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Ignorance About Speculation

Posted By Don Boudreaux On June 28, 2014 @ 1:51 pm In Energy,Myths and Fallacies,Politics,Prices,Reality Is Not Optional,Seen and Unseen | Comments Disabled

Here’s a letter to U.S. Senator Ben Cardin (D-MD):

You’re co-sponsoring legislation that, as you describe it on your website [1], “reigns [sic] in the excessive and malicious speculation” that you assert is artificially driving up gasoline prices.  I’ve two reactions.

First, any activity that artificially raises gasoline prices acts as a carbon tax - a tax that you support.  So instead of vilifying and trying to stymie such speculation, you should applaud and promote it.

Second and more fundamentally - and contrary to the cocksure tone that you used yesterday on WTOP radio to explain this legislation - you have absolutely no way to know if this speculation is “excessive and malicious.”  If the speculation is as you describe it, then no one will suffer more than the speculators themselves, for they will buy too much gasoline today and sell it tomorrow at a loss.  Moreover, if you truly believe that this speculation is “excessive and malicious,” then you should put your own money where your mouth is by going short in gasoline: not only will you make a mint by selling gasoline today at prices that you have divined are “excessive,” you will also put downward pressure on today’s gasoline prices, thereby helping motorists all across America.

Of course, I know damn well that you’ll never put your own money where your mouth is.  You’re a career politician.  Your chief skill is enchanting uninformed voters by pontificating on matters about which you are deeply ignorant (such as economics) and demonizing activities about which you clearly know nothing (such as speculation).

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030​​

….
This imbecile politician also said, when interviewed yesterday on WTOP radio, that the only people who “should” be buying petroleum products are people who “use” such products; people who plan to resell the petroleum products that they buy today simply to profit (gasp!) from such sales ought not (according to this officious politician) be buying such products.  So I guess he likely also wishes to outlaw, say, gasoline retailing!  (I searched for a link to the WTOP interview, but am unable to find one.)

Such a display of economic ignorance is, of course, typical among politicians.  So even if (contrary to fact) it were possible for apolitical and economically informed politicians to intervene productively into the economy by passing legislation that, say, micromanages the health-care sector or regulates financial markets, the reality of politics is that the typical politician (to judge by his or her public pronouncements) is an economic moron; he or she understands and appreciates economics about as well as a hamster understands and appreciates Shakespearean sonnets.  Economists who would turn over to politicians greater control of the economy believe that miracles occur [2]; they believe (among other absurdities) that hamsters can be turned into insightful literary critics.

UPDATE: Tom Elia sent the following information to me by e-mail; I paste below the full text of Tom’s e-mail (with his kind permission):

By the bye, Sen. Cardin has held elective office the entirety of his adult life since graduating law school in 1967.

He served in the MD House from 1967-1987 (Speaker for last eight years or so); then on to the US House from 1987-2007; and from 2007 until now he has been in the US Senate.

(He was elected to the MD House while still in law school when his uncle stepped down early; his uncle Maurice Cardin served in the MD House from 1950-1966.)

Ben Cardin is emphatically not the sort of person who should be second-guessing markets, speechifying about the consequences of speculation, or obstructing capitalist acts among consenting adults.

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[1] as you describe it on your website: http://www.cardin.senate.gov/newsroom/press/release/cardin-calls-for-emergency-action-to_stop-price-spikes-caused-by-oil-speculators-

[2] Economists who would turn over to politicians greater control of the economy believe that miracles occur: http://cafehayek.com/2014/03/then-a-miracle-occurs.html

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