Legislation meant to crack down on oil speculators passed a key test vote in the Senate on Tuesday.
The test vote on the legislation, which was backed by the Democratic leadership, was 94-0. The support of 60 senators was needed for debate on the bill to proceed. It was unclear when a final vote on the legislation would occur.
With gas prices edging over $4 a gallon, lawmakers are rushing to introduce legislation meant to lower prices at the pump.
Sen. Byron Dorgan of North Dakota, one of the Democrats sponsoring the bill, said the quickest way to lower prices at the pump is to stop speculators from driving up the price of a barrel of oil.
"First things first. If you are running a race with hurdles, jump the first hurdle first," Dorgan told reporters Monday. "The reason we have oil at $130, $140, $145 a barrel -- like a roman candle going up, up, up -- is because we have excessive, relentless speculation in these markets.
"Nothing in supply and demand in the last year justifies the price of oil."
Mark Cooper of the Consumer Federation of America argued that market fundamentals do not explain a $40 to $60 per barrel "speculative premium" that he said he believes exists on the price of oil.
Unfortunately what I think is unprintable.
Let me see if I can phrase it in a more ladylike way than the exclamations that spring immediately to mind.
The first thing I think is that my liberal friends should stop saying their party is more credible on economic issues. Because this is even stupider than McCain's doubling down on the gas tax holiday--and McCain's gas tax mania is plenty stupid. At least McCain's gas tax manipulations won't actually do something except give a small amount of additional money to oil companies and loathesome governments. This monstrous bill, on the other hand, might actually do some damage.
The second thing I think is that when I interviewed the CFA on bankruptcy reform some years ago, I thought they were well-meaning if a tad hysterical. I have revised that estimate substantially downward since reading that story. If they were a stock, they'd have moved from "hold" to "sell short".
Let's look at the basic economics here. I agree that there is a "speculative premium" in the market--the price changes obviously do not simply reflect change in demand conditions or other new information. They're too volatile.
That doesn't mean that this speculative premium is wrong. Speculation is not a synonym for "gambling"; it's a synonym for "guessing". The speculative premium reflects people guessing that the mismatch between supply and demand will be even greater in the future than it is now.
Sometimes speculators are wrong, of course--just ask my classmates who took out $100,000 worth of student loans for business school so that they could hold onto that valuable Webvan stock. But sometimes they're right--the Confederate speculators who made a fortune buying and holding staples in the Civil War guessed, correctly, that the South would be getting a little hungry by and by.
Of course, this makes people angry who want to consume cheaply now, which is why you hear so much talk about war profiteers. But in fact, the speculators were providing a very valuable service. Without them, the confederacy would have consumed those staples early in the war at an artificially low price, and been even hungrier later.
There's a good chance that this is what the speculative premium in the marketplace is doing now--forcing us to hoard a resource that is about to get even scarcer. There's also a good chance it's not, of course. But my guess isn't any better than theirs--and at that, my guess is a lot better than the idiots in Congress sponsoring this legislation, since they aren't even trying to make a reasonable estimate. They're simply pandering to constituents and consumer groups who think cheap gasoline is a civil right. Pandering is only what I expect, of course, but in this case, their proposed reforms are aimed at making the market work less well--making it less liquid, and blunting the valuable information that high prices are giving us.
"The first thing I think is that my liberal friends should stop saying their party is more credible on economic issues."
Ugh...
You're just not even trying, are you?
Senators are speculators in the stupidity of their constituents.
No one has yet explained to my satisfaction how speculation raises today's price of a barrel of oil without significant ability to store/hoard the product. Looking across the world, the largest hoarder of oil appears to be the US government itself with the SPR, and that contains about 9 days worth of world production based on the numbers I can get online. With 85 million barrels of oil being pumped out of the ground every single day, trying to hoard enough oil to drive the spot price up enough to cover the storage costs seems to be a fool's game.
People forget that the final buyer of a barrel of oil doesn't care one whit about how much a speculator paid for it. Either the buyers of futures contracts are correct, or the sellers of those contracts are. What Congress can do is muck up the futures markets to the point that no one can reliably hedge their risks in buying/selling oil. That is the purpose of a futures market, and pure speculators help that market by taking on some of that risk.
Could Our Hostess comment in a point-by-point manner regarding some curbs proposed on speculation? I am generally market-favorable (for a yalla-dog-Dem and Librul) but increasing the 'margin' seems a reasonable sort of 'reform'. Is her contention that if some speculation is good, them more is better?
The text of the proposed legislation is here: http://thomas.loc.gov/cgi-bin/query/z?c110:S.3268:
It is, if anything, dumber and scarier than Megan indicates in her post. It is either a grotesque display of shameless ignorance or the most craven sort of pandering. Most likely a delicious mix of the two.
