Libertarian Jackass

"Life is short, but truth works far and lives long; let us speak truth." -- Schopenhauer

Wednesday, October 05, 2005

Mark Cuban Against Speculators?

Mark Cuban -- the "Internet boom billionaire" -- is claiming to have the solution to high gas prices: take out the speculators operating in the futures market.

Original idea there, Mark. Here's a better piece, from the legendary Victor Niederhoffer:

Bureaucrats have little incentive to improve, invest or innovate. When speculators are wrong, however, they are punished severely for their mistakes by losses of their own money. If left unchecked, the tendencies of our modern kings to interfere with the natural working of the marketplace would lead to destruction. But speculators, searching for profit, send signals to producers and consumers as to the forces of destruction and good.

Perhaps the most positive impact of our current-day speculators is to check at inception governmental activities that would have an inflationary impact Governments are prone to spend more money on their activities than they take in through taxes. The consequence often has been substantial inflation, followed by war, revolution and destruction of civilization.

Nowadays, however, bond traders are so alert to the long-term consequences of such activities that they immediately send debt yields up significantly at the first sign of inflation. The increased yields have such a negative and immediate impact on government revenue, business activity, and consumer spending that governments have all but given up trying to sneak increased spending past the market. As a result, the rate of inflation slowed markedly throughout the Western world during the 1980s.

Granted, speculators am not angels; many are motivated by gambling and greed, and when given the chance will take advantage of the public as much as the next person. But the efficiency of a competitive marketplace helps to ferret out and reduce unscrupulous conduct.

The intellectual raises his eyebrows at the economic and historical analysis and contemptuously says, "Man cannot live by bread alone." To this I respond that without us, there would be no bread.

I am proud to be a speculator. I am proud that my humble attempts to predict Tuesday's prices on Monday are an indispensable component of our society. By buying low and selling high, I create harmony and freedom.


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