I received an email from Air Tran Airlines with this text:
While fuel costs have declined this year in comparison to last, there is still quite a bit of volatility in the prices that affect not only our business, but you personally-- in the prices you pay for fuel for your vehicles as well as goods that are transported to the stores. Increasingly over the past few years, a growing group of financial players with no direct stake in the physical delivery of oil has exercised undue and unchecked influence on the price of oil, causing great pain for consumers and wreaking havoc on American businesses of all kinds - including airlines and their customers. Recently, the Wall Street Journal reported that continued speculation could "worsen the global economic downturn." We cannot allow this to happen. We need your help. Get more information and contact Congress by visiting the S.O.S. Now website. You can also follow S.O.S. Now on Facebook and Twitter.
This is like a Paul Krugman economic fantasy article. These people think that fuel simply appears in the tanks at the airport or gas station. They are completely unaware or simply ignoring the reality that there are very real and very large amounts of people and capital involved in building the infrastructure to find, extract, transport and refine petroleum fuels. This dance between humans and machines takes garguantuan amounts of capital and the companies that undertake these risks have a huge incentive to sell their products at pre-agreed upon prices (Futures Contracts) instead of having to wait for the real price that may be lower than the cost of getting the fuel to market.
If these people are not ignorant then please give me some ideas as to why they would want this:
1. They are socialists or fascists who want the government to run everything even if it means that they pay substantially higher prices or wait in lines for fuel. (The 1970s) Maybe these people have forgotten the 70s?
2. They are completely confused as to what a price is and how markets determine them.
3. They are full of envy that some speculators and oil companies and consumers are better at the speculation game than they are and want those folks handcuffed.
I am leaning towards 3 but how do you feel?
When it is a corporation, I tend to lean towards the third option. It's propaganda designed to give popular support to the supression of competition.
I would say it is clearly 2, and the desire to see lower oil prices -- so why not get Congress to help them?
Mix of all 3. Please send them a complementary t-shirt that says "Stoopid" on it. Or "Doofus" or something like that.
Freedom of markets is positively correlated with the degree of evolution in any society...
Have you noticed how keynesians hate speculators? Almost as much as savers.
Perhaps its because "speculators" perform a useful function in the economy. They "save" resources until the price is high enough, thus conserving resources.
To paraphrase Marc Faber: We're all doomed, but that doesn't mean that we can't make money in the process. Rabbi Lapin: "Let's make bricks!" Stephan Kinsella: "Say you and I both want to make a German chocolate cake."
Well, you can start by telling them that the same Congress whose help they are trying to enlist is one of the main culprits by virtue of its continous support of inflation and dirt cheap credit, by continously sabotaging home-based operations with ridicolous laws designed to "protect the enviroment" and by inflating oversea costs by meddling with foreign oil producing countries. And the latest Cap-and-Trade fiasco is just the cherry on top of many layers of frosting.
Speculators do exist, they are part of the game, but by taking away from them cheap credit we can be tamed much more effectively than by passing new laws.
Public outrage and congressional debate helped deflate the oil bubble.
February 17 - 1600 - Giordano Bruno is burnt alive by the catholic church. Aquinas : "much more reason is there for heretics, as soon as they are convicted of heresy, to be not only excommunicated but even put to death."
Daniel: Perhaps its because "speculators" perform a useful function in the economy. They "save" resources until the price is high enough, thus conserving resources.
Exactly. They were the last barrier agains market intervention that threaten to destroy the economy to much greater extent.
By lowering interest rate by flooding the markets with excess liquidity, inflation should occur and that should be recognized by the market participants. That would raise the interest rates, to keep real interest rate from falling. However, CB intervines more, keep interest rates low, pushing real interest rates to negative numbers (when interest rate is too low is bad itself, however when it turns negative, that's the real fun). That means that you can borrow 100 apples now, eat 10 and return 90 in a year. Jesus, how can that be good for the economy?
However, economy stil has a way of balancing: by ensuring a premium is payed for a current good. That is the job of the speculators, to calculate that premium. That's why the oil was trading in backwardation, you had to pay interest through the price for immediate delivery. The problem is if monetary authorities keep the interest rate low by still more intervention. Then it's a tug of war between speculators and authorities, dog chasing it's tail. Everybody becomes speculator, as constant intervention prevents closing the profit spread. Action of speculator tend to close that spread, diminishing returns which stabilises the market.