The legislation reads like an excerpt from a Soviet five-year plan for commodity futures. For instance:
`(i) IN GENERAL- In establishing speculative position limits under this section (including subparagraph (C)(iv)), the Commission shall set the limits at the maximum level practicable--
`(I) to ensure sufficient market liquidity for the conduct of legitimate hedging activities;
`(II) to ensure that price discovery is not disrupted;
`(III) to protect and promote legitimate hedge trading;
`(IV) to minimize nonlegitimate hedge trading; and
`(V) to eliminate excess speculation.
Most "speculation" is a form of arbitrage. Buy something cheap and sell it dear somewhere or womewhen else.
Buy oil in the middle east where 'tis cheap, sell it in the US where 'tis dear. Buy corn at harvest time, store it and sell it in the winter when folks get hungry. Buy toys in China in July and sell them in the US at Xmas.
This is all speculation and now it is illegal. Let every consumer drill hisher own oil and refine it into gasoline; let them plant their own corn and make their own toys. Down with speculators; up with the simple life and lets get back to nature.
Liberala are so conservative; always trying to roll back the clock. They cannot tollerate change. Everything has to be the way it was in the past.
Man-in-the-pub economics is terrible dross. The m-i-t-b can be pretty enlightening when he talks about things that have arisen in his own experience, but get him onto something that requires abstact thought and he's an embarrassment. The question is why Senators are no better than our beery friend.
As a life-long member of the CFA, I find this statement irrelevant as senseless!
May a rabid tabby poop in your sandbox.
Of course, many of these morons decrying how sinister it is to have gasoline sold at $4 a gallon, and how it is critical that the price be lowered, will in the next breath intone how critical it is that CO2 emissions are lowered. You don't achieve this level of inanity by accident.
Has Obama given his opinion (cast his vote?) on this bill?
Yancey:
Oil can be 'stored' in the ground. If producers think they can get a better price in the future they can pump less today and pump more later.
I don't know if this is happening or not (or even how I would find out) - just pointing out that oil doesn't need to be stored in a reserve in order to be hoarded.
Arnold Kling at Econlog has written some smart posts on this subject.
Sounds like great news for Dubai if this gets passed into law. They'd love to steal some of the commodity futures business from Chicago and New York. Who is it that said, "blaming speculators for high oil prices is like blaming thermometers for hot weather"? Or something to that effect.
The first thing I think is that my liberal friends should stop saying their party is more credible on economic issues.
Dude, massive and unsustainable regressive tax cuts. After starting a wildly expensive and unnecessary vanity war.
RobB,
Sure, GM could drive up the price for autos by not producing them, but, like you wrote, how would one know they did this? How would one prevent it? In the world of oil, these kinds of "speculators" (owners of oil fields) are beyond the puny reach of the US Congress, and are not the targets, in any case, of the legislation at hand.
It's not idiocy, it's flat out con-artistry.
Have we forgotten that the congressional democrats have been setting the political agenda since aught-six? And what actions has the new leadership given us?
Inflation-raising politics like higher fuel formulation standards and requirements for more ethanol. Out of these resulted higher refinery costs and higher prices for corn and all foods upstream of it. They have pushed energy greenery at every opportunity and are thereby complicit in rising domestic fuel costs. And now to fix the problem they're looking for the easiest, least-popular scapegoats to slap around for their own political malfeasance.
I know, I know, there are plenty of other contributing factors, foreign and domestic (including complicit GOP legislators). Undeterred, though, our political leaders are doing their best to gum up the works as they coerce various industries for higher PAC contributions.
It's a professional job of political con artists.
The most recent evidence? The Dem argument that no more territory should be opened up for exploration because this will have no effect on oil prices because no drilling would occur.
If that is their hypothesis, they cannot logically have anything to lose by testing it: Open up more territory to drilling, fachrissake! NOW!!
I'm so clever and snarky. My behavior certainly doesn't resemble that of an obsessed person with an axe to grind. So why won't anyone pay ATTENTION to me?
Try a different mouthwash, maybe.
A bill approved 94-0 in the Senate received at least 44 Republican votes, and since Obama's in the Mideast I assume it was at least 45.
It is inconceivable to me, given unanimous GOP support, that the bill would seriously interfere with the activities of oil companies or oil futures markets. I just can't imagine that happening. It's got to be a meaningless placebo bill, right? How exactly would the bill "do some serious damage?"
ed - you forgot the unfunded multi-trillion-dollar Medicare prescription drug benefit.
How do you even compare the credibility of the two parties? It's like trying to compare the credibility of two 4 year olds when one says his dad is Superman and the other says his dad is a dinosaur.
