Sat, 08 Nov 2008

What about the Oil Speculators?

What about the Oil Speculators? Remember just a few short weeks ago when every Person of Good Will was decrying those horrible oil speculators who were driving up the price of oil? The nature of speculation is such that you lose your money if the price goes the other way. They've lost a LOT of money since then.

Everybody was angry at the speculators. Does anybody feel sorry for them now? Do you feel like "Well! They got what they deserved!"? Okay, so let's apply a little logic. If their speculation had been successful, would they have gotten what they deserved? Why do they deserve only losses and never gains? Because speculation is evil? Au contraire! Read on....

The price of various things goes up and down in response to changes in the world. Changing prices makes it hard for people to plan. It's also just plain annoying when you get out exact change, and you find out that it now costs more. Or when you take your goods to market and can't get enough money for them.

The role of speculation is to level off these prices. When something is unnaturally cheap, a speculator will buy it. When something is unnaturally expensive, a seculator will sell it. In this way, the speculator reduces the impact of changing conditions on the prices of things.

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