BLOG --- Get the Speculators

News Date: 07/10/2009 Outlet: New York Times Contact: Norris, Floyd

Some prices are supposed to go up.

Others are supposed to go down, or at least not go up very much.

The Obama administration is out to curb “speculation” in energy markets, where prices were not supposed to go up as they did last year. The Securities and Exchange Commission is weighing what limits to put on selling stocks short, because share prices went down, as they were not supposed to do.

The Federal Reserve has long acted as if there was no reason for it to be concerned about soaring asset prices, but there was plenty of reason to act if asset prices fell.

There is no doubt that the financial system wreaked havoc on the economy, with lending excesses being followed by a devastating credit crunch. The failure to regulate the shadow financial system was the greatest policy error of the Clinton administration.

But it does not follow that politicians, or judges, are the best people to arbitrate “correct” prices. It may make sense to put some limits on speculation in relatively thin markets, but I hope the regulators will tread gently.

To borrow from Winston Churchill, markets are very bad at setting prices, but they are usually much better than any alternative.

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