Posted: April 23, 2012
Gambling with oil
Some things shouldn't be subject to speculationDavid Sneed
As I put gas in my car yesterday, I thought about everyone waiting in line for lung and kidney transplants.
You’d think a capitalist society would have an organ futures market. Other commodities have a way to bet on supply and demand, and lungs are nothing if not a commodity. Speculators could make big money betting next year’s crop of body parts - and that’s good for America. Investors pump money into the economy and create jobs.
Take stocks, for instance. When I buy shares of IBM, I give the company capital to create new products and hire new workers. I realize a benefit when IBM pays a dividend, or when the stock price rises. The economy benefits, I benefit, and no one gets hurt.
Corn is a little bit different. When I bet that dry weather is going to limit this year’s crop, I can buy corn at today’s price and, when everyone is hungry in the fall, sell it for double. I win, and the farmers win with a guaranteed floor price. You suffer a little bit though, since cereal is more expensive than it would be without me betting on it.
A lot different from tech stocks and corn markets, are oil futures. With thousands of brokers looking to make a buck, the market trades more oil than is actually produced. But there’s money to be made if we drive up the price.
The cost to extract oil is around $11/barrel, yet it sells for $130. It’s estimated that the futures market is responsible for $1 in the price of a gallon of gasoline.
Defenders of capitalism (the middlemen) will point out that our society depends on free markets. They’re right of course, but is the oil market really free? When the price of corn goes up, I can buy wheat, or barley, or oats. When IBM acts irresponsibly, I can punish them buy buying GE, or Apple stock. Oil doesn’t have a substitute.
Since the depression (when corn speculation drove the prices to prohibitive levels) laws were enacted to limit the number of “paper brokers” (those who never actually handle corn but speculate purely for profit) in food futures. The laws were designed to protect the common man from starving while corn prices and profits rose on the exchange.
So what of my plan for the Independent Internal Organ Trading and Investment Consortium (IDIOTIC)?
As a society, we’ve agreed that some things shouldn’t be bet on. For whatever reason (fairness I think) we’ve decided not to allow line jumping for lung transplants. There aren’t kidney auctions, or free market lung sales, either. We’ve decided that the equitable distribution of organ wealth is more important than money, and we’ve made profiting from human organs a crime.
To an oil speculator making a million dollars on an oil deal, $4/gallon means nothing. To a family struggling to stay on the up side of the poverty line, it means everything.
Oil shouldn’t be bet on. Why? Because the benefits belong to so few while the detriments belong to so many. When oil prices are high, the price of everything we buy goes up - and the poor suffer most.
I believe in BP and Exxon stock, but I doubt the bubbles and bursts in the oil market caused by speculation provide any benefit to America. In fact, I believe it causes only harm. Oil is just too important to allow futures betting purely for profit.
David Sneed is the owner of Alpine Fence Company,and the author of" Everyone Has A Boss– The Two Hour Guide to Being the Most Valuable Employee at Any Company." As a Marine, father, employee and boss, David has learned how to help others succeed. He teaches the benefits of a strong work ethic to entry and mid-level employees. Contact him at David@EveryoneHasABoss.com