I was obsessed with this question last summer before the financial crisis. Gas at the pump was suddenly $4 a gallon and economists could not agree why. It drove me crazy — Really? We don't know why??
I called expert after expert after expert. Some said it was just supply and demand, others blamed speculators. It seemed like a question that should be answerable.
As we noted here, the WSJ reported this week that a new report may point the finger at speculators in the commodities market.
The puzzling thing is that some economists argue that's impossible. Paul Krugman makes the argument pretty clearly here. At the end of the day, actual oil goes from a supplier to a consumer. Speculators don't change that unless they're storing the oil in some secret repository, so the price should eventually be anchored to supply and demand.
I still don't know what to make of the debate.
Some agricultural economists who study other futures markets for things like soy and corn also told me it's hard to imagine how you get a speculative bubble without someone hoarding the stuff.
So I say, sure go ahead and ban (or restrict) speculative trading, which some have suggested. It will be a great experiment. If the price of oil jumps inexplicably again, maybe that wasn't it.
Interesting side bar: As far as I can tell, futures trading has only been banned for one item. Weirdly, it's onions.