Things in the Sky

Note: I’ve added a few more opinions to this article over the course of the day.

Since I write five posts a week, I’m constantly looking for new material. Some days it’s really easy to find something write about if there’s a bit announcement from one of the airlines, for example. But other days I have to poke around a bit. It felt like the latter when I sat down last night to write today’s post, until I found this FlyerTalk thread.

Basically, the major airline CEOs all signed a letter asking those who received it to help support a movement to stop oil speculation, which they claim is the root of high oil (and therefore, jet fuel) prices. (A potential Iranian conflict, increased demand from other countries, uncertainty about the domestic oil supply, and inflation apparently have nothing to do with it.)

Speculators react to these factors because they affect the future supply and demand of oil. So they purchase oil ahead of time to try to lock in the price (hedging like Southwest) or they can try to trade contracts for oil deliveries and try to make a profit.

But anyways, the CEOs think that regulating speculation can help bring the price down. I can write for a long time on why I don’t like this idea, but why should I when there are some great articles on this topic that are better written than whatever I can produce?

1. Has anything like this happened before? Well, as random as it sounds, this has happened in the onion industry before. The Wall Street Journal reports that it didn’t really work well.
2. The Economist has an article revealing that while such a move can be well intentioned, it can make oil prices higher.
   
3. The Ludwig von Mises institute has an article with a very similar message and one that helps explain the benefits of speculation.
4. Finally, Walter Williams explains how a regulated market can fall flat on its face.

Personally, I think the airlines just like finding someone to blame.

So that’s how I feel on the issue. Feel free to share your thoughts in the comments.

Update 7/10 10:57PM: PlaneBuzz and Upgrade: Travel Better have very good posts on this topic as well. So does Russell Roberts, an economics professor at George Mason University who also blogs.