i've been meaning to post about speculation and its effects on oil prices for a while now, but something else would always catch my attention. however, i can delay it no longer after hearing this interview with tyscon slocum on radio nz today. it's absolutely brilliant, you MUST listen to it. it follows on from rod oram's discussion last week, which is unfortunately no longer online.
the main point is that oil prices are rising so rapidly because of speculation, particularly by large corporates investors (your pension funds, managed investments funds etc) and by the oil companies themselves. it's a similar story with food prices.
the thing with speculation is that it's a zero sum game. if someone wins big, it means that someone else has lost big. nothing new is produced; the size of the pie does not grow larger because of the futures market. in this case, the speculative investors are winning, and all of us forced to buy extremely expensive petrol are losing.
yet there in not a huge public push to solve the source of the problem. for example, there is not a huge push for improvement in the operation and oversight of the futures market. we're not hearing calls for more transparency, as mr slocum does in the radio nz interview and as may result from the investigation by the commodity futures trading commission.
no, the average person on the streets is taking it out on their governments and complaining about fuel taxes. here in nz, we have calls for gst to be taken off petrol; or a reduction of other taxes that cover the acc costs of road accidents or the costs of roading infrastructure. similar calls are being made in australia and uk.
reducing taxes will not solve the source of this problem. if we do take off the petrol taxes, that money will have to come from elsewhere. if it's not recovered from some other form of tax, then it will have to be covered from a loss of services. ie people would have to pay their own health costs in the case of a car accident, or we'll have to pay tolls to travel on new roads.
as a side issue, some people seem to be comfortable with toll roads but i have a real problem with them. my experience is from malaysia, which has an extensive system of toll roads. the result is a country where the poor people get to use the crappy, congested public roads, and the rich people get to use the lovely, many-laned and less congested toll roads. at peak times, there probably isn't too much difference between the two, but at other times i'm sure there is. it bothers me that poorer people should have a poorer class of road. given that they'd be more likely to be driving in vehicles without air-conditioning, it means they will be more exposed to pollution and more likely to get health problems, because they are more likely to face congestion. it's not the kind of thing i'd want to see in this country, simply because it isn't fair and it isn't right.
but back to the main issue. let's be clear that the government isn't making a killing on petrol taxes just because the price is rising. this is because consumption drops as the price rises, so that the actual amount collected doesn't increase so much. the greater issue though, is that a drop in petrol taxes will not solve the speculation problem.
if it was upto me, i'd just abolish the futures market. just dismantle it and disallow any kind of speculation of this nature. there must be a better way to get produce from seller to buyer, without having vultures take a huge cut in the middle for no reason at all. some of that money we pay should be going to the producers, the rest should stay with us in the form of cheaper prices at the supermarket and the pump.
given however that i don't yet rule the world, i'd definitely go for the increased transparency option. and activism against corprates who behave in this manner. are we happy to be earning money in this way? many of us are doing so, because we have investments with amp, tower, etc or because we've joined kiwisaver and those managing our savings are making money in this way. we can demand a ban on speculating in oil and food. are we prepared to take the drop in investment income?
you'll notice some new blogs on my blogroll lately. i've added the sometimes irreverent but always entertaining dr sapna; my friend dave moskovitz has joined up with a couple of others to blog about the 3 abrahamic faiths; jafapete writes some really good stuff - which i found out when i read his comments on the changes to laws around contractors (much better than my rather lame attempt!). there are a couple of others, hope you'll take the time to have a look at them.