The Importance of Commodity Speculation

Matthew Yglesias notes the positive impact of commodities speculation on price stability:

In general, commodities speculation is a good thing. For any given commodity at any given time, there’s always someone who wishes the price were either higher or lower and that person tends to complain about speculators. But if you constantly had to pay the spot price for everything, prices would be more unstable and ordinary households and firms would need to spend more time stockpiling goods to hedge against price fluctuations.

Yglesias has been on a free-market tear lately, exposing the ridiculousness of regulation in a number of market contexts, including zoning, parking regulations, and licensure laws. If you haven’t been reading him, you’re missing out.

FILED UNDER: Economics and Business, Quick Takes, US Politics
Alex Knapp
About Alex Knapp
Alex Knapp is Associate Editor at Forbes for science and games. He was a longtime blogger elsewhere before joining the OTB team in June 2005 and contributed some 700 posts through January 2013. Follow him on Twitter @TheAlexKnapp.

Comments

  1. Brett says:

    Yglesias has been drifting towards liberaltarianism for a while now (basically, strong safety net plus free market policies and the like – the Denmark model). It makes him rather interesting to read.

  2. john personna says:

    The Danes are very sensible.

  3. Steve Plunk says:

    There’s a huge difference between speculation and buying futures to ensure stable prices. Back in the 70’s certain speculators drove up silver prices in an attempt to make millions if not billions. Today money managers park money in futures contracts knowing they will never take delivery of the product. Oil is being pushed around by hedge funds large enough to distort the market and drive prices higher when supply is plentiful and demand down. Throw in derivatives as well. It’s more complex than Yglesias realizes.

    Commodities trading should continue to be allowed but with protections to ensure the market is not manipulated. The Commodities Futures Trading Commission is enacting new rules this year after determining failures occurred during the oil run up of 2008.

    Yglesias once again is in over his head.