The key factor to understanding why gas prices are where they are is to understand that supply and demand don’t drive prices for gas and food and other commodities like they used to. That’s why our gas prices are high despite what is, in fact, plentiful supply. The lack of understanding about this is why journalists keep asking the White House about the strategic reserve, even though there’s no shortage.
To his credit, Bill O’Reilly has in the past called for the Commodity Futures Trading Commission to get tough on Wall St. speculators who are now driving gas and food prices. But with a Democrat in the White House, even O’Reilly no longer seems quite sure how to deal with this issue. A telling example of this came Monday night, as their lack of understanding about speculators shined through.
First, O’Reilly–again, to his credit–pushed guest Stuart Varney to admit that supply is not an issue. Varney says that speculation about future scarcity is the real problem. Here’s the exchange:
BILL O’REILLY (host): What good does it do, tapping into the U.S. oil reserves? What is that going to do? There is plenty of supply, am I wrong?
VARNEY: Yeah, there is plenty of supply. We don’t have a supply problem. We have a fear of future supply problem.
So, to recap, Varney is blaming high prices on speculators, who fear future supply shortages. He’s saying, in other words, that the current system of futures trading DOES NOT ensure against price fluctuations even for only POTENTIAL shortages.
Of course, the whole purpose of futures trading is to lock in futures prices as a hedge AGAINST price fluctuations that MIGHT arise in the future. But just one minute after saying speculators have caused price instability, Varney incoherently argues that futures speculation is necessary…because it keeps prices stable!
VARNEY: Look, let’s not demonize speculators. Speculators are – wait a second. They are airlines. They are heating oil companies. They are truck suppliers.
O’REILLY: Yeah, they are investors. I understand.
VARNEY: Those are people who are locking in the price now so that they know what the price they are going to pay in the future.
It’ll be interesting to see who spots the incoherence of these arguments first: Bill O’Reilly…or the White House.