Airline executives from a number of the largest carriers have written a joint letter to their customers citing speculation in oil futures as a significant reason for the dismal state of the airline business. Calling for reform of the oil markets, the executives of United, Delta, Continental and others wrote:
For
airlines, ultra-expensive fuel means thousands of lost jobs and severe
reductions in air service to both large and small communities. To the
broader economy, oil prices mean slower activity and widespread
economic pain. This pain can be alleviated, and that is why we are
taking the extraordinary step of writing this joint letter to our
customers. Since high oil prices are partly a response to normal market
forces, the nation needs to focus on increased energy supplies and
conservation. However, there is another side to this story because
normal market forces are being dangerously amplified by poorly
regulated market speculation.
Twenty years ago, 21 percent of oil contracts were purchased by
speculators who trade oil on paper with no intention of ever taking
delivery. Today, oil speculators purchase 66 percent of all oil futures
contracts, and that reflects just the transactions that are known.
Speculators buy up large amounts of oil and then sell it to each other
again and again. A barrel of oil may trade 20-plus times before it is
delivered and used; the price goes up with each trade and consumers
pick up the final tab. Some market experts estimate that current prices
reflect as much as $30 to $60 per barrel in unnecessary speculative
costs.
Over seventy years ago, Congress established regulations to control
excessive, largely unchecked market speculation and manipulation.
However, over the past two decades, these regulatory limits have been
weakened or removed. We believe that restoring and enforcing these
limits, along with several other modest measures, will provide more
disclosure, transparency and sound market oversight. Together, these
reforms will help cool the over-heated oil market and permit the
economy to prosper.
Along the same lines, E.J. Dionne Jr. has a column in todays Washington Post asserting, given the meltdown of our economy as a result of an unregulated banking and lending industry, the tide may be finally turning on deregulation as a cure all for the economy.
Since
the Reagan years, free-market cliches have passed for sophisticated
economic analysis. But in the current crisis, these ideas are falling,
one by one, as even conservatives recognize that capitalism is ailing.
You know the talking points: Regulation is the problem and deregulation
is the solution. The distribution of income and wealth doesn't matter.
The
old script is in rewrite. "We are in a worldwide crisis now because of
excessive deregulation," Rep. Barney Frank (D-Mass.), the chairman of
the House Financial Services Committee, said in an interview.
While Frank is a liberal, the same cannot be said of Ben Bernanke, the chairman of the Federal Reserve. Yet in a speech on Tuesday, Bernanke sounded like a born-again New Dealer in calling for "a more robust framework for the prudential supervision of investment banks and other large securities dealers."
Certainly, the mantra for the Bush Administration has been deregulation, deregulation, deregulation. Perhaps if it was managed, on a case by case basis by some folks with common sense, it may have some merit. But given the group currently managing the store, the results have been disastrous.
(Thanks JM and TH)
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