In business school, Finance was never my strong point. There were concepts I found fascinating, but they seemed very nebulous to me, and lacked that concrete feel that you could wrap your brain around.
Last week, I received an e-mail from 12 airline CEOs, asking me to pressure congress to Stop Oil Speculation (SOS). Their argument: speculators have put upward pressure on oil prices, thereby causing their operating costs, and costs to the everyday consumer, to skyrocket. At the time, I didn't pay it much mind and deleted the e-mail.
But I came across it again this week. And I wondered if they had a point. Then I had a chance to read the counterargument by Walter Williams and all those lectures in Finance class came back to me. His argument: speculation allows for the distribution of resources over time. While speculation may increase prices a bit now, curtailing speculation now may decrease supply available in the future, thereby increasing prices by a lot more.
I think I have to side with Williams on this point. Yes, increased gas costs suck right now, but those prices will (hopefully) cause us to decrease demand (consumption) for oil, thereby increasing supply available.
Williams goes on to say that by drilling for American oil, we will effectively decrease the price of foreign oil. Even if we aren't able to realize the efforts of that drilling for another 5-10 years, OPEC will see the writing on the wall: increased supply will decrease prices in the future, so it's better to sell now while the cost per barrel is high. I agree, but...
Now we throw the environment into the equation. I do think we need to decrease our dependence on foreign oil, but I don't know if that means drilling at home. The implications mean a continued dependence on oil and the destruction of our environment. But Williams' construct should still hold true if we invest and invent new ways of creating energy - wind, solar, bio, nuclear. Some of these new ways means changing our infrastructure - wind power grids, more hydrogen fuel stations, easier access to biofuel - which could be costly and time consuming at the front end. But, like speculation, we have to look towards the future. The upfront cost now means a much lower cost for energy all around, including oil, in the future.
So increasing regulation on speculation isn't our answer. It's looking for alternatives at home and changing our mindsets as consumers. The higher prices supposedly caused, in part, by oil speculation may be the best thing that happens to this country.
2 comments:
High oil and gas prices are painful, especially for those who are poor, like our cash-strapped nanny, whose car I'll go fill-up so she doesn't have to worry about it.
But, those high prices will take care of things: higher prices will drive greater exploration in harder to reach areas, and will also drive development of alternatives, and cause people to conserve. In the end, it works out, but not without a lot of pain in between.
You're right - not only is the environment something to think about, but also people's ability to afford new technologies/higher prices. It's definitely a complex problem and I'm not sure what the answer, especially from a legislative standpoint, should be. I think that we need to keep the end-goal in sight and, in the meantime, work the best we can to ease pain for those who are at a disadvantage.
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