Does anyone out there still think the price of oil wasn’t inflated by speculation? I love Paul Krugman, but I think he was being too cerebral on this issue. Calculated Risk summed up the debate back in May, here.
Lots of people have agendas. The Texas Conspiracy (my term for Bretton Woods/PNAC/Neo-Cons/WTO/World Bank/Oil Empire etc.) has two big dogs in this fight: market fundamentalism and petroimperialism. Any economist associated with market fundamentalism will be sneeringly dismissive of anything that points out a massive market failure. Markets are innocent until proven guilty, and the “purest” among them won’t even acknowledge standard textbook failures like monopolies.
The oil companies, of course, love the profits because it didn’t get more expensive to extract, especially from the preexisting facilities, than it did at $10 a barrel back in the 90s.
Oil is the lynchpin of America’s empire. That’s why when politicians say they’re going to “reduce our dependence on foreign oil” they look at it as a mere energy policy question. Without oil profits, most of our empire loses its motive. Literally dozens of dictators we’ve propped up lose their raison d’etre. Castro, Chavez, and Morales will look like puppy dogs compared to the people who would replace dictators not backed by the Texas Conspiracy. I’m not saying this is a bad thing, I’m just saying it’s the simple most complicated problem in the world, and can’t be reduced to a BTU balance sheet.
Oil is also controlled largely by a cartel, OPEC. How can anyone talk much about market forces here? What isn’t controlled by OPEC is so connected to other elite institutions that it might as well be looked at like a government when running your macroeconomic formulae.
Anyway, here’s the nut of my argument: if there’s a credit crisis and people can’t get leveraged to throw their money where there’s profits (tech stocks, real estate… oil) and suddenly the price of oil goes down 67% suddenly, maybe it’s because no one can speculate!
The news says it’s because of diminished projections in the economy. But the economy is not going down 67%. Demand is not down 67%—is it? That would be the Mother of All Depressions, not just a Recession of Unusual Size (ROUSes? I don’t believe they exist. ARRRRRRR (Insert Robert Rubin joke here)).
Some of the peak oil people were telling us that it was just supply and demand fundamentals—so, what? is this a reverse bubble? and if it is, doesn’t that just prove the point about speculation?
Look, the economy is down, but not down even close to the relatively limited proportion that economic growth is.