One of the most urgent issues in American politics is the price of gasoline. For a nation so addicted to frequent automobile use, promising to lower gas prices is now virtually a political necessity. While there are many different explanations of why gas prices have risen in recent years, one is often left out of mainstream political conversations in America. Besides the obvious factors of rising demand and slowing oil production, gas prices are also affected by financial speculation. Oil futures allow investors to bet on future rises in the price of oil. Speculation is normally justified as a means of stabilizing a market, raising the price in times of excess and lowering it in times of scarcity. But when speculation makes up too large a share of the market, the market becomes dysfunctional. Excess speculation causes the price of oil to be artificially high, increasing the profits of oil production beyond what would be justified by the traditional conception of a market.
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| Gas prices vs. oil speculation, 2000-2011 |
Speculators now account for more than 65% of the oil market, far more than what would be justified by market stabilization. The majority of these speculators are in Wall Street, New York, the financial capital (or in other words, the capital capital) of the world. Just like unrestricted Wall Street investments caused a bubble in US housing prices, they are now creating a bubble in oil prices. It is difficult to know to what extent the rising price of oil is due to speculation rather than actual changes in supply and demand, but the fact that speculation is rarely if ever discussed is a troubling sign. Although environmentalists often accuse the oil industry of downplaying the urgency of peak oil, it would seem that alarmist sentiments about oil scarcity would actually benefit oil corporations, as well as oil speculators. In any case, a more honest discussion of the causes of rising oil prices is essential to finding solutions to our energy challenges.
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| Commodity index investment vs. commodity prices, 1970-2008 |
Speculation is not limited to the oil market, of course. Perhaps most troubling is the speculation in the commodities market, which determines the price of food and other necessities around the world. Investment in commodity futures has increased rapidly since 2000, causing global food prices to rise accordingly. The effect of speculation in this market is not simply a drag on the economies of developed nations, it is the starvation and death of millions of the world's poorest people. If there is any market that should be protected from the manipulation of speculators, it is the one on which all humans depend for their very survival. Left unchecked, speculation on this scale could lead us to a dystopian nightmare of wealthy elites and starving plebeians. As former New York Times writer Chris Hedges eloquently said: "In the 17th century speculators were hung... and now they run the government".
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