Hat tip to Mark Thoma .
**BTW, in case you missed it or haven't been following, Krugman and Arnold Kling (with Tyler Cowen and Mark Thoma interjecting) have been going back and forth on oil speculation for a few days now. Very technical stuff and kinda confusing to follow. Not ideological or political, however. Catch part of the dialogue here and here
and find your way to the beginning of the chit chat and work your way through if it interests you. Lots of stuff to digest. Gave me a headache :). He even mentions it in the quote I pasted below.
But anyway, Thoma, linked above, and Tyler Cowen cite an op-ed by Paul Krugman "The Economist" on oil speculation. This, of course, is not to be confused with the much more famous Paul Krugman "The Political Pundit" of NYT and Partisan Democratic Politics fame.
Says Paul Krugman "The Economist":
Congress has always had a soft spot for “experts” who tell members what they want to hear, whether it’s supply-side economists declaring that tax cuts increase revenue or climate-change skeptics insisting that global warming is a myth.
Right now, the welcome mat is out for analysts who claim that out-of-control speculators are responsible for $4-a-gallon gas.
Back in May, Michael Masters, a hedge fund manager, made a big splash when he told a Senate committee that speculation is the main cause of rising prices for oil and other raw materials. ... much of Capitol Hill has jumped on the blame-the-speculators bandwagon....
Why are politicians so eager to pin the blame for oil prices on speculators? Because it lets them believe that we don’t have to adapt to a world of expensive gas.
Indeed, this past Monday Mr. Masters assured a House subcommittee that ..[i]f Congress passed legislation restricting speculation,... gasoline prices would fall almost 50 percent in a matter of weeks.
O.K., let’s talk about the reality.
Is speculation playing a role in high oil prices? It’s not out of the question... Whether that’s happening now is a subject of highly technical dispute. (Readers who want to wonk themselves out can go to my blog and follow the links.) Suffice it to say that some economists, myself included, make much of the fact that the usual telltale signs of a speculative price boom are missing. But other economists argue, in effect, that absence of evidence isn’t solid evidence of absence.
What about those who argue that speculative excess is the only way to explain the speed with which oil prices have risen? Well, I have two words for them: iron ore.
...In particular, the price Chinese steel makers pay to Australian mines has just jumped 96 percent. This suggests that growing demand from emerging economies, not speculation, is the real story...
In any case, one thing is clear: the hyperventilation over oil-market speculation is distracting us from the real issues.
Regulating futures markets more tightly isn’t a bad idea, but it won’t bring back the days of cheap oil. Nothing will. Oil prices will fluctuate in the coming years ... but the long-term trend is surely up.
Most of the adjustment to higher oil prices will take place through private initiative, but the government can help the private sector in a variety of ways, such as helping develop alternative-energy technologies and new methods of conservation and expanding the availability of public transit.
But we won’t have even the beginnings of a rational energy policy if we listen to people who assure us that we can just wish high oil prices away.
I like Paul Krugman "The Economist". I always have. I wish he'd stick around more often. He always has and still does, when we see him, have many worthwile things to say on economic fundamentals.
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He seems to have it right on oil
But he is too much a monetarist with a perspective to ignore "moral hazards" and looks at the short term, generally supporting Beranky's approach in lowering interest rates.
Not surprising, since he and Bernanky were colleagues at Princeton, with a focus in keeping the economy humming. They both know that contraction of the economy is what sustained the great depression, and want to avoid that. Yet, he does not fully appreciate the cost of the policies that are used, such as such low interest rates that the dollar is collapsing.
At times he must be torn between his identification with Democrats and solid economics, with his usually coming out with what he sees as the proposals with economic validity.
He has been in favor of housing bailouts because he can't accept the short term pain, and it would be severe, but at the same time he writes "Bernanky's policis are working, which is too bad because it could lead to the next crisis, where all of the Fed's resources won't help."
I once spoke to him at a book signing. He seemed like a shy man, who really is not a provateur, and as such is so understated that some of his warnings are lost on his audience.
He is still one of my favorite columnists at the Times.
I look at it this way, arodb
He is right on the role of speculators and the sound fundamentals underpinning that role. He's also right on his initial diagnosis of the oil price problem....which is the main point.
The fact that Krugman would be cerebral, truthful and dispassionate about this is not really surprising. I would never doubt that he knew better than to get all funny, murky and illiterate over speculation. What I find rather refreshing, however, is that he bothered to say it in spite his more enjoyable role as a partisan pundit.
It's nice to see he still remembers what he is despite how he likes to fancy himself.
Econonomists generally understand the role of speculators, regardless of their POV politically and are far less likely to bark up that tree when oil prices are discussed simply because they know better.
As for the monetary/Fed side, now you're getting into complex AND disputed territory where fundamentals don't really matter as much. This is why some economists can be happy with Bernanke while others are not. Bernanke and Krugman are both Keynesians...not Monetarists. So they will focus on or favor some things at the expense of others...while others who are not Keynessians, like Monetarists, will focus on other things that Krugman may discount as secondary or anicillary or simply of less or no importance.
Personally, I'm no Keynesian sympathizer in virtually any way, shape or form. I find it irresponsible, hubristic and off the mark and yes...as you say...too short term with little respect for the consequnces down the road...which is why I say "hubristic".
As for reconcling his inner economist with being a Democrat, it's not that hard. Democratic-leaning economists are still economists but don't necessarily think like rank and file Democrats on economic issues. In fact, on policy they often don't...even though they often do on rhetoric and sensibilities.
I mean really, who's the "real Democrat"? Krugman or some economically illiterate liberal voter out there somewhere? The answer is both. Just because Krugman doesn't agree with many wrong-headed or misguided economic views about the world of many rank and file liberals (including many in Congress) doesn't mean he's not a Democrat or liberal. Besides, he's more likely to get listened to on policy than some liberal down the street.
In a way, you inadvertantly insult many liberals when you say that...(hehehe)...because you assume no liberal could possibly understand oil prices, basic economics and speculation as they really are and still be a liberal. Think about that.
There are many sound economic policies...or at least defensible policies...from liberal economists that Democratic candidates listen to. Obama is doing it....insofar as he can without pissing off his base. McCain is too from the Right. But, of course, both say and want to do many things that have their advisors burying their faces in their hands and shaking their heads.
Remember: most basic stuff economists prescribe DOESN'T get listened.
But yes, I agree...many economists, Left and Right, must cringe at some of things the rank and file say. Conservatives are also guilty of saying and believing things that aren't really true that their economist counterparts on the Right know is wrong.