THE HOUSTON CHRONICLE sees economics and much else as staged dramas, not as organic processes. The role of an editorial board is to cheer on heroes (government, primarily) as they joust with dastardly villains (insurance companies, for instance).
Seeing things this way is entertaining and morally satisfying, to be sure. But it produces ideas that are intellectually incoherent and recommends policies that do more harm than good.
A great example of the shortcomings of this mindset came in Sunday's editorial about speculators in the energy futures market.
(Place your bets here on the category -- heroes or villains -- into which the Chronicle places these useful economic actors.)
The editorial begins with becoming modesty about the possibility of even knowing the answers we need.
The Commodity Future Trading Commission last week concluded hearings to examine the role of speculators in the market spike that brought American consumers a season of pain at the gas pump in 2008. The hearings revealed spirited disagreements about just who, exactly, is responsible for last summer's wild gyrations in oil prices.
The giveaway to the newspaper's mindset here, however, is who, exactly, is responsible. This formulation of the problem presupposes that a who is responsible.
But what if it's not a who but a what, namely market economics, constrained by human nature and the law, operating in response to certain perceived realities in existing and future supply and demand for energy and in myriad ancillary, but important, factors such as existing and future inflation, money supply, and who knows what else?
What if?
Who, exactly, is responsible does not have quite the weight the Chronicle desires, however, so the next sentence dresses a plain economic question in colorful moral terms.
Indeed, no one came forward with convincing data to pin blame definitively.
Who, exactly, is responsible morphs here into pin the blame definitively.
In a properly functioning market, blame is an irrelevant concept. Blame (in any useful sense) comes into play only if someone is illegally or immorally manipulating a market.
And buying or selling futures contracts, without more, is neither illegal nor immoral.
The burden of this editorial, in a rational universe, would be to demonstrate that some kind of manipulation of -- not mere participation in -- the energy futures market has occurred. We could all then join the Chronicle in blaming the evildoers.
(Whether that illegal or immoral manipulation, if shown, could possibly have caused the price spike that troubles the Chronicle is another issue, and an extraordinarily difficult one. But we'll leave that aside.)
But the Chronicle -- despite spirited disagreements, despite the absence of convincing data -- shows no reticence whatsver about doing the only thing it knows how to do in the presence of a serious economic problem -- identify the villain and toss stale popcorn in his general direction. Oddly that begins with a third reason for modesty, the fact that many speculators lost money.
Some [speculators] were caught betting the wrong way as markets turned down and lost their overnight gains almost as quickly . . .
The real purpose of this sentence is to characterize speculators as bad guys. They were caught, you see. That's what villains do; they get caught.
And if they were betting, that means they were gamblers, and we all know gambling is bad.
The wrong way means these speculators were stupid or unlucky, I suppose, although stupidity or bad fortune as motive undermines the Chronicle's argument; it's neither illegal nor immoral to be stupid or have bad luck; villains must be evil.
And overnight gains is a way of minimizing the financial consequences of some speculators' bad decisions. Who deserves overnight gains? Serves them right to lose them. They weren't really hurt, were they?
What a lovely little strawman this is. The reality is that some speculators lost money on the way up, then turned around and lost money on the way down too, while some made money both ways and others split the difference.
To be fair, markets turned down is a welcome nod toward market sovereignty. But notice the illogic of looking for villains who, exactly, [are] responsible (and on whom we should pin blame) for a rising futures prices, while treating a downward movement of prices as a morally neutral operation of the market. To be consistent, the Chronicle should be looking for a who on whom to pin credit for the price decline. Instead:
. . . but energy consumers were the ones really trapped in the costly middle . . .
Interesting notion, this. We are (or were) talking about energy futures, remember. But few consumers buy energy futures; instead they buy physical sources of energy in the form of gasoline, diesel, and natural gas.
What the Chronicle does here, without admitting it, is switch markets. Everything so far has been about speculation in paper, primarily. Now it's about the price of physical commodities.
This matters because, while futures prices and commodity prices usually move in rough concert, it's a real toughie to identify which one is driving the other. Correlation, causation, and all that. But the Chronicle is not really engaged in serious economic disputation. It's doing what libs always do -- identifying victims in need of government succor. And victims always need victimizers. To wit: . . . as traditional rules of supply and demand were overriden by the flow of speculators' dollars into the oil markets. Not to put too fine a point on it, but most of the speculators dollars flowed, not into oil markets (as the Chronicle declares) but into oil futures markets. And how, exactly, are traditional rules of supply and demand overriden by a wave of enthusiastic buying? Higher demand produces higher prices. That's not a bug; it's a feature: that's what markets do. The Chronicle's burden, remember, is to identify immoral or illegal market manipulation. The Chronicle cannot do that (because of spirited disagreements and the lack of convincing data), so it simply declares, in substance, that too much buying caused the problem, which means, one must suppose, that buyers in a rising futures market are the villains. Though it admits operating in an environment of uncertainty, the Chronicle now responds with fierce and urgent certainty.
We side with those who argue that this wasn't traditional market economics at work, but rather, a dangerous distortion of market dynamics that harmed consumers and which requires [Unca D: drum roll, please] closer supervision by regulators.
Dangerous distortion is not an argument; it's a label. Harmed consumers is not a reasoned conclusion; it's an unsupported declaration. As for traditional market economics, the Chronicle wouldn't recognize it if it bit the newspaper on the rear end.
I can't go on. This is too painful.
* * *
To read an editorial on the same subject by people who know what they're talking about, consult "The Politics of 'Speculation,'" Wall Street Journal, July 28, 2009.
Last summer, as oil prices were peaking, the CFTC launched an investigation into whether $100-plus oil was the result of market manipulation by . . . "speculators." That interim report, issued in July 2008, concluded that price movements were largely driven by -- wait for it -- supply and demand. The new CFTC review of this issue, the Journal says, "is all about the politics, not the economics, of price discovery."
And the real goal is not to blame the evil speculators for last year's price spike or this year's oil rally, but to lay the groundwork for explaining away the commodity-price bull run that we're likely to see as a result of the Federal Reserve's easy money and the Obama Administration's spending and debt party.
. . . .
In all this, what nobody has managed to explain is what, exactly, happened to the omnipotent speculators between July and December 2008 [when futures prices declined]. Did they all go on vacation? Perhaps they paused for a six-month drinking bring with their winnings before returning to manipulate us anew in 2009.
UPDATE: Thanks for the links from Lose an Eye and blogHouston.
BlogHouston rhetorically questioned:
Does anyone actually think the editorial board's daily gibberish is guided by a philosophy or even much knowledge of the world?
Well, that's the point, isn't it? Saying the Chronicle sees things as moralistic human drama -- good guys, bad guys -- is saying there is no guiding philosophy, at least one based (in this case) on knowledge of economics.
As for "much knowledge," perhaps the local editorialists deliberately avoid having too much knowledge in order to avoid the risk explained by Ecclesiates 1:18:
For with much wisdom comes much sorrow; the more knowledge, the more grief.
By the evidence of their editorials, Chronicle editorialists are not in serious danger of suffering sorrow or grief.
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