Regulating speculation on the markets

20goto10

I've heard the argument that outlawing/regulatiing speculation on the market would mean the end of the free market. To me speculators artificially drive up prices to a height which has nothing to do with demand. For example, oil last year was expensive because every Tom, Dick and Harry dumped their cash into it as a safe haven. This drove up the price of oil and had no foundation nor was in any way connected to supply/demand. When everyone has their money in oil, its going to drive prices up because everyone involved has a vested interest. The same goes with property and anything else.

I watched a very interesting documentary on the great depression and how it came about. The parallels to today were very disturbing. It also went into the presidents at the time and how they handled things. In Roosevelts inauguration speech he talked about regulatiing speculation on the markets, which the documentary claimed worked until slowly bit by bit all the laws put in place were undone as they were deemed to be outdated, which inevitably got us back in the very same mess they were there to protect us against.

To me, speculation belongs in a bookies and should have no effect on the supply and demand equation. Supply should be met with real demand, speculators buying up stocks and commodities is not a true measure.

Time Magazine

Speculation driving up prices is the strongest reason to allow shorting imho.

Oh and Killian (2008) argues very well that the changes in oil prices due to speculation do not affect output/employment levels.

Which paper is that?

Time Magazine

http://www-personal.umich.edu/%7Elkilian/aer061308final.pdf