Comment by fc417fc802
15 hours ago
> In the best case, "strategic reserves" are the government speculating on commodity prices.
A horrendously misinformed take. Strategic reserves have broadly one of two primary purposes. First, providing the government with the ability to stabilize market prices in the short term when volatility strikes. Second, providing a supply of an essential resource to an essential industry in the event that external supplies are unexpectedly cut off temporarily.
Supply shocks are bad. The economy grinding to a halt at the whim of a geopolitical adversary or natural disaster is also bad. Ensuring a stable market is one of the most fundamental purposes of having a government at all.
> First, providing the government with the ability to stabilize market prices in the short term when volatility strikes.
Which is the thing they don't really even do, because their existence is not a secret, but then knowing of their existence discourages anyone else from setting up a reserve because they expect the government to unload right when they'd be trying to recover the costs of operating it. Then the market has less slack in it and the government has to tap into the reserve more frequently and in larger amounts, causing the reserve to be much more easily exhausted than you would intuitively expect because the whole world is now expecting you to bail them out when the time comes.
Worse, it encourages companies to rely on its existence instead of making contingencies, and then if it does get exhausted or you get something that looks more like unexpectedly high demand than unexpectedly low supply, you now have an inadequate reserve and a market full of people operating under the impression they would never have to deal with that.
> Second, providing a supply of an essential resource to an essential industry in the event that external supplies are unexpectedly cut off temporarily.
This isn't a different thing from the first thing. There being less supply is what causes the price to go up. But encouraging the market to take all the slack out causes there to be less supply.
The basic problem is this: If the government keeps a moderate reserve, it's going to cause other people to not do that, and then it's going to run out and Cause Problems. If the government keeps an enormous reserve, they're going to cause the price to be higher even when nothing is wrong and burn through a disproportionate amount of tax money doing it.
> Supply shocks are bad.
The correct answer to this is to diversify supply and be ready with substitutes, not government hoarding.