A colleague today asked me whether I was going to blog about the ‘open letter’ from a dozen airline CEOs calling for regulation of oil speculation, blaming Congressional inaction for their fuel price woes. I scoffed, and said no. Of course, others have scoffed online and I didn’t want to feel left out.
Holly Hegemen of PlaneBuzz sticks a picture of Dr. Evil on her website and suggests that the airline industry is posturing the role of “victim”. I surmise it’s pressure for Congress to do something and if Congress can’t solve the fuel problems, then this is just act one… As victims there will be future calls for handouts, and it doesn’t matter a whit whether speculation is driving the price of oil or not.
On balance there’s probably not much impact on price, and certainly long-term price. There are still some technical economic debates about the role of speculation, its intertemporal effects, and the extent to which it can change the incentives for pulling out of out the ground now versus later. Tyler Cowen sums up some of these discussions.
But even if all of the arcane economics could be convincingly worked, there’s little if anything to suggest that government regulation could do much about it.
Paul Krugman likes regulation but even he doesn’t think it would reduce the price of oil. And he acknowledges that buying a futures contract is not the same as actually burning oil, that there’s still the same demand for using oil.
Of course the first problem is even beginning to formulate a clear definition of speculation, something Southwest Airlines certainly understands well — in fact it’s odd to see Southwest’s CEO sign onto this letter. Much of their profitability the past several years has been a result of fuel hedges. Buying futures contracts. Speculating in oil!
This is all a canard, orchestrated by the US airline industry’s lobbying group (the Air Transportation Association put together the joint letter). So you know it’s about positioning to get something from Congress.