I'll drink to that Matt14. I have a Senate race in my state this year, and I can't tell you how much I've come to despise both of the candidates, by listening to their ads, so great has my loathing for these creeps has become. If I was offered a completely comped week at any Ritz Carlton resort on the planet, at the price of having to attend a cocktail party at which one of these execrable beings was in the room, to say nothing have actually having to speak to them, I don't know what my answer would be. If the room was at least 5000 square feet, I think I could stomach it.
It's an election year. The collective intelligence of Congress is directly proportional to the number of days until Election Day. When you add to that the hubris endemic inside the Beltway....
Congress can stop gasoline prices from rising about as effectively as they can make it stop raining.
It's an election year. The collective intelligence of Congress is directly proportional to the number of days until Election Day. When you add to that the hubris endemic inside the Beltway....
Congress can stop gasoline prices from rising about as effectively as they can make it stop raining.
=D
And now we're too the root of the issue. Politicians don't have power, they do what will get them reelected.
Pandering to certain subsets of the population will get them reelected.
What MattXIV said. Beyond that, this sort of economic populism is just damn dumb.
Quando res non ipse loquitur, habemos bona fide McArdla.
MattXIV has the best analysis.
But while I'll castigate the Democratic leadership for bring the bill to the table, I count 94 votes in favor of it, which has to include a few Republicans.
The first thing I think is that my liberal friends should stop saying their party is more credible on economic issues. Because this is even stupider than McCain's doubling down on the gas tax holiday--and McCain's gas tax mania is plenty stupid. At least McCain's gas tax manipulations won't actually do something except give a small amount of additional money to oil companies and loathesome governments.
Won't the gas tax holiday reduce the money available for road repairs and construction? Isn't that where the tax goes? If you reduce the tax, you reduce the money available.
Quando res non ipse loquitur, habemos bona fide McArdla.
ed - you forgot the unfunded multi-trillion-dollar Medicare prescription drug benefit.
The key word here is benefit. Unless you're a Republican war profiteer (e.g., Micheal Leeden's daughter), the unfunded (hell, regressive tax cutted) Iraq Invasion provides virtually no benefits, certainly no net benefit. And it might just have something to do with higher gas prices.
Worst
administration
ever.
Dude, massive and unsustainable regressive tax cuts.
Well, "regressive" in the sense that the poor have no income tax burden in the first place and thus can't benefit from income tax cuts. But "unsustainable"? There's no such thing as an unsustainable tax cut; just unsustainable spending. You can cut taxes as much as you want for as long as you want, provided you tighten your budget at the same time.
MattXIV has it right; both parties are atrocious on the economy.
Welcome Great Depression 2. Time for New Deal 2, new WPA "make work" programs. Hello 25-30% unemployment! Yay, thanks boomers.
Michael--I can't quite parse that. Did you want 'habemus'? And is 'McArdla' supposed to be nominative (if so, I'm not sure what to do with it)?
If I remember correctly, something like 45-50% of earners do not pay any income tax at all (they don't earn enough or have large enough deductions). The top 5% of earners pay around 80% of the collected income tax.
But, I do like the idea of punishing people for achieving more being labeled "progressive" since it's obvious that progressives like to operate at the lowest common denominator.
Wait, you expect some progressive to understand that? Don't you know that they're entitled???? Jesus man, you just don't get it do you!!??!!
Our government was 3% of GNP from inception till 1920, almost 150 years. In the 90 years since, it's grown from 3% to 36% of GNP. Why? We expanded voting rights to a class of people who as a whole believe in entitlement. We're reaping what we've sown.
Our government was 3% of GNP from inception till 1920, almost 150 years. In the 90 years since, it's grown from 3% to 36% of GNP. Why? We expanded voting rights to a class of people who as a whole believe in entitlement. We're reaping what we've sown.
The ratio of federal public expenditure to domestic product in 1929 stood at about 0.03, not the ratio of public expenditure generally. The large qualitative change in the political economy of the United States took place during the years running from 1929 to 1955. The salient ratios have seen only modest flux since.
Property qualifications on suffrage were dismantled in every state bar South Carolina during the antebellum period, with most of this extension of suffrage occuring ca. 1830. The slave population had no vote, but these constituted less than 20% of the population. Attributing social democratic measures to extensions of suffrage neglects a century of time between the two phenomena.
What we have is not unfettered free markets, but unfettered stupidity.
Well said Megan, and very well explained.
The truly hilarious thing about all of this is that the premium we are paying is in large part due to resolution 362, a far, far, far more insane and extremely dangerous piece of legislation. If that were implemented (and the executive have all they need anyway) our current price for oil would look laughably cheap.
Attributing social democratic measures to extensions of suffrage neglects a century of time between the two phenomena.
Based on the 1920 cut-off, Demonspawn is presumably referring to the extension of the vote to women, whom he apparently regards as having an entitlement mentality.
