Tuesday, November 17, 2009

Oil Politics 6: Price Control, Political Opportunism and the Oil Speculators

An article by Romy Bernardo on "Oil Price Controls" was uploaded at the "UP School of Economics Alumni Association" section of the UPSE website,

If only the UPSE can take back the PhD degree it gave to President Gloria, the shameless economist. Nowhere in Econ 11 or Econ 102 and higher econ subjects was it ever justified that price control as an economic policy is good. It's bad and stupid, period. The short-term gains are very small compared to the long-term losses of low and uncertain investor confidence in the country. Investors would think twice or thrice, at putting up more gasoline stations in the country knowing that the government can declare oil price control anytime for whatever reason/s and for unspecified period of time, forcing the players to sell at a loss.

The President’s populist decision is of course echoed and supported by her other officials. In particular, the Secretaries of the Department of Energy, Department of Justice, Press Secretary and the Executive Secretary.

The State should be spending its time running after criminals, killers, rapists, kidnappers, carnappers, corrupt officials, etc. There are too many of them on the loose yet. Running after private enterprises which are in the business of selling various goods and services -- from medicines to hamburger to gasoline to hair cut, etc. -- is none of its business. Unless they are selling counterfeit or substandard medicines, hamburger with poison, gasoline with water, haircut with head injury, etc. If people think gasoline is expensive, then they should car pool and ride bicycles or walk. If the government thinks this is unfair, then government should also put a price control on fuel products (from Saudi, China, etc.) or refined products from Singapore, etc. Since it cannot do this, then it should to abolish taxes on petroleum.

But government is often a bunch of hypocrisy. Price control on the final products but no control on taxes, regulations and bureaucracies, not to mention corruption and robbery.

There is price for stupidity. Especially when the stupid one is the government. But at the end of the day, it is us consumers and taxpayers who get screwed. We are the ones who will suffer from oil rationing and shorter operating hours of gas stations. Government does not suffer, it always gets the first priority in any oil rationing.
But government stupidity should not go unpunished. The President’s opportunism should be punished. It is up to us how we should punish the administration, not only in the coming elections, but more so in writing the future history literatures of Philippine economic policies.

Of course there are plenty of jeepney drivers and operators, Mr. Jose Concepcion of Consumer and Oil Price Watch (COPW) and the hordes of other fuel consumers who favor oil price controls, even calling for government oil subsidy – from other taxpayers who economize on oil consumption. That's one danger of democracy. The demagogues and the mobs use coercion, State coercion, to enforce their will upon the less-noisy minority. If the majority think that oil prices are expensive, then they should economize on their trips, or they should ride bicycles and walk. But they should not coerce you and me to pay extra taxes so their oil consumption will be subsidized, if not provided free.

Socialists and populists like everything to be provided cheap, if not free. At the expense of everyone else, of course, especially the rich and middle class. For socialists and populists, to become rich and well off is a crime. Hence, they should be punished with high and multiple taxes.

Such thinking that persists up to this day, encouraged by coercion inherent in supposedly a democracy, is among the main reasons why economies stunt or do not grow to their potentials. And why policies driven by envy persist.

Meanwhile, I posted this last July 11, 2008.

Are Oil Speculators to Blame?

As world oil prices remain high, many people and analysts are blaming the "oil speculators" for the current "artificially high" oil prices.

I don't go along with these analysts. It's true that many oil speculators made lots of money here, along with rice speculators, gold speculators, real estate speculators, currency speculators, and several dozen other types of speculators, on the products or services that they are dealing with.

Speculation is like gambling, like stock trading, like observing and guessing whether your current girlfriend or boyfriend will be a good spouse someday or not. Hence, speculation is a perfectly rationale human behavior.

When some people think that there will be a war between Israel and Iran exactly 30 days from now, then they will sell their houses, their cars, their other properties and stocks, and buy as much oil futures they can at $140 or $145 a barrel, and hope to sell at $160 or $180 in 40 to 50 days.

But more people will speculate that such war possibility will happen in 9 years, 11 months and 29 days from now, there's no need to panic now, and will spend their money buying the houses, cars, stocks and other properties of those guys in the above group, at a bargain of course.

So who's the "better" speculator, the former or the later?
Any bet one picks, does not matter. And it's not only traders who speculate. Consumers also speculate. A person who thinks that oil will reach $200 within 10-12 months from now will sell all his current big cars at a bargain, and buy those small, fuel-efficient, or "green" cars even if they are expensive now. While a person who thinks the $200 oil will happen 3 or 4 years from now, will buy the big cars sold by that person at a bargain.

Speculation will happen, it is a perfectly rationale human behavior, so long as there is instability and unpredictability. And unpredictability will be with us for as long as we live, for as long as the sun will shine tomorrow and 4 or 5 billion years from now. Because change will always be with us. If we don't initiate change, our neighbors or other people will. And we will be forced to adjust or adapt to the changes initiated by other people.

So, are oil speculators to blame? NO.

See also:
Oil Politics 1: Bush vs. Chavez? March 12, 2007

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