweek, there are only 624 operating drills in the United States, the fewest since April 2002. So I guess natural gas speculators forgot to manipulate the world market this month. Or do oil manipulators only work part time? Confusing.
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