McArdla - feminine form of the Hibernia scriptio McArdle
The moderatrix neglects one possible factor in generating legislation like this.
An academic economist of my acquaintance told me of meeting Joseph Stiglitz years ago, around the time (or just after) his stint on the Council of Economic Advisors. One thing he had to say was that economists and lawyers look at the world with very different prisms and a good deal of the intramural debate could be reduced to a debate between economists and lawyers. Paths of recruitment into political life vary from country to country. In our country, a background in business or economics is quite atypical and engineering is rare. By some accounts, of the U.S. Senate is composed of lapsed lawyers and another fifth are men (like Charles Schumer) who had been in politics nearly all their adult life. Putatively, a majority have law degrees and only six business degrees.
There are times when it is not too different at the local level. The last mayoral election in my hometown featured as candidates a career cop (with a masters in public administration), a school principal, a criminal defense lawyer, and a chap on the staff of one of the local state legislators. The outgoing mayor is a lapsed social worker. His predecessor was a small time lawyer. The county executive was a television reporter. Her three immediate predecessors were small time lawyers. On the city council during my lifetime you have seen again and again people drawn from the rank and file of the bar and from the classroom. There have been one or two accountants, one woman employed as the head teller of a local bank, and one pharmacist; that has been the business community's niche on the council.
If you search the internet with the terms 'Rochester' and 'Fast Ferry', you can read about the implications of having a recruitment pool like this.
What makes you think I'm talking about the black vote? I don't care if every single black person wanted the government to wait on them hand and foot.. they don't have the numbers to bend the government to their will.
Women, on the other hand, make up 54% of the population and got the vote in 1920.
You might want to read http://johnrlott.tripod.com/op-eds/WashTimesWomensSuff112707.html before you outright dismiss the effects of women's suffrage on government.
A short excerpt:
A good way to analyze the direct effect of women's suffrage on the growth of government is to study how each of the 48 state governments expanded after women obtained the right to vote. Women's suffrage was first granted in western states with relatively few women — Wyoming (1869), Utah (1870), Colorado (1893) and Idaho (1896). Women could vote in 29 states before women's suffrage was achieved nationwide in 1920 with the adoption of the 19th Amendment to the Constitution.
If women's suffrage increased government, our analysis should show a few definite indicators. First, women's suffrage would have a bigger impact on government spending and taxes in states with a greater percentage of women. And secondly, the size of government in western states should steadily expand as women comprise an increasing share of their population.
Even after accounting for a range of other factors — such as industrialization, urbanization, education and income — the impact of granting of women's suffrage on per-capita state government expenditures and revenue was startling. Per capita state government spending after accounting for inflation had been flat or falling during the 10 years before women began voting. But state governments started expanding the first year after women voted and continued growing until within 11 years real per capita spending had more than doubled. The increase in government spending and revenue started immediately after women started voting.
If you research women's suffrage in France and in the UK, you'll notice similar patterns.
What Matt 1110 said and Justin and others..
1. This is a stupid bill.
2. Both parties are being stupid--this wasn't a 51-49 vote.. but 94 to 0.. which means both parties get idiot points for supporting it...
I'm a hardcore oldschool liberal and I think all this talk about getting the speculators is hogwash.. . Oil is probably going to be tight.. so these investments make good economic sense--just like investing in gold right now makes good sense for Americans.. considering that the dollar's in a nosedive.. Should we also pass bills against gold speculation?
Dumb.
This looks to be a no-lose vote for politicians:
- those who think cheap oil is a civil right will be happy, because they think this will make their oil cheaper. (They are almost certainly wrong. But they won't blame the politicians for that.)
- those who make money off of expensive oil (companies or countries) will be happy, because they will end up making even more money - at least in the short run. In the long run, they are probably no worse off.
- those who make more money off of speculating will merely relocate their business to Dubai (or any of various other alternatives outside the US). It's a minor hassle. But with modern communications, it won't take long to get set up elsewhere. And then they will discover that disclosure laws are lots weaker elsewhere, so they are actually ahead, once they get the nudge to move.
So where, for a politician, is the down-side? Only with those very few who actually know the first thing about economics. Which isn't a big enough demographic to be worth a second thought.
First things first: My bad, should of previewed that. Italics should end before the last sentence which is my addition.
Yep. Do you propose that women are not entitled (have an expectation to be taken care of) by past and current culture? The only difference is that women, once obtaining the vote, could mold the government into a surrogate husband. After all, the government is more reliable, less likely to die, and she doesn't have to 'put out' to obtain support (sexually or metaphorically... rights of suffrage and responsibilities of conscription were closely linked for all classes and ages of people except women).
They "should" if they think that will get them reelected. After all, why would they not do what they perceive to be in their best interests?
