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John Stossel
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Bless the Speculator


"I believe there needs to be a thorough and complete investigation of speculators to find out whether speculation has been going on and, if so, how much it has affected the price of a barrel of oil. There's a lot of things out there that need a lot more transparency and, consequently, oversight."

Those are the words of presidential candidate John McCain ( This man is the Republican?

There's more.

"I am very angry, frankly, at the oil companies not only because of the obscene profits they've made but at their failure to invest in alternate energy to help us eliminate our dependence on foreign oil. They're making huge profits and that happens, but not to say, 'We're in this so we can over time eliminate America's dependence on foreign oil,' I think is an abrogation of their responsibilities as citizens."

Let me get this straight. A potential president of a putatively free country scolds companies for "obscene profits," failure to invest in competing products, and therefore irresponsible citizenship. Why? Is McCain running for national economic commissar?

This is not the first time McCain has displayed what I would call an anti-capitalist mentality. In an early presidential debate he countered former businessman Mitt Romney's claim to superior executive experience by saying, "I led the largest squadron in the U.S. Navy, not for profit but for patriotism" (

Why the put down of profit?

It's clear McCain does not understand how markets work or why they are good. He certainly doesn't understand the role of speculators and other middlemen. He's not alone. Speculators are among the most reviled people in history. When they were members of ethnic minorities, they have been easy targets for economically illiterate people who were jealous of their success.

McCain wonders "whether speculation has been going on." He needn't wonder. Speculation always goes on. Speculation means to take a risk on what the future holds in hopes of making a profit. The world's stock and commodities markets are based on this principle.

Sen. McCain must have meant it when he said, "I know a lot less about economics than I do about military and foreign policy issues" (

I doubt that speculators are responsible for much of the run-up of oil prices. Why didn't they run them up sooner? Besides, there are too many other explanations: increased demand from China and India, the declining dollar and Middle East tensions.

Even if speculators did play a role, what McCain apparently doesn't understand is that speculators perform a valuable service. Most people don't realize this because on the surface speculators don't seem productive. They buy what already exists and resell it. How does that help society?

In fact, the hated speculator is a good guy because his buying and selling reduce volatility and uncertainty in an unpredictable world. He may only be out for his own profit, but that doesn't matter. As Adam Smith wrote, "It is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner, but from their regard to their own interest" (

The prices of commodities often change unexpectedly, making business risky. The speculator brings a degree of certainty to otherwise risky ventures. When supplies of a commodity are plentiful and prices low — but speculators expect the price to rise later — they buy — cushioning the collapse of prices. When supplies become scarcer and prices rise, they sell — easing the shortage and lowering the price. Also, speculators may agree to buy a commodity in the future for a price locked in today. This reduces the risk for an oil producer or farmer who fears investing because he doesn't know what price his product will sell for next year.

As a result of these activities, volatile supplies and prices are evened out over time. Occasionally, speculators increase volatility. Markets are never perfect. (Although they are better than government regulation.) But in general, speculators increase liquidity and keep the market on a more even keel. This makes long-term planning easier for everyone.

It would be nice if McCain would finally learn some economics.

John Stossel is co-anchor of ABC News' "20/20" and the author of "Myth, Lies, and Downright Stupidity," which is now out in paperback. To find out more about John Stossel and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate Web page at




5 Comments | Post Comment
I often agree with John but not here. The price of oil was 50. a barrel eighteen months ago. There has been no increase in demand to justify 135. a barrel now. This speculation has injured all sectors of the economy and has no done no one except a few speculators any good. There may be other factors of government intervention or business-government collusion that has caused or exacerbated this. But just to mindlessly praise everything the market does makes no sense. There is a great deal of panic and irrationality in the stock market on its best days.
In fact US driving is sharply down from a year ago and started even before the current speculation. China is still
a smalltime player here compared to the USA. In sum this is a huge rip-off by the oil companies to the detriment
of both business and consumers.
Comment: #1
Posted by: Michael Hardesty
Wed Jun 25, 2008 9:13 AM
As little as Senator McCain knows about foreign policy, it is scary that he admits to knowing even less about economics.

I fear Mr. Hardesty missed the entire point of Mr. Stossel's post - speculators do not drive prices, at least not very far. If the run up in oil were merely due to speculation, there would be an increase in inventory because they would be buying oil but not using it. Inventory is DOWN, not up.
There are many factors pushing oil higher, not the least of which is 'speculation' on whether or not there will be an attack on Iran (which would further diminish supply). But the biggest factor is spelled Federal Reserve. The price of oil in Euros is not rising nearly as fast as it is in $. And much less (or not at all) in terms of gold, the real money.
Comment: #2
Posted by: Phill Osborn
Wed Jun 25, 2008 10:04 AM
Question: What of the talk that speculators are responsible for about half of the current price spike due to their buying oil contracts, but not selling them as they usually do?
Comment: #3
Posted by: Matt
Thu Jun 26, 2008 11:23 AM
Lets look at what has happened over the years
Oil production has declined to just over 2,000,000,000 barrels during the 2000's from the high production years of the 1960's - 1970's of high 3,000,000,000 and 4,000,000,000.
Following the oil crisis of the 1970's and the rise in prices the USA EXPORTED
1979 85,707,000
1980 104,935,000
Even with declines in production - the US exported over 10,006,000 BARRELS IN 2007.
the whole of the oil problem is the USA dependence on oil. Subisidies should be going to alternative fuels.
Ethenol is not a viable alternative, it produces far to little for the total land space it uses and abuses.
Hydrogen is proving to be far to expensive to produce, or this is another speculation game?
IF AND WHEN smaller, longer storage, light weight, batteries ; and EFFICIENT solar films painted on cars and houses become available we are stuck in a WIN / LOSE senario.

COME ON folks get the young brains turning - send out competitions for the youth to come up with viable solutions that does not degredate the land, air, and seas. USING the masses of waste accumulating in land fills, the ocean, and over/underground storage. Recycle nuclear waste in some way.

Someone out there will come up with a solution - given the incentives to do so.
Comment: #4
Posted by: sfpanama
Fri Jun 27, 2008 9:07 AM
Don't you remember during one of the Republican National "Debates" that both McCain and Romney were asked, "What qualifies you to run the US economy?"

And neither man realized it was a trick question. They responded "I'm qualified to run the US economy because...."

Neither man realized the limitations of the Presidency. Does Obama? Yeah, sure.
Comment: #5
Posted by: Simon9
Fri Jun 27, 2008 2:15 PM
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