PrintJuly 23, 2008
Eliminate the Middleman
Once again villainous speculators have emerged as a scapegoat. There's a lot of history to this practice.
Those who are familiar with the work of economist and social commentator Thomas Sowell, if asked, could easily find the common link between groups as diverse as Jews, the overseas Chinese, Armenians, and the Ibos. They are all middleman minorities. Such groups have served as segregated components of a larger society who also provide essential economic services, typically somewhere between production and consumption, that benefit the areas they live in.
For example, Jews, the most prominent historical example in the Western world, engaged in usury during the Middle Ages. They were exempt from canon law that proscribed lending money at interest by members of the Roman Catholic Church [1]. The Lebanese, in several nations, grew to prominence in the clothing trade by starting as bottom level peddlers, and from there working to form enduring brands such as Haggar and Farah. While peddling was not prohibited to the native populations in the same way as usury in the earlier example, it was a harsh enough trade to be left to immigrants.
Middleman minorities, as a result of their hard earned success and segregation, have also been a victim of horrendous violence. Pogroms, The Holocaust, and other forms of Anti-Semitism are well known to anyone with even a modicum of historical awareness. Lesser known examples are legion. The genocide of Armenians by Ottoman Turks during WWI, the massacre of Chinese migrants in Saigon in 1782, and the mass slaughter of Ibos during the Nigerian civil war are just a few of the examples of how political demagoguery and economic ignorance can be positively catastrophic. Cowardly leaders, such as Sultan Abdul Hamid II during the Hamidian Massacres, have used their peoples' prejudices and lack of economic literacy -- primarily originating in the physical fallacy [2] -- to displace ire that they should rightfully bear.
Now, let's look at another group and see if we can discover their common link: Brazilian President Silva, the airline industry and Bill O'Reilly [3]. Guessed it yet? That's right, they blame the current surge of oil prices on speculators.
And while the history of middleman minorities may seem unrelated to the current witch hunt for oil speculators we are currently experiencing, their overlap is substantial. More to the point, looking at the latter in the light of the former goes a long way towards proving George Santanya's classic admonition that "Those who cannot remember the past are condemned to repeat it."
The follies we are repeating are twofold. First, those in power are using a vital economic group, in this case speculators, as a scapegoat for their own ineptitude and cowardice. CNN reports that bills are floating around Congress that would regulate oil speculators.
Meanwhile, the repeal of drilling bans, which are in accord with one of the basic principles of microeconomics -- as supply increases and demand remains constant prices drop -- has been stifled by Senate Majority Leader Harry Reid, who fears losing a floor vote. But hey, maybe we should allow China to tap all the oil in the Gulf of Mexico. They were there first after all.
Meanwhile, the repeal of drilling bans, which are in accord with one of the basic principles of microeconomics -- as supply increases and demand remains constant prices drop -- has been stifled by Senate Majority Leader Harry Reid, who fears losing a floor vote. But hey, maybe we should allow China to tap all the oil in the Gulf of Mexico. They were there first after all.
The second point, which dovetails with the first, is the exploitation of economic ignorance. Claptrap about the evils of speculation only gains traction because the American people as a group simply lack knowledge of basic economics. The fact that the American Left, either by design or misinformation, promulgates debunked economic theory is sad. The fact that the average American has a better chance of naming all of the Seven Dwarfs than defining the word "arbitrage" is tragic. As such, the stability that speculators add to the crude market is never brought to the attention of the public. Likewise the economic benefit of stockpiling certain commodities while supplies are heavy to ward off shortages in less plentiful periods.
Here is the point in the punditry where I'm supposed to really seethe and lambaste certain politicians by name. But I won't. Because I can't. Truth is, we are to blame for this, us and no one else. Politicians could not exploit our fears if we knew the rudiments of free enterprise.
Granted, I don't fear for the safety of speculators. They are far better off than even the luckiest of middleman minorities. On the other hand, they should be protected by hate crime laws jut to be on the safe side.
There is one final point we need to be cognizant of in this detour through history. Middleman minorities are not the only group who suffer as a result of persecution. The persecutors often hurt themselves. After all, if you suppress a group that performs a valuable economic activity, you lose the benefit of that activity. If we actually allow Congress to further meddle in the economy, we will loose the benefit of the free market. And in the end, the free market alone will solve the energy crisis.
While this piece is heavily indebted to, and indeed, would be impossible without, the work of the good Dr. Sowell, the opinions herein should in no way be viewed as enjoying his endorsement or as being representative of his views.
1. "The Church, basing itself upon a mistranslation of the text Luke vi. 35 interpreted by the Vulgate "Mutuum date, nihil inde sperantes," but really meaning "lend, never despairing" (see T. Reinach in "R. E. J." xx. 147), declared any extra return upon a loan as against the divine law, and this prevented any mercantile use of capital by pious Christians. "
2. "Not only Marxism or socialism in general, but a wide variety of other revolutionary or reform movements incorporate a belief that those who directly handle physical objects are 'really' the producers of economic benefits." Knowledge and Decisions, pg. 69, Thomas Sowell.
3. Heard by the author during the July 15, 2008 broadcast of The Radio Factor.
