Comment by fc417fc802
17 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.
People aren't as stupid as you appear to think. Yes, there are second (and third, forth, ...) order effects. Typically these sorts of systems will settle into an equilibrium. A reasonably competent government agency will account for that where necessary.
It's strange. You object to the government here yet expect private industry to fill the same gap. Why do you believe private industry would navigate these issues better than a government agency would? Given the difference in incentives it doesn't make any sense.
It's a good thing for the regulator to be able to step in at will rather than blindly hope that things go well. Industry is notoriously bad at making short term sacrifices for long term risk management. Would you rather the government force them to maintain their own reserves via regulation?
> This isn't a different thing from the first thing. There being less supply is what causes the price to go up.
No, the two are not at all the same. Rapid price fluctuations are one issue. Essential resources are an entirely separate problem. Volatility and starving to death both involve price movement but are otherwise very different things.
> encouraging the market to take all the slack out causes there to be less supply.
So if the reserve is run by the government it's removing slack and reducing supply, but when run by private industry ... ?
No amount of regular slack is ever going to be able to compensate for a tail risk that blocks the import of an essential good. Take oil for example. No company is ever going to voluntarily warehouse enough to keep the entire US economy going for any significant amount of time. It's a crazy small tail risk and very expensive to counterbalance.
Food is similar. No grocery store or wholesaler or whoever else is going to voluntarily stockpile enough to keep people from starving in the event of widespread crop failure or similarly devastating adverse environmental event.
> 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.
Why would that be? Filling and emptying shifts demand but doesn't create additional. Anyway you seem to be arguing that private industry should do this for themselves. So whatever the effects are they will be present either way.
Why do you expect disproportionate expenditures? The cost is that of warehousing. The benefit is the entire economy running more smoothly which presumably increases taxes by quite a lot if money is all you're concerned with. It also just generally improves everyone's quality of life which I would hope is the entire purpose for the government to exist when you get down to it.