Demonspawn, I made no reference to the enfranchisement of the former slave population, which occurred during the years running from about 1865-70 and was largely reversed during the last two decades of the 19th century. I was referring to the enfranchisement of those without property (or with insufficient property), a piecemeal process that had been undertaken four decades earlier and would have affected (among the blacks) only that portion of the free negro population that had not been barred from voting a priori.
I have heard of Dr. Lott's analysis. It is suggestive but has (as far as I am aware) not been replicated. That extension of the suffrage to the unpropertied would endanger the interests of the propertied was a commonplace of discussions of suffrage, back in the day. Dr. Lott's work is fairly recent and not intuitive (though not counter-intuitive either). I would not have assumed you were referring to that.
On a personal note, I tend to dislike the aspect of the contemporary culture which induces people to alternate between blanket denial of the vices of the distaff side (on the one hand) and attributing said vices and their consequences to the nefarious acitivites of the male population (on the other). Women are moral agents and should be held responsible for what they do. That having been said, I find your penultimate sentence (@ 5:44) de trop.
A more likely explanation for the expansion of federal government is that the Senate started being popularly elected in 1913. Prior to that, Senators represented their state governments, which had zero interest in a massive federal government.
Quando res non ipse loquitur, habemos bona fide McArdla.
Su lengua esta muy muerta por muchos anos.
Let me start here. When you use language that, when searched for, the top 5 goggle references are all dictionary hits, you tend to present an air of snobbishness. It doesn't make you look smart, it comes off as pompous. Just a FYI.
Now, as for it being "over the top" (de trop) we only need to look at voting records, lawsuits, and the like to make a clear-cut case for female entitlement. Women vote for socialism/government entitlements/higher (and more "progressive") taxes. Women sue in situations men would never dream of, because women are entitled to not be offended. I'm not saying every individual woman is entitled, nor that every man is non-entitled, but the vast trend points towards men taking care of themselves and women expecting to be taken care of (makes the whole feminist movement AGAINST patriarchy... you know, the system that takes care of them and makes their demands possible... a little hysterical)
If you just look at it from a 10,000 foot view you'll quickly see that men pay the vast majority of taxes and women receive the vast majority of government services. Men are subsidizing women's lives at the government's gunpoint.
The only society that I know of that has ever held women to the same standards of accountability vs the men in the society is the Fundamentalist Islamic culture (And don't believe the BS the MSM feeds you. Men get the same punishments for the same crimes, including being with a woman they shouldn't be with... it's just not the women who gets lashes). The way things work is that women have much less accountability for their actions until you approach 100% totalitarianism. Until that point, women are pretty much treated like large children by the government legal systems, and social judgment in general.
If you want a clear example of this, pick up any newspaper and read it for a week. Male accused perps will often have a cut and dry story while female accused perps will have the "what drove her to this?" sob story attached or interwoven.
Well I don't think we're going to be able to replicate it in the US. However, I'll try to dig up the UK and French studies that indicated the same trends in their governments once women got the vote. If you want a historical view, pick up "Sex and Culture" by J D Unwin (Published in the UK in 1934) which traces "women's equality" (especially women's sexual liberation) leading to the downfall of civilizations. The current era is not the first time "feminism" has happened to the world.
Women's suffrage also lead to expansion in state governments for the states which allowed women to vote prior to the 19th Amendment, and prior to 1913.
This is precisely what will happen, the 'wealth-holding' class will find a way around this restriction. Retirement funds, etc, will be trapped in securities and 'Federal Faith notes' which will force them to take the loss in purchasing power over time.
The first thing I think is that my liberal friends should stop saying their party is more credible on economic issues.
The vote was 94-0! When do you stop blaming the other team, and realize the problem is Congress itself? Read Freedom and the Law. The entire idea of having an institution that at a mere majority vote, could tell everyone in the country what to do, has to go down as one of the worlds greatest folly. Congress needs to be abolished.
Wow - utterly pwned on the 1st comment.
Needless to say, none of this has anything to do with poorer Americans having to choose between the gas-tank & the fridge as to which they'll be going broke filling up THIS week - nor with the inevitable march of time toward several months of winter weather that will require more than a few of those less-well-off folks to obtain heating-oil, just to stay alive until spring. No, it's just meddling in the magic-pony basket known as The Sacred Free Market on the part of a bunch of pandering pols.
You truly have no clue, do you?
Libra:
"The entire idea of having an institution that at a mere majority vote, could tell everyone in the country what to do, has to go down as one of the worlds greatest folly. Democracy needs to be abolished."
(fixed that for you)
If the price goes up in the future the speculators will have made money buy guessing that it will go up in the future. The money speculators make is money that would have been experienced as consumer surplus. Since speculators are speculating instead of investing this means that the money that dollars that go into speculation would potentially be used for a different economic activity that might well be more efficient.
