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Oily Speculations

Here’s a letter that I sent yesterday to WTOP radio (103.5 and 107.7 on your FM dial in and near DC):

News Editor, WTOP Radio
Washington, DC

Dear Sir or Madam:

This morning your anchors interviewed University of Maryland law professor Michael Greenberger on President Obama’s plan to reduce speculation in oil markets.  Mr. Greenberger’s answers revealed his own confusion.

Most obviously, Mr. Greenberger repeatedly objected to persons investing in oil futures “passively” – as he said, “with no interest in actively controlling these assets, just hoping to make a buck when their prices rise.”  Ummm…. Does Mr. Greenberger own stocks only in companies that he actively manages?  If not, why is it okay for him passively (and speculatively!) to buy, say, a few dozen shares of Microsoft “hoping to make a buck when their prices rise” but not okay for other persons to speculate in oil for the very same reason?

Second, Mr. Greenberger presumes that all speculators speculate long and that doing so is a sure thing.  Neither presumption is valid.  It’s just as easy to speculate short as it is to speculate long.  And if speculation were as risklessly profitable as Mr. Greenberger presumes it to be, then high gasoline prices would pose no problem because everyone and their grandmothers would be raking in riches by speculating in oil markets.

Donald J. Boudreaux


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