Sunday, July 27, 2008

Washington Post on Oil Prices

The reliably liberal newspaper, Washington Post, did this piece on oil prices.

Friday, July 25, 2008

Why Speculation Is Needed

Talifaitasi W. Satele

Many see market speculation for oil as the real culprit behind rising gas prices. Although economists point to global demand and supply as the primary drivers behind prices at the pump, some analysts believe at least 60% of the price of a barrel of oil today is pure speculation. Whatever the case may be, speculation does serve important market functions.

When pundits talk about speculation, they’re referring to the actions of investors on the futures exchange. A futures contract is a standardized contract to buy or sell a certain underlying instrument at a certain date in the future, at a specified price, according to Wikipedia. Through such contracts, traders can buy commodities such as oil at a future price believing prices may go even higher (which is the speculation aspect of all of this).

Buying a futures contract thus provides a hedge against inflation. That means buyers “speculate” that oil prices, for example, are going to be higher than the specified price of their oil futures contract. A trader would be willing to buy oil for August in July for, let’s say, a $160 a barrel when prices in July were, at the most, around $150 a barrel. They are willing to do so because they believe prices will be higher than $160 in August.

The other purpose the futures market serves is to provide some predictability in a volatile environment. ABC’s John Stossel explains quite well in his article, Bless the Speculator, how speculators help to “reduce volatility and uncertainty in an unpredictable world” and provide liquidity through their buying and selling.

Predictability and confidence extends beyond the futures exchange to purchasers themselves. Hawaiian Airlines, for example, can know what its fuel costs are going to be next month by purchasing their jet fuel on futures contracts. Even car drivers are getting in the act by buying fuel in advance through prepaid accounts locking in today’s prices in anticipation (dare I say “speculation”) that prices will be higher tomorrow.

But the most important market function speculation serves is to send resources to where they are needed most through the price mechanism.

Let’s imagine for a second that the Commerce Commission were in charge of the nation’s oil industry. All of their nifty statistics indicate that oil supplies are drying up and that the country will soon run out of gas. What will entice this government agency to act upon this information? How will the Commission marshal the resources necessary to address this emergency? From whom will the ASG tax in order to acquire this capital?

Speculation reflects what supply constraints are today and in the future, and by helping to drive up the price, it is focusing the nation’s attention and resources on the problem through free market incentives.

Wednesday, July 16, 2008

How Cab and Bus Fares Would Work in a Free Market

Talifaitasi W. Satele

One of the first requirements for a free market in public transportation would be the freedom of drivers/owners to set their own prices. However, there are a number of reasons it’s in drivers’ best interest to invest in either meters or some system of ticketing that allocates prices to the distances they service.

A customer can refuse to pay in which case the owner would need evidence to prove his case in court or with the Commerce Commission. Setting rates can also make consumption easier, much like price labels at the grocery store, when customers become more confident about their purchases. But bus owners can’t make such an investment without being able to pass such costs along to consumers in the form of higher prices, which is currently against the law.

Initially, prices will be higher without price controls. Much higher nowadays because of gas prices and a high demand for public transportation. But higher initial prices will do two things: it will lower demand for public transportation and pay off investments owners have made in their businesses. Both will put pressure on prices to come down again as bus drivers would try to entice customers to come back and their investment costs have been paid off. And of course, competition will have its own part to play in the process.

Such adjustments in our public transportation system will never happen as long as the Commerce Commission exists to cap fares. And as long as bus and taxi cab drivers continue to absorb higher costs without being able to legally raise their fares, the more will see the sort of opportunistic behavior that seeks compensation through fraud.

Tuesday, July 08, 2008

obaMACcain: not-so-great candidates think alike

Stuart K. Hayashi

Every Sunday, the newspaper arrives with a silly weekend tabloid-insert called Parade magazine. In the Sunday, July 6, 2008 issue, there are two articles -- one by Barack Obama and the other by John McCain. So I turned to pages 4 and 5, which have the Obama and McCain articles side-by-side.

In the print edition, the title of Obama's piece is "Sacrifice for the Common Good." On the next page, we have the title of McCain's: "A Cause Greater Than Self-Interest."

Ummmmm, don't the two titles have the same meaning? Doesn't a "Cause Greater Than Self-Interest" imply a "Sacrifice for the Common Good"?