This is not much of a service. It is a transfer and most likely a regressive one. I get that you think it is a bad bill but it is not nearly as pernicious as you make it out to be.
Democracy worked fine until certain groups (women mostly) started voting. After that, voters quickly realized that they could vote themselves presents from the public fund... a fund mostly paid into by someone other than them!
Want to fix democracy? Require a certain minimum collected in income tax to have voting rights. Of course, those subject to conscription will also have voting rights (funding government with lives is worth more than funding government with money). That rule change will prevent "buying" the votes of the welfare state and will ensure that the socialist programs are only be voted on by those who will eventually have to pay for it.
That will ensure that our government will return to it's former state: a minimalist government that allows people to live their own lives on their own merits.
I'm sure this will draw some "the poor deserve to vote too" flack. Fine, but they don't deserve to rape my pockebook at the government's gunpoint! And that's what they do with the vote.
Quite apart from whether speculation is good or bad, aren't the US Congress missing several elephants in the room? Oil is a fungible commodity. Most oil is produced outside the US. The US is the world's single biggest consumer, but most oil is still consumed outside the US. As other commenters have pointed out, futures markets exist outside the US as well. So how do Congress think their actions can affect the oil price?
Why presume you can proceed beyond this point?
Michael Foody,
In any futures market, speculators play an essential role. If you don't have speculators to take the opposite side of trades, businesses that need to hedge themselves against the risk of fluctuations in commodity prices will have no way of doing so.
Jim -
The idea of a futures market is that it gives you signals about future supply and demand. By feeling the pain of high prices now, we can prepare by investing in fuel efficiency. Without future markets, we wouldn't feel the pain of high prices until much closer to when we were about to run out of oil, and we would be in far, far greater trouble.
As for Congress and democracy - the original point of Parliament was to check the power of the king. The idea was that the King should not have arbitrary power to whatever he wanted - for instance - he should only be able to levy taxes with the consent of the representatives. But over time, Parliament became a power of itself. Rather than checking power, it could wield arbitrary power itself.
Today, Congress through gerrymandering, the seniority system, and the pork barrel system, has made it extremely difficult to dislodge a Congressman. The result is a 98% re-election rate and a 20% approval rate. You have rule by 300-quasi democratic officials, who by their collective whim can make it illegal for you to grow a certain plant in your backyard, run a sustainable farm, engage freely in contracts with other adults, prevent you from importing life saving medicine from other countries, etc. I believe that the entire system is absurd.
There are many possible ways of designing a democracy that does not include a body with the power to create arbitrary legislation. One way to do so, is to eliminate Congress and the Presidency, and then just retain the court system with extensive use of juries. Fully democratic, but there is no way drug companies and financial companies can buy off politicians to pass laws forcing you to use their products.
I know I was critical of megan's point but I am still against this bill. I was sort of playing devils advocate but still it is worth noting that 1. speculation only happens if speculators believe that they can get normal or super normal returns on their investment. 2. The returns come out of producer and consumer surplus of others. 3. Those hurt by speculation are usually less well off than the speculators. 4. Speculation of this kind is an alternative to other investments.
I think these points matter, and I while I acknowledge that there are gains to be had from speculation I think there is also a case to be made that speculation should be discouraged (at the margin) relative to other forms of investment. I think a better way to do this is to tax returns from speculation at a higher rate than returns from other forms of investment sort of how local governments tax undeveloped property at a higher rate than undeveloped property.
Michael: except it's not really true that speculation is an alternative to other investments. Speculation doesn't create or destroy resources, and it doesn't create or destroy cash; it just moves it around. So it's a net investment for the speculator, and a net dis-investment for the counterparty (or vice versa, depending on the structure of the trade). One person has less cash-on-hand, the other has more, which can be invested or consumed. It shuffles wealth around; it doesn't reduce it.
1. speculation only happens if speculators believe that they can get normal or super normal returns on their investment. 2. The returns come out of producer and consumer surplus of others. 3. Those hurt by speculation are usually less well off than the speculators. 4. Speculation of this kind is an alternative to other investments.
Are you opposed to insurance as well?
Eg I buy fire insurance. This means I have less money to spend on other things. But, if my house burns down, it means I'm not wiped out financially. Basically I've managed to take some money from the future outcomes where the house is fine and transfer that money to the future outcome where the house burns down. This is a good thing from my point of view.
Speculation can be like that. A farmer can sell his crop for a set price in the forward market before he knows what the market price will be like. He shifts money from an outcome where the price when he sells his crop is high to the outcome where the price is really low. That may very well be a good thing from the farmers' point of view.
So speculators can sell to or buy from people who want the peace of mind of a fixed price. The people buying that peace of mind are increasing their producer/consumer surplus. This covers your point 2.
