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Speculators are a false bogeyman in rising gasoline prices

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Wednesday, Feb. 20, 2013, 9:00 p.m.

Gasoline prices are on the rise again. And even some supposedly “learned” folks are blaming those dastardly “speculators” who “pervert” the supply-and-demand curve to sate their greedy profit motives.

But it's sheer ignorance, an economic illiteracy regularly exploited by pols (and equally ignorant pundits) seeking to “command” another part of the economy for their short-term political advantage but to the detriment of normally functioning markets.

More specifically, “institutional speculators” — those who bet and hedge on the price of oil to make a profit and who never take delivery of that oil — are being drawn and quartered for the current price hikes.

But it matters not whether speculators take delivery or not, “all speculators perform the vital service of speeding price adjustments and reducing volatility,” reminds Pacific Research Institute scholar Robert P. Murphy.

Or, as George Mason University scholar (and regular Trib columnist) Don Boudreaux reminds, “Speculation makes resources more abundant when there is great scarcity by encouraging people to use those resources more sparingly when there is relative abundance.”

In a nutshell, speculation evens out supplies and prevents even wilder price swings.

This is fundamental economics. And what has become our national failure to understand such things is yet another example of the educratic establishment's failure to teach critical thinking skills.



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