BuckeyeBlog

A lot of Congressmen, Senators, and pundits are blaming oil speculators for the rise in energy prices. I’ve already noted on this blog Bob Murphy’s excellent piece explaining the role of speculators and why attacking them illustrates a fundamental ignorance of economic markets. Now Fortune has an interesting piece showing what happens in the real world when you ban speculation. Back in the 1950s onion farmers were able to convince Congress to ban speculation for their commodity. The results?

And yet even with no traders to blame, the volatility in onion prices makes the swings in oil and corn look tame, reinforcing academics’ belief that futures trading diminishes extreme price swings. Since 2006, oil prices have risen 100%, and corn is up 300%. But onion prices soared 400% between October 2006 and April 2007, when weather reduced crops, according to the U.S. Department of Agriculture, only to crash 96% by March 2008 on overproduction and then rebound 300% by this past April.

If politicians have their way and oil speculation is curtailed or banned, you will likely see something similar in the oil market.

Hat tip to the Cato Institute’s excellent blog.

Tags: Economy, Free Enterprise, Free market, Regulation

This entry was posted on Tuesday, July 1st, 2008 at 11:03 am and is filed under General. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.