Saturday, June 28, 2008

Undeserved Confidence

I so rarely agree with Brian Milner, who seems to have come to dominate the front page of the Globe's business section. (Remember, the "National" Post is not available for sale in Newfoundland.) Here's a brief excerpt from his column today:
...there is no rational economic reason for the[] current level [of oil prices].

The actual quote is stuck in a question and is a bit unwieldly, but that's the meaning, I assure you. Read the article if you don't trust me.

Anyway, that strikes me as a hugely presumptive remark. It feels like he's trying to say there's some sort of unknown and hugely powerful malevolent force out to screw us all over at the pump just for kicks.

Oil prices are set in a highly competitive marketplace, and I can't think of a more rational reason than that to explain prices. Even if you believe that speculators influence the price of oil (which has been hotly debated in the econoblogosphere recently), they're simply trying to turn a buck, which is again a rational reason.

Saying that there's no reason oil prices to be where they are now only encourages economic voodooism and illiteracy.

NOTE: My personal view on oil speculation is that it can have a short-run effect on oil prices, but contributes more to the volatility than the level of prices. In the long-run, speculators are noise. No, I cannot justify this.

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