Time To Flog The Speculators

Gas prices are much too high for most Americans.  It costs upwards of $60 to fill your tank, and that hurts.  Obviously, it’s time to do something about it.

Today, President Obama lashed out at oil speculators.  He thinks they are manipulating the price of oil and reaping huge profits at the expense of American families.  He wants more money to police speculation, higher penalties when manipulation is detected, and requirements that speculators put up more money before engaging in a transaction.

The President’s comments show there is nothing new under the political sun.  Years ago, Senators from grain-growing states blamed “grain gamblers” at the Chicago Board of Trade for volatility in grain prices and enjoying excessive profits at the expense of farmers.  They depicted the traders as if they were the Whore of Babylon and called for increased regulation.  It’s easy, you see, to blame unnamed greed-addled speculators for market volatility that, at times, is produced as the law of supply and demand operates in capitalist markets.

Does President Obama really understand how markets work?  Does he know who participates in futures markets, and who might want to protect their businesses and livelihoods against potential price volatility in certain commodities?

The beauty of such markets is precisely that they give businesses a chance to hedge their bets.  Consider airlines.  The cost of fuel has a huge impact on their profits and losses.  They’d like prices to stay stable forever — but of course, that doesn’t happen.  So, they protect against higher fuel prices by buying future contracts that bet on higher prices in the future.  If the prices shoot up, and airlines have to pay a lot more to fly, the profits they collect on their futures contracts offset those costs.  If the prices stay at lower levels, their profits are reduced by their losses on futures contracts — but they’ve protected themselves against potentially catastrophic loss.  And remember: for every airline, or municipality, or package delivery service that wants to protect against higher prices, there must be a party willing to bet, instead, that prices will go down.  “Legitimate” traders can only trade if someone –one of those awful speculators — is on the other side of the transaction.

So, let’s not be too quick to blame speculation for prices that are the product of reduced supply and increased demand.  Futures markets play a vital role in our economy, and allow many businesses to obtain a kind of insurance against the risks of price volatility.  If they didn’t exist, we would need to invent them.

Madmen In Every Corner Of The Globe

Anders Behring Breivik, the man who killed 77 people in Norway last summer, is on trial in Oslo.  Although he has admitted to the killings, he has pleaded not guilty to charges of mass murder and terror.

Today Breivik got a chance to explain his actions and his twisted motivation.  He bragged that he had carried out “the most spectacular and sophisticated attack on Europe since World War II.”  He said his ruthless killing of unarmed people at a youth camp was an act of goodness, not evil, and explained that he acted to defend Norway against immigration and multi-culturalism.  He thinks liberal ideas are ruining Norway — and apparently he thinks the appropriate response is to murder people in cold blood.

In short, Breivik is an evil lunatic.  His existence in a beautiful, peaceful country like Norway just means that you can find madmen everywhere.  I suppose it should be comforting, in a sense, that America doesn’t have a corner on crazed mass murderers — but it isn’t.  How many disturbed, dangerous people like Breivik are out there?

An Ohioan’s Thoughts On The Race Ahead

We’re now less than seven months away from the 2012 presidential election. What does the race look like, from the perspective of battleground Ohio?

I think the 2012 election will be much less emotion-charged than 2008 was.  In 2008 many hoped that Barack Obama would be a transformative figure whose election would finally slay the dragons of racism in America.   Many others were panicked by the financial abyss yawning open beneath our feet and were looking for the candidate they felt was best suited to deal with the crisis.

Barring unforeseen events, neither of those emotional themes will be at work in 2012.  President Obama still has many supporters, but I don’t know anyone who views him as a kind of magical arbiter capable of bringing people together through sheer force of oratory and personality.  His time in office has demonstrated, to all but the true believers, that the President is a politician who makes the same kinds of political calculations that other politicians do.  The hopes for a miraculous national reconciliation and a perfect leader that motivated many people in 2008 just don’t seem to exist now.

Nor does the terror that gripped some people in 2008.  Worries about a complete financial meltdown cut both ways in that election; some voted for Barack Obama because he seemed to deal with the crisis without drama, others voted for John McCain because he was more experienced.  Now, I think, people are not panicky, but rather are concerned and angry — concerned because, years later, the economy still stinks and jobs remain hard to come by, and angry because our political leaders don’t seem to be doing anything much about it.

What does this mean?  First, I think fewer people will be deeply involved in the election and a smaller percentage of people will vote.  No one will be arguing that the election offers a chance to vote for a perfect candidate.  Second, I think many people have already made up their minds, based purely on their assessment of President Obama’s performance.  They either think he has done a good job in avoiding another Great Depression despite the obstructionism of his opponents or believe he has spent recklessly and put the country on the path to financial ruin.  Even the most powerful political ads aren’t going to change their competing perceptions.

Third, I think many people are still reserving judgment and want to see how things play out.  They’ll be making two judgments in the coming months.  First, is Mitt Romney up to the job?  Can he handle the pressure and juggle the competing demands without meltdowns or gross missteps?  If Romney passes that test, then they’ll think about whether President Obama has done a good job.

Elections in which an incumbent is on the ballot are almost always referendums on the incumbent’s performance, and I think 2012 will be no different.  Stripped of illusion and romantic hopes, undecided voters will consider whether the economy is improving in ways that affect their lives.  Are family members and friends who have been out of work getting hired, or are other acquaintances getting laid off?  They’ll look at gas prices, and unemployment statistics, and the stock market, and I think those indicators will tell the tale.  If unemployment rates inch back up, and gas prices remain at or above $4 a gallon, President Obama will face a very tough road.