The titles are different for the online versions, respectively at here and here. However, you can see the two titles from the print edition on the Table of Contents web page -- as Sub-Headlines -- over here (these contents will be erased when the next issue is posted online).

When you read the two columns, you find that they do have nearly identical messages. This isn't a real debate, because the two candidates don't ultimately disagree on the fundamental philosophic issues. The main difference between the two articles is that Obama's platitudes are much more familiar and much less coherent. When one tries to decipher a final message amidst Obama's heap of cliches, it appears to be that everything to him must revolve around Community, Community, Community.

Overrated Obama briefly gives lip service to a Horatio Alger-styled American Dream, but he qualifies that "living our dreams" entails behaving as a tiny little cog in a Greater Collective.

McCain's piece distinguishes itself in that it fixates on a topic dear to McCain but not so greatly beloved by Obama -- militarism. Obama says that soldiers "inspire" him, but he cannot take pride in military service in a manner comparable to McCain.

Interestingly, while Obama focuses on the social collective, he talks as if no self-renunciation is involved in his brand of collectivism. On this count, I am more greatly aggravated by McCain's words -- because McCain is more honest and explicit about the exact price of the sort of collectivism that he and his "opponent" (ha ha) champion: "We are blessed to be Americans, and blessed that so many of us have so often believed in a cause far greater than self-interest, far greater than ourselves."

If you removed the bylines from those columns, I would only be able to identify each author according to whether or not he referred to having served in the military. If you excise even that, and just put the words themselves on paper -- minus the pretty pictures -- I would not be able to identify the different authors upon reading the essays.

It is possible that either or both of these pieces might have been written by authors other than the candidates, but the candidates approved of what is in these pieces, and so the candidates are ultimately (ir)responsible.

Ugh. Do you remember a time when the two main political parties actually had two different people running during the general election?

Between the two major parties, there is just one candidate in the general election: Political Collectivism. It is obamaccain versus obamaccain.

Watch the pincer movement. If you're sick of one version, we push you into the other. We get you coming and going. We've closed the doors. We've fixed the coin. Heads -- collectivism, and tails -- collectivism. Fight the doctrine which slaughters the individual with the doctrine which slaughters the individual. . . . Offer poison as food and poison as the antidote. Go fancy on the trimmings, but hang on to the main objective. Give the fools a choice, let them have their fun -- but don't forget the only purpose you have to accomplish. Kill the individual. . . . The rest will follow automatically. Observe the state of the world as of the present moment.

--Ellsworth M. Toohey in The Fountainhead by Ayn Rand

Friday, July 04, 2008

George Washington on Economic Freedom

Stuart K. Hayashi

Since it is July 4, I thought I should mention that George Washington understood that the United States could prosper only to the extent that it maintained economic freedom. And he credited the Enlightenment for having brought about this understanding.

On June 8, 1783, he wrote in his "Circular to the States":

...The foundation of our Empire was not laid in the gloomy age of Ignorance and Superstition, but at an Epocha when the rights of mankind were better understood and more clearly defined, than at any former period, the researches of the human mind, after social happiness, have been carried to a great extent, the Treasures of knowledge, acquired by the labours of Philosophers, Sages and Legislatures, through a long succession of years, are laid open for our use, and their collected wisdom may be happily applied in the Establishment of our forms of Government; the free cultivation of Letters, the unbounded extension of Commerce, the progressive refinement of Manners, the growing liberality of sentiment, and above all, the pure and benign light of Revelation, have had a meliorating influence on mankind and increased the blessings of Society. At this auspicious period, the United States came into existence as a Nation, and if their Citizens should not be completely free and happy, the fault will be intirely their own.

We have gone from that sort of wisdom to . . . John McCain and Barack Obama. And who can we Americans blame for this but ourselves? :-(

America must rediscover what freedom is all about. Reading "Man's Rights" and "The Nature of Government," linked to in the post below, is a good start.

'Man's Rights' and 'The Nature of Government'

Washington, D.C.'s Ayn Rand Center for Individual Rights has posted online two very important essays by Ayn Rand about what a free society truly looks like.

* "Man's Rights"

* "The Nature of Government"

These principles are very much worth remembering on July Fourth.