Recently the NYT published an editorial pretending to be and article on academics that defend markets. Do read to the end to get all of the corrections. A year-and-a-half earlier they had a straight editorial by JP Kennedy II on the alleged The High Cost of Gambling on Oil. It seems obvious that it is good to have market prices but for some reason the NYT wants to fight that. If it isn’t obvious then take a look at Fattouh, Kilian, and Mahadeva who find that speculation is not a driver of the price of oil.
Now the price of oil is down. Does that mean that speculation is a good thing? The price of natural gas is down. Does that mean that speculation is a good thing? The humble onion has a highly volatile price compared to oil (thanks Mark Perry) and futures trading is banned. Does that mean that lack of speculation leads to volatility? I have a friend of a friend that actually buys onions to speculate in them. This does make sense because the highly volatile prices present profit (and loss) opportunities that overshadow the cost of actually owning the onions.
It is easy to see what the academics are thinking, “NYT dude, it’s obvious that prices are useful signals.” MWG concludes it would be nice to know what is the NYT is thinking. Of course, markets and the prices they create are good to help establish a higher degree of certainty. There are some serious questions about the extent to which certain institutions should be in these markets but the basic one is easy. Incidentally, the value of reducing uncertainty is one the current administration should take to heart. Political uncertainty and market uncertainty exacerbate the challenges of trying to create a profitable business.