Or speculators can sell to and buy from other speculators. So your point 3 becomes moot - who cares if some speculators are worse off and some are better off? The unlucky ones will leave the market, poorer and perhaps wiser.
There's a good chance that this is what the speculative premium in the marketplace is doing now--forcing us to hoard a resource that is about to get even scarcer.
This is a good point that is easy to miss, but I think the gambling vs. guessing distinction is kind of dishonest. Gambling is guessing, just with money on the line, which is what speculating is. Maybe it's a somewhat educated gamble, but it's still a gamble.
One intersting thing about the bill is that in the Natural Gas market Speculators are NET SHORT.
So if the bill suceeds in driving oil prices down by driving speculators out of the market (it won't) it will also drive the price of Natural Gas up since speculators hold the opposite position.
People forget that speculators can drive the market up or down.
Secondly the facts of the oil market do not fit the description of a speculative bubble. For most of the rise in Oil prices near term futures contracts have been above long term contracts and cash oil has been apove or equal to near term futures (this is not so much the case right now next year is above prompt but 2-5 years out is at or below prompt and for most of the run up prompt and spot have been above the out years). In futures markets terms the market has been in Backwardation for most of the run up. If speculators were pushing up the futures price because of a belief in future supply and demand embalances and producers were keeping oil in the ground to profit from future higher prices we would expect the opposite phenomenon. Near term futures would be below long term futures and cash would be below promt. In other words the market would be in Contango. The reason for this is that even if a producer could sell a futures contract above spot he would only do so if he was compensated for the carrying cost of holding that oil in the ground. So futures would need to pay a premium to spot.
The facts of the oil run up better fit a descritption of high fundamental demand and low fundamental supply in the near term and the expectation of moderate declines from spot in the future.
Given that the high oil prices we now have have crunched our economy, I'd say prices peaked. They can't bid up oil more without it actually costing them.
All this legislation is likely to do is lock in the high prices, as it will prevent people from rightly shorting oil.
CFTC study finds oil prices pushed up by supply/demand
http://www.marketwatch.com/news/story/cftc-study-finds-oil-prices/story.aspx?guid=%7BCB9F53F5-102B-4607-9655-B52BEA0D8C3E%7D
Well, using that definition we can define "going to work and expecting to get paid for it" as gambling. The odds are overwhelmingly in your favor, but since it's not 100% it is, by definition, a guess.
We all take calculated risks. The only certain thing in life is that it ends. Everything else is suspect.
To me, there's a bright line between gambling an skill. Can you intentionally lose? If so, then there is a component of skill rather than total chance.
Strangely, using that defintion makes investing in the stock market closer to gambling than playing poker online ;) Which one was banned again?
Mark Twain said that members of Congress are America's only truly domestic criminal class. They steal and destroy wealth. They work diligently to earn their well-established reputation as the lowest regarded public institution in America. Shameless nincompoops, economic nitwits, destructive populist dinosaurs. And don't get me started on the Fannie and Freddie debacle. An Obama Presidency would only validate these dangerous turkeys. Scary. Be afraid, be very afraid.
"The idea of a futures market is that it gives you signals about future supply and demand. By feeling the pain of high prices now, we can prepare by investing in fuel efficiency. Without future markets, we wouldn't feel the pain of high prices until much closer to when we were about to run out of oil, and we would be in far, far greater trouble."
I am not sure whether I am alone in this experience, but over the last 30 years or so I have had countless discussions with people who contend that free markets underprice the costs of commodities by focusing too much on the short-term and "ignoring" the long-term forecasts of supply and demand. Those who held this position usually argued that markets were inadequate to predict shortgages in the distant future and therefore government intervention was warranted in the areas of mandated conservation and RD.
I have always responded in these discussions that speculators play a vital role in free markets by driving up short-term prices to reflect the best forecasts about future supply and demand. To everyone I encountered who suggested back in the 1980's that we would soon run out of oil, I adviced them to put their money where their mouths were and buy oil futures. If they had been right, they would have made alot of money.
Now it appears that the future markets are actually agreeing to some degree with the "peak" oil forecasts. So the first thing politicians think to do is to criplle the power of speculators to raise the current price of oil to reflect its future scarcity. No doubt many of senators who voted to curb speculation are also believers in peak oil forecasts.
If we are approaching "peak" oil then speculators are doing exactly what they should be doing. By driving up the price of oil, they are encouraging conservation and the search for alternatives long before we actually run out of oil.
Many of the same politicians who think we are under investing in conservation and alternative energy sources are the same one's who want to cripple the free markets price signals. In short, all the believers in peak oil should be happy that speculators are driving up the price of oil to reflect its true long-term scarcity.
