Monday, March 26, 2012

Sending in the clowns

These two - well, let's be polite and call them "unfortunate looking" - people are, sadly, Minnesota's representatives in the United States Senate.

That's embarrassing enough, but last week Al Franken and Amy Klobuchar went out of their way to demonstrate just what a couple of dim bulbs they are by announcing that they are introducing a bill to limit "excessive oil speculation."

Clamping down on "speculators" is a common Democrat tactic whenever oil and gasoline prices begin to rise, because they have a hard time coming to grips with the fact that their own anti-business, anti-drilling actions are the real cause of higher gasoline prices.

Gasoline prices are currently skyrocketing, in large part, because members of Congress like Franken and Klobuchar cast votes that have limited domestic oil production, blocked the construction of pipelines, cancelled federal oil leases and established a byzantine system of environmental regulations that allow left-wing wacko "environmentalists" to block domestic energy production.

Since they don't want to own up to their own votes, they create the illusion of "speculators" magically driving up crude oil prices. It's an old, tired practice that dates back to the 1970s.

"Speculators," of course, are an important part of a well-functioning economy. Speculators - also known as "futures traders" - are simply firms that watch the markets for all kinds of commodities - everything from soybeans to natural gas to pork bellies to gold - and place orders according to how they think the price will move.

A simple example: Let's say corn in selling for $4 a bushel. You believe that next year the price will drop to $3 a bushel. But there's a food processing company that needs a steady supply of corn to make its products, and they are worried that next year corn will go up to $5 a bushel. So you - as a "speculator" - offer the food company a contract promising that - in a year - the food company can buy corn from you at $4 a bushel. A year later - if the price has indeed dropped to $3 a bushel - you can buy it at $3, sell it to the food company for $4, and pocket a profit.

Of course, there's risk to that transaction for the speculator. If, instead, the price of corn rises to $5 a bushel in the next year, the trader is still obligated to provide corn to the food company at $4 a bushel, meaning the speculator would lose money.

Futures trading serves the economy by reducing uncertainty in the marketplace. Now consider the market for oil. If you are, say, Delta Airlines, you'd like to have some kind of idea how much you're going to be paying for jet fuel 18 months from now. So you engage a futures trader and negotiate a price at which you can buy jet fuel down the line. The airline gets a guaranteed price, and the futures trader takes the risk in the transaction, based on his belief on the future price of oil. And what's true for Delta Airlines is also true for other airlines, trucking companies, refineries, bus services and others who rely on gasoline, jet fuel or diesel fuel.

Sometimes speculators make money. Also, they sometimes lose money. That's free enterprise, and as I said, speculation is a valuable tool in a modern, global economy. Futures trading makes it possible for Delta to offer you that round-trip ticket to California for next August's vacation today for, say $349. Without the cost-certainty that "speculators" provide, you might have to wait until the week before your trip to buy a ticket, and it might cost $600 instead of $349 if the price of jet fuel goes up between now and then.

The speculator makes an educated guess about future prices based on exhaustive research of history, trends, world events and other factors, and takes a financial risk accordingly. What a speculator does NOT do is move commodity prices in any meaningful way. Here's Severin Borenstein, a professor at the University of California-Berkeley's Haas School of Business: "There's really no evidence that speculators are playing any significant role in the world price of oil." Borenstein goes on to explain that there would be growing inventories of oil if "speculation" were taking oil off the market and driving up prices, but there's no indication of growing inventories.

(You'll probably also be surprised to know that YOU are possibly one of these evil speculators that Franken and Klobuchar hate so much. If you have any money in a 401(k), or you own a life insurance policy - because insurance companies invest your premiums in various things so that they have money to pay claims - or your employer has a pension plan, there's a good chance some of your money is tied up in "speculation." Congratulations.)

Franken and Klobuchar display their own dimwittedness in a press release that says they don't want to ban speculation on oil, they only want to ban "excessive" speculation. As even the lefty writer at the Star-Tribune notes, the term is utterly undefinable, and the bill has no chance of ever going anywhere in Congress.

It's a cheap publicity stunt by these two lightweights, who are afraid to admit that the policies they've voted for are preventing the U.S. from using its own natural resources. At the same time, they've been voting to waste billions of dollars on "green" energy sources that have no commercial viability and are decades away from providing even a tiny fraction of our energy needs.

In introducing this bill, Franken and Klobuchar show themselves to either be economic ignoramuses, or callous cynics. Either way, they've forfeited their right to be taken seriously on energy issues.


  1. Tim! loved the 'separated at birth' photos!!
    You Minnesotans know how to pick-em!! Al and Amy together again!

  2. Please remember for dimwitted Sen. Klobuchar to r get re-elected she has to win her DFL U.S. Primary on August 14- so please the future of Minnesota and America if you wish to elect our next Minnesota U.S. Senator who wish lower Gas Prices by voting correctly for increased domestic oil drilling,which will reverse Klobuchar's vote that has preventing the U.S. from using its own natural resources. Then you must Vote only once in the DFL Primary for Jack Doc Shepard just to remove Sen. Klobuchar from the U.S. Senate Race in Minnesota in August; so in the Nov. 6 General Election Ballot without Klobuchar's name on the N Ballot you can elect a new Minneosta U.S. Senator who will increase domestic oil drilling and help lower Gas Prices becuase your vote for Jack Doc Shepard beat and remove Klobuchar from the race!! This and only this will enable you to elect in the Nov. 6 Genral Election a Conservative Republican U.S. Senator because Doc Shepardby beating Klobuchar will have removed her name from the Nov. 6 Ballot. learn how: