As always and everywhere, when politicians are unsettled by rising prices, they start by blaming speculators. Here are two recent posts by economists who point out, delicately or rudely, that without speculators the price shock would be much worse. First, the very well-mannered Prof. Mark J. Perry of Michigan, who says:
Bottom Line: If speculators are making money, they MUST be stabilizing markets. If speculators are losing money, they MUST be destabilizing markets (fictional chart above). But speculators can NOT make money and destabilize markets at the same time.
Then, the always amusing, and occasionally salty Tim Worstall of Britain’s Adam Smith Institute, kicking at his favorite target, Richard J. Murphy, a “tax justice” campaigner in the UK (never heard of them? They’re coming here, too).
Murphy wrote that “ordinary people the world over are abused by the higher prices commodity traders create” — here is Worstall’s response:
A commodity trader is just a fancy form of wholesaler.
Do we say that grain elevators, cash and carry supermarkets, cause higher prices for consumers?
Higher prices for producers, possibly, but that is to producer’s benefit. And lower prices for consumers, as having that wholesaler in the middle is more efficient than every plumber in the country trying to have a direct contract with the lead smelter for some solder. This greater efficiency allowing higher prices received by producers (net) while simultaneously allowing lower prices for consumers (net)….which is exactly what higher efficiency actually means.
How are prices made higher by commodity traders?
And if they were made so, why wouldn’t everyone by trying to contract direct?
Have you hugged a speculator today?
