Carnival of Contemptibles

by Don Boudreaux on July 16, 2008

in Energy, Politics, Prices, Seen and Unseen

Jonah Goldberg’s column in today’s New York Post is excellent.  Here’s a snippet:

Never mind that there’s no evidence "speculators" – i.e. commodity traders – are doing anything
to increase the price of oil. They aren’t hoarding it; no one’s
cornering the market. The speculators make money when the price goes
down, and they make money when it goes up. In short, they don’t care if
oil prices are high or low as long as they guessed correctly.

That may be the most infuriating part of all this. The speculators don’t want high oil prices – but Washington does.

The US government has barred billions of barrels of oil from coming
to the market by declaring huge petroleum reserves off-limits to
drilling. Uncle Sam stores vast amounts in the Strategic Petroleum
Reserve for a rainy day now called "election season." Government drives
up pump prices with gas taxes and regulations against increasing
refinery capacity.

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{ 17 comments }

indiana jim July 16, 2008 at 8:49 am

I agree with Don, Goldberg is spot on!

T L Holaday July 16, 2008 at 9:21 am

Please remember to point out that Jonah Goldberg approves of torture.

SteveO July 16, 2008 at 9:35 am

TL Holaday:

Two points in favor of Goldberg in one day!

Don Boudreaux July 16, 2008 at 9:52 am

For the record:

(1) I disagree, strongly, with Goldberg's position on torture.

(2) The fact that Goldberg's position on torture is vile does not mean that his analysis of the current hysteria over speculators is off-base or otherwise to be discounted.

colson July 16, 2008 at 10:27 am

I usually have nothing good to say about JG although I do agree that he is spot on. However, his quote of Ronald Bailey over at Reason is the perfect summary to why oil prices are high – "political peak oil".

Mark Wonsil July 16, 2008 at 10:34 am

Meanwhile in another government dimension, the SEC is currently proposing not to allow "speculators" to short sell Fannie Mae/Freddie Mac stock… (sigh) Silencing the signalers of the market will not change the conditions of the market.

Gary July 16, 2008 at 11:36 am

Mark – that's not correct at all. The SEC has declared that you can't naked short Fannie and Freddie. If you've got the cash to buy the shares back, you can still short them all day. No one is being silenced.

Secondly, while I generally agree that speculators have a negligible, if any effect on oil prices, it seems flawed to me that most retirement funds can't take short positions in commodities. It seems the pool of money that can be invested in oil increasing in value, is larger than those that can bet it decreases. It seems this artificially restricts the pool of participants on the short side.

Methinks July 16, 2008 at 12:28 pm

Actually, Gary, you're the one who is wrong. You don't understand what a "naked short" means.

A naked short has nothing to do with cash to buy back a stock. It has to do with locating shares to borrow. Traditionally, registered market makers (including the stock specialist) don't have to locate shares before they short them because they provide liquidity in the market. Now, they are being forced to locate first.

This means that there will be fewer sellers. Fewer sellers means an artificially higher stock price. This is the market manipulation that the SEC is engaging in with this "emergency" rule. The other names for this activity are 1.) stock manipulation and 2.) price controls.

So, Mark is correct. Since sellers are not allowed to sell as freely as before, they are effectively not allowed to "voice" their opinion as freely. That's akin to silencing people with negative opinions.

Incidentally, they're doing this not only for Freddie and Fannie but also for "substantial" financial institutions.

I agree with your second point, though. The argument typically used against allowing retirement funds and mutual funds to short (and not just commodities – financial assets too) is the risk profile of a short position. The risk of a long position is the difference between the price of the stock and zero. The risk of a short position is unlimited because there's no limit on how high a price can rise. As usual, the assumption is made that the people running the funds are self-interested inbred half-wits who can't be trusted to make decisions and so must be limited by the omniscient regulators who are, of course, possessed of unlimited wisdom and knowledge and completely devoid of self-interest.

Of course, the irony is that being able to short as a hedge for long positions will reduce volatility in the funds.

It hurts to be smacked by the brilliance of government, eh?

indiana jim July 16, 2008 at 1:01 pm

Don wrote:

"For the record:

(1) I disagree, strongly, with Goldberg's position on torture.

(2) The fact that Goldberg's position on torture is vile does not mean that his analysis of the current hysteria over speculators is off-base or otherwise to be discounted."

Don is spot on!

Speedmaster July 16, 2008 at 1:24 pm

>> "Please remember to point out that Jonah Goldberg approves of torture."

Is the implication that he must be wrong about this too?! Simply because of that?

Speedmaster July 16, 2008 at 1:25 pm

Dr. B. always nails it! ;-)

BoscoH July 16, 2008 at 2:04 pm

Strange coincidence. I was over at the Cafe Torture blog today and they were dismissing Jonah for believing in free markets.

Methinks July 16, 2008 at 5:40 pm

"I was over at the Cafe Torture blog today…"

I had no idea congress had a blog!

vidyohs July 16, 2008 at 8:09 pm

WARNING – off topic.

We have a rough road ahead, foks.

I just had a disturbing sight in the Vet's office this evening.
I was sitting there with my little dog waiting to get him checked up and a guy came in, wearing a dark green shirt with a sew on badge on his right arm, khaki pants, leather brogans, a gold badge clipped to his right pants pocket, and packing a 45 auto.
I leaned over and saw that his sew on badge declared him to be an Environmental Investigator.
Who gets armed next, Mail Carriers? The city water meter readers? They are getting serious about saving those prolific Polar Bears.
GW

Subject: The Fed’s Cure for “Nature Deficit Disorder” in Our Kids for"Na By Professor Allen Quist
July 15, 2008

Claiming to have the remedy for "nature deficit disorder," Congressional Democrats (along with some Republicans) are in the process of passing a new federal education program for all 50 states. The bill is called "No Child Left Inside" and is a major expansion of the federal education train-wreck, the No Child Left Behind Act (NCLB).

The bill is H.R.3036 (S.1981); the chief author is Rep. John Sarbanes (D, MD), it recently passed the full House Education and Labor Committee and it now awaits action on the House floor. Essentially the bill allows Al Gore's followers to define much of what now passes for "education.".
——

There was more but that is enough to give you the essence of what your kids are scheduled for.

They may get through school ignorant of reading and writing but by God they are going to know about rain forests and polar bears.

God help us!

Gil July 16, 2008 at 9:05 pm

But 'if we outlaw guns only the outlaws will have guns'? Then again it's doubtful an E.I. is part of the State's Militia/National Guard. Anyway, I'd have guessed a real E.I. would've been a pot-smoking skinny pacifist misanthrope type.

vidyohs July 17, 2008 at 6:04 am

Coherency is just not your schtick is it Gilduck?

vidyohs July 17, 2008 at 6:08 am

Back on topic with this:

Dems Dereliction.

http://www.ibdeditorials.com/IBDArticles.aspx?id=301100787139910

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