At a time when Americans are digging deeper into their pockets to fill up their tanks, the Straight Talk Express is getting a free ride by proposing solutions to the fuel crisis that federal regulators have already taken. Is John McCain out of touch on a crucial economic issue or is he sidestepping an inconvenient question?
In New York, at his first televised presidential town hall meeting, McCain played up his image as a plain-speaking champion for the little guy. He renewed his proposal for a national fuel tax holiday to give small businesses relief from soaring gasoline prices that are destroying their bottom line. But as Barack Obama and many leading economists have pointed out (including at least three Nobel prize winners), a gas-tax holiday is an illusory remedy to treat a symptom that ignores the root problem.
McCain’s reaction? “I trust the people, not the so-called economists,” he said in New York, sounding too much like Stephen Colbert for comfort.
A small business owner from Staten Island at the event actually asked McCain how he would fix what many believe is a fundamental cause of high fuel prices, namely, over-speculation by Wall Street in the commodity markets. McCain responded by calling for a “thorough and complete investigation of speculation in the commodities market” and “greater transparency.” His answer was surprising for a number of reasons.
First, McCain did not challenge the underlying assumption that financial speculators were primarily to blame for soaring commodity prices. Many leading commodity market observers believe that speculators are only accentuating a condition created by supply shortages, rising demand for commodities, primarily in China, the Middle East and South Asia, and a falling dollar. Arjun N. Murti, a leading oil industry analyst with Goldman Sachs, articulated this view recently in both the New York Times and Barron’s.
Second, the Commodity Futures Trading Commission, or CFTC, which is the federal agency charged with overseeing the commodity markets, had already begun to do what McCain proposed. In the last two weeks, the CFTC has launched a series of initiatives aimed at improving “oversight of the futures markets” and bringing “greater transparency and scrutiny to the types of traders in the marketplace, including large index traders.” Index traders buy and sell commodity futures to mimic the performance of certain benchmark commodity indices, like the Dow Jones-AIG Commodity Index.
According to the Financial Times, as of the end of March, investment in commodity-linked exchange traded funds, or ETFs, which are commodity index funds that trade on a stock exchange, had exploded to an estimated $250 billion from just $46 billion three years earlier. The rise in funds flowing to commodity-linked ETFs has lent credence to the belief that speculators have distorted supply and demand for commodity futures.
In response to rising pressure from Congress, the CFTC announced on Tuesday that it had formed an interagency task force along with representatives from the Federal Reserve, the Securities and Exchange Commission, and the Departments of Energy, Agriculture and the Treasury to examine “investor practices, fundamental supply and demand factors, and study the role of speculators and index traders in the commodity markets.”
Was McCain simply unaware of the CFTC’s actions? That’s hard to believe, given the intense level of public scrutiny on the issue. The high level of commodity speculation by financial firms has been front page news for weeks, if not months. Sitting in the audience on Thursday evening was his Senate colleague Joe Lieberman, who only the day before had announced his intention to restrict large financial institutions from speculating in the commodity markets.
The only other conclusion is that McCain sidestepped a question he did not want to answer. Why would the Arizona senator punt on this issue, given his recent criticism of big oil companies for racking up record profits yet failing to wean the U.S. off its dependence on foreign oil?
To his credit, McCain is critical of ethanol subsidies, tariff barriers and sugar quotas, which do more to drive up food prices than speculative commodity trading. Senator Obama, who supports the renewal of existing federal crop subsidies, does not address the causes of high commodity prices anywhere in his blueprint for change. In contrast, McCain’s website does list several policy initiatives to help Americans who are dealing with higher living costs, but none of these discuss his views on commodity markets speculation.
His choice of Federal Hall as the venue for the campaign’s only scheduled New York City town hall meeting may offer a clue, at least symbolically: it sits on Wall Street, directly across from the New York Stock Exchange. Despite his populist rhetoric, perhaps McCain prefers to let the financial markets take care of themselves, and would oppose restrictions on speculative commodity investments by financial firms. If so, it’s easy to see how that kind of talk might be too straight, even for John McCain.
Whatever the case, voters struggling to make ends meet in the face of historic fuel and other commodity price increases deserve a better answer than McCain has given on how he would address these challenges. The Straight Talk Express should not get a free pass on economic issues, especially when the rest of the country is paying the fare.
