On Speculation: BEST LETTER EVER
By David Henderson
This is from a letter that Don Boudreaux wrote to the Washington Post:
Have you noticed the enormous increase in greedy speculation in the northeast over the past two days? It’s quite something! In advance of hurricane Sandy, consumers are now artificially increasing the scarcity today of the likes of bottled water, canned goods, batteries, and medicines by stocking up on these goods.
And all of this self-interested speculation – done merely in anticipation of staple goods being much more scarce after Sandy strikes than they are today – is applauded and even encouraged by the news media and government leaders!
What gives? Many of the same people who today publicly encourage us to speculate (“Make sure your family has ample supplies of batteries!”) are among the loudest critics of speculation at other times and in other markets.
But in fact the oil speculator who, say, buys oil today in anticipation of oil becoming more scarce tomorrow does just what a consumer does today in a supermarket in anticipation of a disruptive storm: both persons usefully transfer resources across time. They both stock up on resources that are today relatively abundant in order to preserve these resources for consumption at a time when they are relatively more scarce (and, hence, more precious). Both persons transfer resources from today – when the consumption of any one bottle of water or gallon of gasoline provides relatively less benefit – to tomorrow when the consumption of that same bottle of water or gallon of gasoline will provide relatively more benefit.
Anticipating the future and taking actions to allocate goods and services from times of relative abundance to times of relatively greater scarcity is an immensely useful activity. And we all perform such speculation whether or not we are popularly identified as “speculators.”
It is strange that so many people attack speculators when they’re officially called speculators but encourage average people to speculate.
When I teach futures markets and speculation, I often ask the following question:
Imagine you have 4 vehicles, all with large gas tanks. You decide on one day to fill them all, even though you won’t use up all the gasoline in less than 1 month. In what sense are you speculating?