Saturday, July 05, 2008

Speculating Oil Price Speculation

Starting from Bush’s Chief Economic Cheer Leader Treasury Secretary Paulson, laud mouth on Web - JJ Crammer, of course Oil Company Executives and any sundry Neo-Con; we have all of these voices getting down us telling that there is ‘no speculation’ in oil prices and it is all about fundamentals. Even Paul Krugman chastises those are who are searching speculation in oil prices. Now we have Economists saying that too.

But what about Congressional testimonials by Mike Masters and expert commentary by Daniel Dicker? ( Why does any one not want to give at least some serious try to drain out any speculation which might be there? If some honest efforts are done and if it is demonstrated that it still does not have any impact on oil price; then the issue will resolve once for all. If it needs co-ordination across multiple futures markets in many countries; so be the case. It is worth a try. And which country in the world would not like to see low oil prices, except Oil Powers? Meaning, it should be easier to forge any co-ordination needed to adopt measures to control speculation simultaneously across many futures markets.

Congressional leaders and those politicians who want to do something positive about high oil prices (say why not Presidential candidates?) should come out and disregard this ‘cacophony of no speculation’. It is the question of credibility of the political class – whether it wants to do anything or whether it can do anything for this man-made crisis. Once these actions are attempted and if it still does not reduce oil price in any sensible way; then these politicians should come forward and tell public about other ways to move beyond ‘fossil energy sources’ way of life.

We need political leadership which throws away pressures by ‘oil lobby’. It is bad enough that American Congress and Obama are ‘in pockets’ of Iowa ethanol boondoggle. World Bank is out with it’s study of how diverting corn to ethanol is contributing to 75% of global food price increase and it is not more eating mouths in India or China neither draught in Australia which contribute so much to food price increase. Of course, credibility of World Bank is no better; but such a study does point that – conventional economic wisdom is not sufficient in getting to the root cause of many economic problems. So why do people buy the conventional wisdom of ‘no speculation’ in oil prices?

Economists as professionals have done poor job too. There is no high degree of coherence among economists in nailing down ‘speculative’ component in oil price. It reminds one of IPCC and their heroic efforts in getting high degree of intellectual agreement among 2000+ leading scientists about global warming and causes of the same. No such unanimity or high degree of collective confidence among Economists. What good are those Nobel Prizes in Economics, if common public on street does not get answers to simple questions like – how much speculation is there in oil prices and if there is, what can be done to stop it?

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