David Kocieniewski of the New York Times is guilty of some outrageously bad journalism in the form of a groundless ad hominem attack on the reputation of two professors for the sole purpose of reinforcing the prejudices of his misinformed readers.
Kocieniewski’s article is titled “Academics Who Defend Wall St. Reap Reward”, and insinuates that academic research produced by University of Houston Professor Craig Pirrong and University of Illinois Professor Scott Irwin was bought and paid for by financial speculators as “one part of Wall Street’s efforts to fend off regulation.”
The question of substance for which Kocieniewski insinuates that Pirrong and Irwin were bribed to produce the wrong answer is whether “financial speculators and commodity index funds drive up prices of oil and other essentials.” Let me pose the question a little more precisely for anyone who actually wants to investigate this issue. Do financial speculators drive the price of oil to a value at which the quantity physically produced exceeds the quantity physically consumed? Because if the answer to that question is no, then it is fundamentals of supply and demand, not financial speculators, that are all you would need to know to calculate what the price of oil will be. Paul Krugman explained quite clearly why that is the crux of the question, and Knittel and Pindyck (2013) carefully go through the math of why it’s so hard to answer in the affirmative.
But in fact Kocieniewski’s hit piece deals not at all with this or any substantive issues associated with the topic. Instead his contribution for the New York Times is purely an ad hominem attack on two of the professors who have written on this question. Scott Irwin’s crime is explained as follows:
The business school at the University of Illinois has received more than a million dollars in donations from the Chicago Mercantile Exchange and several major commodities traders, to pay for scholarships and classes and to build a laboratory that resembles a trading floor at the commodities market.
Well, guess what? Scott doesn’t work for the business school at the University of Illinois. He is in the School of Agriculture and Consumer Economics. Not the same thing. But apparently everybody on the entire U. of Illinois campus has been tainted by money contributed to the business school, a picture of whose nice facilities leads off Kocieniewski’s hit piece.
And what did Craig Pirrong do wrong?
Mr. Pirrong has been compensated in the last several years by the Chicago Mercantile Exchange, the commodities trading house Trafigura, the Royal Bank of Scotland, and a handful of companies that speculate in energy.
I’ll give Craig the microphone for his own defense:
completely contrary to the impression in the NYT piece, the vast bulk of my consulting and testifying work has been adverse to Wall Street and commodity trading firms. Virtually none of this work relates to the alleged subject of the NYT story: the impact of speculation on commodity prices. In fact, much of this work relates to market manipulation (which is distinct from speculation) by commodity traders. I have been, and continue to be, on the side of plaintiffs in attempting to hold traders who abuse markets accountable for their conduct.
The failure of David Kocieniewski to point out this salient fact alone betrays his utter unprofessionalism and bias, and is particularly emblematic of the shockingly shoddy excuse for journalism that his piece represents.
Moreover, none of the research or writing I have done on the speculation issue received financial support from any firm or entity with even a remote stake in this issue.
And while I’m passing the microphone, let me also outsource to Felix Salmon:
Kocieniewski has missed the mark. Neither Pirrong or Irwin is mendacious or venal, and indeed it’s the NYT which seems to be stretching the facts well past their natural breaking point….
Once you realize how much of an axe Kocieniewski is grinding, then the rest of his article rapidly starts to crumble.
And from Peter Klein:
The result is a preposterous article riddled with “jaw-on-the-floor” errors, mendaciously edited so the unfounded accusations come first, and the self-contradictions revealed only at the end of the piece.
Clearly Kocieniewski needs some help in launching his ill-prepared attack on the Wall-Street/academic cabal. So let me provide him with a target-rich environment by quoting from my paper with University of Chicago Professor Cynthia Wu that we’ll be presenting at the Allied Social Science Association meeting this weekend:
One common strategy is to interpret a simultaneous unanticipated rise in prices and commodity inventories as reflecting speculative demand pressure. Kilian and Murphy (2013) and
Kilian and Lee (2013) concluded that such a model rules out speculative trading as a possible cause of the 2003-2008 surge in oil prices. In related work, Lombardi and van Robays (2011) and Juvenal and Petrella (2011) found only a small role for speculation using alternative specifications….
Brunetti, Buyuksahin, and Harris (2011) used proprietary
CFTC data over 2005-2009 on daily positions of traders disaggregated into merchants,
manufacturers, floor brokers, swap dealers, and hedge funds. They found that changes in net
positions of any of the groups could not help to predict changes in the prices of futures contracts
for the three commodities they studied (crude oil, natural gas, and corn)…. Stoll and Whaley (2010) used the public SCOT for 12 agricultural commodities over 2006-2009 and
found that changes in the long positions of commodity index traders predicted weekly returns
for cotton contracts but none of the other 11 commodities. Alquist and Gervais (2011) used
the public CFTC Commitment of Traders Report to measure net positions of commercial and
non-commercial traders, and found that changes in either category could not predict monthly
changes in oil prices or the futures-spot spread over 2003-2010, though there was statistically
significant predictability when the sample was extended back to 1993.
By the way, nobody paid me to write these words. And anyone who suggests otherwise is a liar or a fool.