Slippery oil prices
Slippery oil prices
Tony Curzon Price
June 23rd 2008
I wrote a piece on the oil price last week for The Spectator (there is an uncut version of the article here. It elicited its share of poorly informed commentary (for example, here)).
The article tries to explain how oil prices really might be in a speculative bubble rather than being driven by fundamentals of supply and demand. The answer matters for many reasons, including whether ``peak oil'' will implement environmental policy for us; whether prices should be brought back down by financial measures (for example takng away banks' privileges to be treated as ``commodity'' players by the futures market regulators) or by political and ``real'' measures, like putting pressure on OPEC and Saudi Arabia; and, most disturbingly, whether our financial system as a whole is creating conditions which lead to real hardship for billions.
Paul Krugman is a realist/fundamentalist while Guillermo Calvo is a pure liquidity man. My own view--which is endorsed but not adopted in Krugman's critique--is a sort of hybrid that has financial variables entering real decisions and leading to a self-fulfilling prophecy. It relies on the arguments developed by Jeff Frankels and Jim Hamilton in their analysises.
In the context of my writing on these and related topics for The Spectator, Krugman has the intriguing observation that the right is crying ``Speculator!'' more willingly than the left. Krugman takes this to be because blaming speculators allows the right to dodge the problem of fundamental constraints to growth.
I don't think this is true of the UK commentariat. Indeed, the hook for this article was why The Economist, firmly in the camp of the anti-Malthusian Prometheans, refuses to see speculation--in other words, the opposite of Krugman's hypothesis. I think that the right in the UK is genuinely turning against a Thatcherite conception of the market. There was a sort of contract that Conservatism made with (economic) Liberalism: deliver wealth, growth, order and the means for the Nation to hold its head high in the international ranks and we'll support (economic) Liberalism. But Conservatism was always an odd bed-fellow with the Manchester Liberal, and the accelerating financial and real economic unravelling is turning Conservatives away from the deal. ``It wasn't meant to end like this.''
Not that Conservatism has an economic framework to fall back on. There is today a demand for ideas that promises political reallignment.
tony curzon price 2008-06-23
