The Moral Economy of Speculation
by
revrick
07/17/2008, 3:48 PM #
Speculate, v. from speculari, to spy or from specula, a watchtower
Many are complaining now that speculators are behind the tremendous run-up in prices, and if it weren't for their nefarious schemes, all would be hunk-dory. But what if they serve a useful function, quite apart form the basic economics?
The original speculators stood guard in a watchtower, trying to discern the meaning of those clouds of dust on the horizon. Was it just the wind blowing up dirt or did those clouds herald an invading army intent on conquest?
Their job was to provide ample warning so that the city could prepare for the onslaught.
About what dangers looming on the horizon might oil speculators be warning us?
Perhaps this: <link>.
At first blush, this news doesn't seem so threatening. In fact, some may see it as good news, that Saudi Arabia will be able to supply more oil to a world thirsting for it. Oil, after all, is the basis of our modern civilization. But as we delve deeper into the article and the accompanying chart, we see two threatening signs.
First, the increase is not all that much and the amount the Saudis can pump on a sustained basis is not as great as the upper limit.
Second, the kind of oil the Saudis will pump changes dramatically, with a dramatic falloff in production of the light, sweet crude being offset by an increase in the heavy and sour type. In other words, much of the supposed gain will be consumed by the increased energy required to refine this oil into usable products.
Since the demand for oil in the developing world is inexorably rising, the only solution to the problem of flat production is for us, in the developed world to cut back on our usage.
Oil speculators discern trouble on the horizon. Perhaps we should heed their warnings.
