Pirrong on Speculation
| Peter Klein |
The unprecedented run-up in oil prices is painful for consumers around the world. But the focus on speculation is misguided, and represents a convenient distraction from an understanding of the real, underlying causes of high oil prices — most notably continuing demand growth in the face of stagnant production, supply disruptions and the weakening dollar.
More restrictions and regulations of energy markets, in the vain belief that such actions will bring price relief, are counterproductive. They will make the energy markets less efficient, rather than more so.
The pointer is from Mike Giberson, who provides more information and links to Craig’s (brilliantly named) blog, Streetwise Professor. Craig testified Friday on oil-market speculation before the US House Agriculture Committee; you can read his remarks here. And for a classic paen to speculation more generally, see Victor Niederhoffer’s classic “The Speculator as Hero.”
Note to graduate students: If you haven’t read Craig’s classic papers on bulk shipping, introducing the concept of “temporal specificity,” your education is incomplete. Check ’em out:
Pirrong, Stephen C. 1992. “An Application of Core Theory to the Study of Ocean Shipping Markets.” Journal of Law and Economics 35: 89–131.
Pirrong, Stephen C. 1993. “Contracting Practices in Bulk Shipping Markets: A Transactions Cost Explanation.” Journal of Law and Economics 36: 937–76.