I think here is a misunderstanding. Cooperative strategies are not restrictive. Cooperative strategies will evolve by themselves, because those who follow them will gain an advantage over those who do not.
Let us say the democracy is a cooperative strategy, as opposed to dictatorial power, which is based on defection. The dictator typically exploits an economic good for his own benefit at the detriment of other citizens. In the longer term, that is under conditions where the game is played repeatedly, dictatorship - as it only represents a temporarily stable state of affairs such as a local extremum - will be overcome, as the total outcome is always unsatisfactory for the common development.
Behavioral norms such as the convictions of the Puritans, laws or regulation can speed up the process of cooperation. So I am not asking for restriction, but for regulation. A regulated marketplace enforces cooperation and at the same time facilitates competition, where it is wanted and needed.
Competition sometimes leads to Pareto optimality, and sometimes it does not. The owners of gas guzzlers are not charged for the negative impact of these cars on the environment. This is not accounted for in the market mechanism. This is known as the tragedy of the commons. Behind the tragedy of the commons, which designs the ruthless exploitation of resources belonging to everyone is a simple prisoner's dilemma. Those who exploit the commons gain an individual advantage by causing greater damage for the group.
Regulation is needed to integrate the cost of exploiting the commons. The defection - buying a gas guzzler - must be sanctioned by higher taxes or other rules. After all, I could not imagine any commercial soccer game without an arbiter who enforces the rules of the game.
The following 2 users say Thank You to Fat Tails for this post:
I see democracy as the socialization of violence more than a cooperative strategy.
Couldn't agree more about the need for regulation, or love of that frustrating social experiment; democracy.
Some people feel that private international corps are now in a position to say "give us what we want or your system crashes". This would significantly impair the intended function of elected representatives IMHO.
My understanding of a speculator is someone who takes risks when they think the odds are in their favor.
Thanks for the post. I'm very late to this thread, but I'll toss in my two cents.
I've had this debate with more than a few people (some of them oil traders) over the past eight years and the results always tend to be the same. Oil traders believe that what they are doing facilitates the transitory connection between basic wholesale and fundamental retail demand, while the activists believe that what the traders are doing facilitates higher retail prices across the board for the consumer. I believe the activists are closer to the truth.
The U.S. receives the bulk of its petroleum from both Canada and Mexico, with the remainder coming mostly from OPEC sponsors and our own reserves. Yet, when war breaks out in the Middle East, prices at the pump from the U.K. all the way back to the U.S., start to rise commensurately, while prices in places like Hugo Chaves' Venezuela, and Filepe Calderon's Mexico, the consumers don't experience the same negative drawbacks at the pump to anywhere near the same degree (of course, their cost per gallon was already much lower to begin with for certain). Unlike most other increases in global commodities prices, when crude increases in price, it increases disproportionately (almost across the board) in developed nations in most situations. There are some regional spots around the world where that increase is felt severely by under-developed nations, but for the most part the axiom holds true.
What I think it being missed in much of this thread thus far, is the extensible negative impact that sharply rising oil prices on the exchanges, has not just "at the pump," but within the entire economic framework of some countries. When prices rise (for example) here in the U.S., the impact is systemic and felt nationwide in most cases. It impacts not only the retail fuel prices, but consumer prices as well. The cost of goods begin to increase, because the Number #1 mode of delivery for the companies that produce those goods, is some form of national transportation. The transportation infrastructure utilizing air and land transports, will assume a higher cost of the very thing that makes their businesses possible, fuel. So, it costs more to move product from its source to its destination, for distribution into the national economy. This is part of the reason why we see ridiculous prices not only at the pump for our fuel, but also at the grocery store, furniture store and all retail outlets that warehouse and stock consumable and durable goods.
These are all contributory factors to inflation and for an economy that is undergoing severe economic recession (some say we are in a form of depression), this does nothing but prolong the systemic economic pain and it makes it that much more difficult to restart the various economic engines that are necessary to reduce the unemployment rate and revitalize the Middle Class. There aren't too many examples around the developed world where the economy remains strong for extended periods of time, coupled with a persistently suppressed economic Middle Class that can't find work and that is continually being beaten down by rising prices across the board.
So, in a Global Economy that is suppressed by rising prices, many of them coming as a direct result of increasing fuel prices, I 100% agree with you that it is high time for our policy makers to seriously sit down with each other and their constituents, to layout the considerations and the methodologies for de-listing oil and oil related contracts from the exchanges. But, this will never work unless it is a concerted effort by the G7, in my personal opinion. However, the United States is a powerful G7 member and its motions carry a lot of weight.
The primary reason for doing this? Oil has long since become too strategic a commodity, for it to be "toyed" with on the exchanges by traders, regardless of their contract size or location around the world. Our economy and that of many nations have become inextricably tied to oil and continued whipsawing price fluctuations and unnatural price instability, will cause long-term negative side effects in too many other areas of the associated economy. For these reasons, I have been a long time advocate for the removal of all oil contracts from the traded financial markets. Of course, opponents of such a measure claim that oil speculators don't cause rising prices at the pump and they never talk about or substantively discuss the other strategic extensions that rising fuel prices have on the broader economy. But, those same opponents can never explain the "coincidence" in rising fuel prices in the U.S., when oil breaks out in the Middle East and when the United States does not receive its lion share of petroleum from Middle Eastern sources.
Good post and I agree with the overall premise. I also wanted to highlight some of the strategic economic issues that go beyond the mere "rise at the pump" and that have far more negative impact on already struggling economies, regardless of their size and scale. The more connected the economy is to the world, the more negative the impact will be when oil prices begin to rise, for a host of extensible reasons - some of which I have outlined above.
Of course, this unleashes with tremendous force, the absolute necessity to transition away from fossil fuel based sources of energy, and to concentrate the nation's efforts on designing, building and maintaining an economy based on new energy profiles that call for massive reductions in oil based drivers of the economy. Ideally, that's another thread altogether.
Please register on futures.io to view futures trading content such as post attachment(s), image(s), and screenshot(s).
The following user says Thank You to JetTrader for this post:
I'm not sure where I read this, or even if it is actually true, but my understanding is that the biggest business in the world, is TRADING. If that is true, and when you think of the dollars that change hands every second of every trading day it makes sense, then what impact does that have on the overall economy? Is the game of speculation the largest economic engine? Without it, what would happen?
From the end user perspective, prices will govern themselves, eventually. If the price of crude creates enough pain, nearly regardless of supply & demand, futures prices will come down as speculators start to see the potential trouble ahead. And that could drive crude back to $40 or below.