Economic illiteracy

I don’t necessarily disagree with the overall point of this CNBC article on inflation, but this bit is appalling:

In futures markets, for every investor who’s long, there is one who’s short, so increased speculation itself cannot drive up prices. Speculators would have to be taking physical product off the market to actually affect prices, these officials say.

Although I agree that speculators are not responsible for soaring food and energy prices, this reasoning is complete nonsense. Of course buyers match sellers in futures markets, as they do in any market in equilibrium. That has no bearing whatsoever on whether they are affecting prices. Moreover, it is not at all difficult to draw a demand curve in which a speculator can affect a commodity’s price without actually ending up with any of it.

Leave a Reply

Please log in using one of these methods to post your comment: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s