Speculation is Good, Not Bad

Nairobi Star (Nairobi)

29 June 2011

editorial

Speculators are getting a bashing at the moment. The Central Bank is blaming five big banks for manipulating the price of the dollar. The Agriculture ministry is blaming millers for causing maize shortages by hoarding to force the price up and illegally exporting to southern Sudan. The Energy ministry accuses fuel companies are accused of pushing up fuel prices by creating artificial shortages. This criticism of speculators is misguided.

The problem is simply supply and demand. Kenya does not import enough maize to satisfy domestic consumption. There is too little foreign currency and too many Kenya shillings circulating in the economy. There are too many cars and global fuel prices are rising.

Government is passing the buck for the structural failings of the economy when it blames speculators for shortages and rising prices. Speculators can lose money as well as make money. If the problem is just speculation by five banks, why doesn’t CBK flood the market with dollars so those banks take a hit?

In economic theory, speculation is perceived positively. Speculators gamble that prices will go up or down and this in theory smooths out the extremes of price fluctuations. The truth is that speculation is good for the economy, not bad.

Quote of the day: “How do I love thee? Let me count the ways.” – Poet Elizabeth Barrat-Browning died on June 29, 1861

AllAfrica – All the Time