The effort by Democrats to crack down on oil “speculators” took a hit from an unlikely source today: Paul Krugman.
The only way speculation can have a persistent effect on oil prices, then, is if it leads to physical hoarding – an increase in private inventories of black gunk. This actually happened in the late 1970s, when the effects of disrupted Iranian supply were amplified by widespread panic stockpiling. But it hasn’t happened this time: all through the period of the alleged bubble, inventories have remained at more or less normal levels. This tells us that the rise in oil prices isn’t the result of runaway speculation; it’s the result of fundamental factors, mainly the growing difficulty of finding oil and the rapid growth of emerging economies like China. The rise in oil prices these past few years had to happen to keep demand growth from exceeding supply growth.
Krugman is not concerned that prices are high, so he’s not calling for increased supply. If Congress wants to do something more than pretend to be concerned about prices, they’ll have to do something to increase supply.
