The US Government's new Anti-oil-speculation bill sure sounds like it will help stabilize oil prices. In actuality, however, this law is more likely to destabilize prices rather than stabilize them, and could ultimately have some very unfortunate unintended consequences.
Prices are not simply the amount of money one needs to part with in order to obtain some good or service. They are also an extremely simple, yet powerful, method of storing and conveying information. Buyers and sellers who have high quality information about the supply or demand of a particular commodity, in particular why that price may be too high or too low, can exploit this information for a profit. In the process of exploiting this information, the information they hold about that commodity becomes embodied in the market price. For example, if I am one of very people who know about an untapped oil reserve, I have high quality information that the price of oil is likely to fall. This means I could make a profit by selling oil futures.
What the new anti-speculation bill means is that people with good information will no longer be able to exploit this information to earn a profit by "speculating" on the oil market. As a result, market prices will no longer fully reflect all available information, and individuals and corporations will be more likely to make bad decisions when those decisions depend on energy prices.
Presumably the government is concerned about speculators pushing the price of oil up further, implying that the bill will lead to market prices being too low. So the likely results of the anti-speculation bill would include consumers buying less fuel efficient cars than they otherwise would, using more oil-based energy than they otherwise would, and other decisions implying an overuse of petroleum based energy sources. Ultimately, this bill will exacerbate the energy problem confronting the US economy because consumers will not face the true costs of the decisions they are making.
Prices are not simply the amount of money one needs to part with in order to obtain some good or service. They are also an extremely simple, yet powerful, method of storing and conveying information. Buyers and sellers who have high quality information about the supply or demand of a particular commodity, in particular why that price may be too high or too low, can exploit this information for a profit. In the process of exploiting this information, the information they hold about that commodity becomes embodied in the market price. For example, if I am one of very people who know about an untapped oil reserve, I have high quality information that the price of oil is likely to fall. This means I could make a profit by selling oil futures.
What the new anti-speculation bill means is that people with good information will no longer be able to exploit this information to earn a profit by "speculating" on the oil market. As a result, market prices will no longer fully reflect all available information, and individuals and corporations will be more likely to make bad decisions when those decisions depend on energy prices.
Presumably the government is concerned about speculators pushing the price of oil up further, implying that the bill will lead to market prices being too low. So the likely results of the anti-speculation bill would include consumers buying less fuel efficient cars than they otherwise would, using more oil-based energy than they otherwise would, and other decisions implying an overuse of petroleum based energy sources. Ultimately, this bill will exacerbate the energy problem confronting the US economy because consumers will not face the true costs of the decisions they are making.
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