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Gas for Under $2.00/Gallon – Thank You Speculators?

Improbably, here on the night when election returns are coming in, I’ve decided to write about gas prices. But there’s no time like the present to get back to real policy issues. I’ve had quite enough of all this politics, thank you.

The Omaha World-Herald reported today that gas prices in the Omaha-Council Bluffs area have fallen to $2.00/gallon. “We are just giddy,” says a spokeswoman for the Holiday Plaza Conoco near Interstate 80 in North Platte, according to the paper. That’s cute.

But enough jubilation. It’s time for a life-lesson.

A little less than four months ago, Congress was considering legislation to curtail “speculation” in energy markets because it was supposedly causing high prices. Bills like S. 3268, the Stop Excessive Energy Speculation Act of 2008 and H.R. 6330, the Prevent Unfair Manipulation of Prices (PUMP) Act. (Shoot! With that clever name, it was supposed to pass easily!)

Investors in energy futures do bid up prices when they see shortages in the future but, as we learned from an astute WashingtonWatch.com visitor, this helps to moderate supply and demand. Investors are the messenger about disruptions in markets, not the cause.

Much of the debate about oil speculation was generated by airline industry lobbying using trumped up advocacy groups – one business sector trying to gain advantage over another using government regulation.

Now the gasoline-price shoe is on the other foot. Prices have come back down. (They do at the end of every summer, y’know.) I think it’s time for the airline industry to send “speculators” a thank-you note. Maybe a gift-basket of fruit or something. Soaps and scented candles?

You and me, let’s recognize a few things, like: a) sophisticated lobbies will take advantage of crises and use our government to bash their opponents; 2) What goes up must come down; and, III) you shouldn’t set government policy based on anecdotes or crises, which can reverse themselves in just a few months.

Visitor Comments for Gas for Under $2.00/Gallon – Thank You Speculators? RSS 2.0

Jerry Trudell

So u think wild hyper- volativity in oil price swings is “okay”? Such energy price shocks are not actually good for the economy and might even have helped trigger the recession of 2008,which, incidentally may have helped trigger the now famous financial meltdow.! Since when are such wild price swings sign of a healthy economy?

Jim Harper

You may have missed the gist of the post, which was nothing to do with approving of price shocks or wild price swings.

It was to point out that “speculators” are not a cause of such things. When investors expect a price rise, they purchase present supplies, which increases the current price and slows current consumption. This prevents shortages and even higher prices.

So you’ve gotten the role of speculators/investors precisely backwards if you think that they cause price shocks.

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