Principles in Practice: The Blog of the Objective Standard

Monday, July 14, 2008

The Attack on Oil Speculators: Shooting the Messenger by Alex Epstein

Posted by ARI Media at 9:24 PM

Irvine, CA—Twelve prominent airline CEOs have just announced a new campaign, "Stop Oil Speculation Now"—the latest call for a government crackdown on the speculators who are allegedly to blame for high oil prices. "As unregulated speculators pocket billions of dollars at your expense, the price of commodities has increased out of proportion to marketplace demands," the group claims. "By adopting common-sense solutions, Congress can dramatically reduce the price of oil and gas, providing immediate relief for businesses and hard working Americans."

"Americans should reject this anti-speculator demagoguery," said Alex Epstein, an analyst at the Ayn Rand Institute. "The speculators bidding up prices today are not thieves who can effortlessly 'pocket billions of dollars at your expense.' They are investors who are risking their own money on their judgment that oil will become scarcer, and thus more expensive, in the future. If they are wrong, and their projections of future prices are artificially high, then they will take large losses. If they are right, then by bidding up prices now based on future projections, they are giving markets a vital warning about future oil supplies, and energy producers a vital incentive to invest in more energy production.

"It should be no surprise that speculators expect higher oil prices—because government policies around the world have given them every reason to be bearish on future oil supply. Eighty percent of the oil reserves in the world are nationalized, and much of the reserves in other countries, including the United States, are cut off from access thanks to environmentalist regulations. Our politicians call oil an 'addiction' and promise to eliminate it—despite the absence of any remotely viable large-scale alternative. Is it any wonder that speculators expect producers to produce less oil while consumers continue to demand more? And, given America's weak-dollar policy, is it any wonder that America's oil prices are increasing far faster than those of other countries?

"All of us, including airline CEOs, should demand that our government do only one thing about oil prices: get out of the market. This means rescinding its restrictions on oil production and scrapping its inflationary economic policies. It is morally unconscionable and economically destructive to demonize speculators for being the bearers of the bad news the government has caused."

Mr. Epstein is an analyst at the Ayn Rand Institute, focusing on business issues.

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