United Liberty

Even with Americans still struggling to keep with high gas prices, President Barack Obama yesterday targeted the oil industry with more proposed regulations — once again offering nothing in the way of real solutions to increase oil supply. The Los Angeles Times notes that Obama wants more money for regulators and more penalties for what “manipulation” of the oil market:

Facing heat for high gasoline prices, President Obama tried to shift the focus to Congress, Republicans and energy traders, calling for legislation that he said would “put more cops on the beat” to crack down on potential manipulation of the oil market.

Obama called on Congress to provide more money for regulators and increase penalties for market manipulators. The president, flanked by Treasury Secretary Timothy F. Geithner and Atty. Gen. Eric H. Holder Jr., suggested that traders and speculators are affecting the price of oil and digging into Americans’ pocketbooks.

“We can’t afford a situation where some speculators can reap millions while millions of American families get the short end of the stick,” Obama said in brief remarks in the Rose Garden on Tuesday. “That’s not the way the market should work.”

Obama’s proposal would add $52 million to the budget for the Commodity Futures Trading Commission, which oversees oil futures markets, to pay for improved technology and additional employees. The president also proposed increasing the maximum civil and criminal penalties for manipulative activity in oil futures markets and beefing up data collection.

Of course, this is just more political posturing and not actual solutions for Americans, who are still paying a high price at the pump. And while this may make for a good campaign speech — nevermind that he is wrong, for a moment, how do you think markets responded? Not well, according to Joel Gehrke at the Washington Examiner:

Crude oil prices have risen over a dollar today, despite President Obama’s promise to “crackdown” on Wall Street “speculators” that he believes are driving up the price of oil.

Crude oil opened at $102.66 per barrel.  It cost $104.04 per barrel at 8:58 am (one minute after the White House Fact Sheet on “cracking down on manipulation in oil markets” hit my inbox). By 9:32 am, the price had risen to $104.94 per barrel. The price has been as as high as $105.07 today, according to Yahoo Finance and Reuters.

Obama’s blame on oil speculators is also misplaced, Gehrke notes, quoting former appointee to the Commodity Futures Trading Commission:

Incidentally, a former Obama commissioner for the Commodity Futures Trading Commission said this morning that he “never saw any empirical data that said speculators were responsible for an increase or a spike in fuel cost.” The CFTC is one of the lead groups in cracking down on Wall Street speculators.

The speculation angle that Obama is using is one that even Paul Krugman, a darling of the left, largely rejected in 2008 when gas prices spiked. But Donald Boudreaux, an economics professor at George Mason University, explained earlier this month why oil speculation isn’t necessarily a bad thing:

Speculators should be celebrated — not so much for their motives (which are no better or worse than normal) but for the socially beneficial, if largely invisible, consequences of their activities. Speculation makes resources more abundant when there is great scarcity by encouraging people to use those resources more sparingly when there is relative abundance.

Suppose a village on the west side of a mountain range has an unusually good wheat harvest, but a village on the east side loses most of its crop to drought. Everyone agrees that wheat should be shipped from where it’s relatively abundant to where it’s in short supply. Commerce and market prices ensure that such shipments occur.

Wheat prices in the drought-stricken east village will be high, while prices in the village with the good harvest will be low. So merchants will buy wheat on the cheap in the west — causing its price there to rise — and ship it to the east village, where it will be sold at a profit.

It’s true that these merchants are motivated by self-interest. No matter. They perform the beneficial task of distributing supplies more equally and sensibly. Because of the merchants’ profit-seeking response to the difference in prices between the two villages, people who need wheat less urgently are encouraged by higher prices to use less of it, so that people who need wheat more urgently get what they need. Surely this result deserves applause.

Speculators perform the very same task. The only difference is that, with speculation, people who need resources more urgently are separated from people who need them less urgently not by a physical barrier, but by time.

Speculators who anticipate that oil will be in shorter supply tomorrow than today can profit by buying oil today and selling it tomorrow. Oil is transported across time from today (when it’s relatively abundant) to tomorrow (when it will be less so). Barrels of oil that would, without speculation, have been used today when they aren’t so desperately needed are, with speculation, conserved for use tomorrow when they will be more desperately needed. Surely this result deserves applause.

But the “blame game” being played by President Obama better suits his agenda. Nevermind that he has done next to nothing to help relax supply fears — which is really what is driving oil prices through the roof. He’s simply playing on the ignorance of the average voter.