Energy Markets and Politics


Good quote on our current politics of energy (William Tucker writing in the American Spectator, April 20):

On Tuesday [President Obama] stood in the Rose Garden . . . and announced the solution to our energy problems will be hunting down and prosecuting evil “oil speculators” who are responsible for driving up the price of gas in the U.S. . . .

Before we go any further with this, perhaps we should ask, just what are “oil speculators” and why is it so important that they be hunted down? Here is the answer. Oil speculators are investors who think the price of oil is going to go even higher in the future. For whatever reason, they expect supplies to get tighter. Therefore they are willing to buy oil at a premium today in the anticipation that prices are going to go even higher tomorrow. It’s a gamble. You don’t automatically make money. Sometimes you lose a whole lot.

What speculators do, however, if they guess right, is smooth out the availability of supplies between the present and the future. By paying a higher price now, they assure that prices will be lower in the future. In effect, they hold supplies off the market today so that they will be available next week or next year when things become even more scarce. Adam Smith described this as preventing a “dearth” from becoming a “famine”:

When the government, in order to remedy the inconveniences of a dearth, orders all the dealers to sell their corn at what it supposes a reasonable price, it either hinders them from bringing it to market, which may sometimes produce a famine even in the beginning of the season; or if they bring it thither, it enables the people, and thereby encourages them to consume it so fast as must necessarily produce a famine before the end of the season. . . . No trade deserves more the full protection of the law, and no trade requires it so much, because no trade is so much exposed to popular odium.

Unfortunately, there are always politicians around . . . who are willing to encourage that odium for political purposes.

(Note: the analysis of macro markets over time is the foundation of the book Common Cent$: A Citizen’s SURVIVAL Guide. We need the “big picture” in order to avoid these errors of omission from the political class.)

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