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Anorak | A small note for idiots everywhere on commodities

A small note for idiots everywhere on commodities

by | 12th, September 2012

WE’VE been told, again and again, by the likes of the World Development Movement, Oxfam, Action Aid and all the rest, that more speculation in commodities leads to higher prices for commodities.

It’s the weight of money argument: more money being played with then obviously prices must go up.

Of course, every economist who has actually looked at the question has insisted they’re spouting garbage. More speculation can mean higher, lower or the same prices: depends which way people are betting, not how much is being bet.

But the Teenage Trots insist that they’re right. At which point we have to ask them this question:

According to this Greg Meyer piece in the FT, Barclays estimates that $6 billion have flowed out of commodity index investments in 2012, and that many institutional investors are reducing exposure to commodities.

The argument from the ignorant is that more speculation increases prices. Thus less speculation should decrease prices. We do indeed have less speculation now than last year. So, which way are commodities prices going? Down as the theory predicts? Err, no, actually they’re going up, contrary to the theory.

Death of said theory then, obviously.

This is of course part of a larger problem with such people. In order to comment on matters economic it is actually necessary to understand, even a little bit, matters economic. Rather than just projecting ones’ prejudices onto the world around you.



Posted: 12th, September 2012 | In: Money Comment | Follow the Comments on our RSS feed: RSS 2.0 | TrackBack | Permalink