Economic illiteracy on display in the Charlotte Observer
Posted by Dr. Roy Cordato at 11:30 AM
This article in today’s Charlotte Observer starts with the following statement:
“Oil and gas prices are rising fast as Memorial Day weekend approaches, but not because supplies are tight or demand is high.”
Then it goes on to explain how the price of oil is up because of people buying oil futures as a hedge against inflation. Guess what? That’s an increase in demand. The entire article discusses how an increase in demand due to speculative purchases of oil to hedge against inflation is driving up prices. Unfortunately, McClatchey Newspapers’ Kevin Hall is so ignorant of economics that he can’t recognize an increase in demand even as he writes about it. An increase in demand is simply a desire to purchase more of a product at any giving price—for whatever reason, including as a hedge against inflation.
The fact is that if the price of oil is going up it is necessarily due to one of three possibilities—an increase in demand for the product, a decrease in the supply of the product, or a decrease in the purchasing power of money, i.e., inflation. In this case two of these forces are acting in consort. Because people are expecting increasing inflation they are demanding more of a commodity that is considered to be a hedge against that increase.
While the undercurrent of the article is that greedy investors and, of course, free markets are running up gasoline prices for the rest of us, Hall never mentions the driving force behind it all. That is the massive budget deficits of the Obama administration, which are being funded by inflationary increases in the money supply on the part of the Federal Reserve. On the other hand, if we can’t expect this reporter to even recognize an increase in demand when it’s smacking him in the face, it is obviously too much to expect that he could understand the relationship between government budget deficits, the policies of the Federal Reserve, and inflation.
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