Krugman in the New York Times

Every once in a while, the man makes a good point.*

Congress has always had a soft spot for “experts” who tell members what they want to hear, whether it’s supply-side economists declaring that tax cuts increase revenue or climate-change skeptics insisting that global warming is a myth. Right now, the welcome mat is out for analysts who claim that out-of-control speculators are responsible for $4-a-gallon gas.

Back in May, Michael Masters, a hedge fund manager, made a big splash when he told a Senate committee that speculation is the main cause of rising prices for oil and other raw materials. He presented charts showing the growth of the oil futures market, in which investors buy and sell promises to deliver oil at a later date, and claimed that “the increase in demand from index speculators” — his term for institutional investors who buy commodity futures — “is almost equal to the increase in demand from China.”

Many economists scoffed: Mr. Masters was making the bizarre claim that betting on a higher price of oil — for that is what it means to buy a futures contract — is equivalent to actually burning the stuff.

But members of Congress liked what they heard, and since that testimony much of Capitol Hill has jumped on the blame-the-speculators bandwagon.

Somewhat surprisingly, Republicans have been at least as willing as Democrats to denounce evil speculators. But it turns out that conservative faith in free markets somehow evaporates when it comes to oil. For example, National Review has been publishing articles blaming speculators for high oil prices for years, ever since the price passed $50 a barrel.

And it was John McCain, not Barack Obama, who recently said this: “While a few reckless speculators are counting their paper profits, most Americans are coming up on the short end — using more and more of their hard-earned paychecks to buy gas.”

Why are politicians so eager to pin the blame for oil prices on speculators? Because it lets them believe that we don’t have to adapt to a world of expensive gas.

No. It's because we don't want to tackle the most important steps:

• increase use of natural gas for transportation needs;

• build environmentally sensitive, clean-burning nuclear power plants so we can develop the electricity to use for our electric cars;

• enhance harvesting of domestic petroleum (in ANWR, on the Continental Shelf, and in Wyoming, Colorado, and Utah);

• increase use of shale oil—that is, reverse the moratorium on its harvesting‐and repeal the prohibition on its use for military applications;

• create a fair, flat, arch-capitalist playing field among the various biofuels we're researching; and

• encourage flex-fuel vehicles that will take either petroleum products or biofuels, thereby insulating the economy from market shocks as supplies of different types of fuels wax and wane.

Do I sound like a broken record, here? That is most certainly my intent.

* James Thurber [from memory, but it should be close]:

Don't get the impression that writers never agree at parties. They usually do, once during the course of the evening; it generally sounds like this: "you're right, you're absolutely right. The problem is, you don't have the faintest idea why you're right."

h/t: The Memesters.