The fact that so many politicians want to lower the price of oil by regulating speculators illustrates another important point. It is the politicians, not the free markets, that make poor short-term decisions that have adverse long-term effects.
To anyone who thinks that the market is now being driven by a speculative bubble, I would suggest that they help bring down the price of oil by putting their money where their mouths are, i.e. go short on long-term oil futures.
67 commments and not one person mentions NYMEX or ICE.
Given that the high oil prices we now have have crunched our economy, I'd say prices peaked. They can't bid up oil more without it actually costing them.
All this legislation is likely to do is lock in the high prices, as it will prevent people from rightly shorting oil.
Hi,
I understand the criticism your leveling here. What would be great is if you could help me understand how it is that supply and demand could result in a doubling of the price of a commodity in such a short time. I'm aware that demand doesn't actually have to double in relation to supply in order to produce this result, but the way events have unfolded do seem to out-pace the commodities "elasticity" as an explanation...
As for Congress and democracy - the original point of Parliament was to check the power of the king. The idea was that the King should not have arbitrary power to whatever he wanted - for instance - he should only be able to levy taxes with the consent of the representatives. But over time, Parliament became a power of itself. Rather than checking power, it could wield arbitrary power itself
If I recall correctly, Parliament originated in the reign of Henry III as a means for the king to gather information and hold court. Its legislative functions emerged incrementally.
Well I don't think we're going to be able to replicate it in the US. However, I'll try to dig up the UK and French studies that indicated the same trends in their governments once women got the vote.
Someone can replicate Dr. Lott's research by analyzing his raw data with variations on his model, to tease out neglected controls, &c. One interesting project would attempt to reconcile Dr. Lott's initial finding with one incongruent descriptive statistic: up until around 1980, the voting behavior of men and women did not differ much in this country. It was commonplace during the Reagan Administration to read public discussion of how the distribution of opinion about the administration differed between men and women and what a novelty this was.
Although I have not seen any statistical analyses, I believe the genesis of the British welfare state is commonly dated to David Lloyd-George's tenure as Chancellor of the Exchequer ca. 1909. Women were not enfranchised in Britain until 1918. The Labor Party in its various iterations antedates women's suffrage in Britain by several decades. France had vigorous Social Democratic and Communist parties for four decades before the enfranchisement of women in 1946. If I recall Dr. Lott's paper (which I only read cursorily), he is asserting that women's suffrage was a factor in the altering of the role of the state in economic life, not that no other factors were salient.
When you use language that, when searched for, the top 5 goggle references are all dictionary hits, you tend to present an air of snobbishness. It doesn't make you look smart, it comes off as pompous.
Thanks for your input.
The only society that I know of that has ever held women to the same standards of accountability vs the men in the society is the Fundamentalist Islamic culture (And don't believe the BS the MSM feeds you. Men get the same punishments for the same crimes, including being with a woman they shouldn't be with... it's just not the women who gets lashes). The way things work is that women have much less accountability for their actions until you approach 100% totalitarianism. Until that point, women are pretty much treated like large children by the government legal systems, and social judgment in general.
Let her go.
Of course the only futures markets are those in America so this will work if passed.
I think a better way to do this is to tax returns from speculation at a higher rate than returns from other forms of investment sort of how local governments tax undeveloped property at a higher rate than undeveloped property.
We can fix the problem by making buying low and selling high illegal.
Isn't oil an international commodity? Just how do they intend to keep foreign markets from speculating, and how do they propose to keep the "unfair" speculative premium from affecting the price we pay for a barrel?
The test vote on the legislation, which was backed by the Democratic leadership, was 94-0. The support of 60 senators was needed for debate on the bill to proceed.
The article appears to say 94 Senators approved bringing the bill forward for debate. Which does not mean the same thing as this:
A bill approved 94-0 in the Senate received at least 44 Republican votes, and since Obama's in the Mideast I assume it was at least 45.
I think it means is that the Republicans did not wish to filibuster the bill.
Yours,
Wince
Wanna stick it to the speculators? Fast track a couple new refineries, open up the OCS to drilling, get moving on the oil shale in Colorado and get rid of the screwy rules concerning Alberta oil sands importation.
People aren't speculating on oil supply and demand, they are speculating on oil supply disruptions because of Nigeria, Iran, Venezuela, Russia and the refinery impact of storms in the Gulf of Mexico. Don't rely on the lunatic fringe of the world for oil and it dampens the impact of what the lunatics do.
Gambling is guessing with money at stake.
Speculating on oil involves investing money where one party is the winner and the counterparty is the loser.
Speculating on oil is gambling...
speculations, ask the write question to an israeli election hopeful. Then the oil price rises . Hopefully this bill will end all this profiteering
speculations, ask the write question to an israeli election hopeful. Then the oil price rises . Hopefully this bill will end all this profiteering