Sunday, May 01, 2011

False Dichotomy

Talk about why the price of oil is raising now seems to be framed as a mixture of genuine supply and demand forces and of speculators causing the price to raise. First, let me joyfully acknowledge that supply and demand are not being seriously considered by mainstream media--a definite improvement over previous discussions which focused on "how greedy/evil are oil companies?" But the current debate isn't much of an improvement.

Asking how much of the increase is due to supply and demand and how much is due to speculation is like asking "is my car not running because there's something wrong with it or because the engine's broken?" One is a subset of the other. Speculators, like other economic actors, respond to supply and demand forces. The only difference between them and us is that they are responding to future supply and demand. But it's still all about the fundamentals.

Here's Mark Perry on speculation.