The Politics of Speculation

For some time now, Sen. Collins' most conspicuous and forceful response to the energy crisis has been to blame speculators for the run-up in gas prices. And today she and Sen. Joe Lieberman (I-CT) are holding a hearing on the impact of speculation.

Now, we've never taken a single course in economics--so we're out of our depth here. But when Paul Krugman and the editorial page of The Wall Street Journal both think an idea is nonsense, it gets our attention.

Here's Krugman on energy speculation:

A futures contract is a bet about the future price. It has no, zero, nada direct effect on the spot price...

Any effect on the spot market has to be indirect: someone who actually has oil to sell decides to sell a futures contract to Joe Shmoe, and holds oil off the market so he can honor that contract when it comes due; this is worth doing if the futures price is sufficiently above the current price to more than make up for the storage and interest costs.

As I've tried to point out, there just isn't any evidence from the inventory data that this is happening.

Here's the Journal:

Every dogma has its day, and so it is with the posturing that blames the run-up in oil prices on "speculators." The new political consensus is that further "common-sense regulation" of the energy futures market is necessary. Let's grant that the sentiment is common, but the sense--like the evidence--is nonexistent.

[...]

The futures market may be a convenient scapegoat, but it's simply a price discovery mechanism. Major energy consumers--refiners, airlines--buy and sell these contracts to lock in goods at a future price, as a hedge against volatility...

Is the case against blaming speculators really as airtight as this? It can't be.

Because that would mean Sen. Collins was, well, playing politics. And as we all know, that could never happen.