Pick One: SPR or Recession
Posted By Steven R. Kopits • on April 25, 2011
(Note: Commentaries do not necessarily represent the ASPO-USA position.)
In a Brookings Institution presentation in early 2009, UCSD economist James Hamilton suggested that the government think of using the US Strategic Petroleum Reserve (SPR) to counter high oil prices. Although the suggestion failed to gain traction at the time, recent upheaval in the Middle East is once again putting the future of the SPR back on the agenda. Should the reserve be drawn to cool oil prices which have surged on the back of lost Libyan crude output? I must admit I was somewhat cool to the idea when Hamilton published his Brookings paper, but his suggestions often prove prescient and therefore deserve closer examination. Indeed I became much more convinced when I saw a Federal Reserve presentation on short term oil prices, which largely concluded that the institution has little insight into short term oil price movements. Given the potential impact of oil prices on the economy, the Fed does not have the luxury of such ignorance..............
I don't think these current price hikes qualify as a emergency, especially since much of the price hikes are inflation based not due to international scarcity.
And 2 other points to consider, there really isn't that much oil there, just days worth, and releasing the SPR might actually encourage even more speculation because oil traders will think the supply situation is actually much worse.
But I do have to agree with the recession comment, the continuing surge in oil prices will increase costs across the economy and decrease discretionary spending like vacations, etc.
Thomas Sowell: There are no solutions, just trade-offs.
the SPR is there to protect us during national emergencies, not to buy votes. Gas has gone up this high before and it will again. If you are stupid enough to buy a car you can't afford to operate whose fault is that?
