[Marxism] more liberal wisdom on oil

Ruthless Critic of All that Exists ok.president+marxml at gmail.com
Sat Jun 28 00:52:49 MDT 2008

On Fri, Jun 27, 2008 at 11:23 AM, Rakesh Bhandari <bhandari at berkeley.edu> wrote:
> Don't we have a system dominated by future markets, so actual transaction
> prices are closely linked to prices established in future markets--I am
> not clear why and how this is so. But  if the latter prices are driven up
> by speculation, then that will in fact affect transaction prices.
> I am not getting Krugman's argument. And he seems to be criticizing the
> actual argument mostly on the basis on the dark interests of those who are
> most likely to accept it. His reasoning seems fallacious.

"Is speculation playing a role in high oil prices? It's not out of the
question. Economists were right to scoff at Mr. Masters — buying a
futures contract doesn't directly reduce the supply of oil to
consumers — but under some circumstances, speculation in the oil
futures market can indirectly raise prices, encouraging producers and
other players to hoard oil rather than making it available for use.

"Whether that's happening now is a subject of highly technical
dispute. (Readers who want to wonk themselves out can go to my blog,
krugman.blogs.nytimes.com, and follow the links.) Suffice it to say
that some economists, myself included, make much of the fact that the
usual telltale signs of a speculative price boom are missing. But
other economists argue, in effect, that absence of evidence isn't
solid evidence of absence.

"What about those who argue that speculative excess is the only way to
explain the speed with which oil prices have risen? Well, I have two
words for them: iron ore.

"You see, iron ore isn't traded on a global exchange; its price is set
in direct deals between producers and consumers. So there's no easy
way to speculate on ore prices. Yet the price of iron ore, like that
of oil, has surged over the past year. In particular, the price
Chinese steel makers pay to Australian mines has just jumped 96
percent. This suggests that growing demand from emerging economies,
not speculation, is the real story behind rising prices of raw
materials, oil included."

           -- Paul Krugman

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