While we find Medlock and Jaffe’s argument for reducing non-commerical positions in the oil market persuasive, here’s one argument they make in their paper that were not buying.
They say the government should have flooded the market with oil during last summer’s oil spike by opening its strategic reserves.
The strategic reserves are supposed to be used for emergencies. Last summer’s oil spike was not an emergency in the traditional sense. The reserve has been used during the first Gulf War, and after Hurricane Katrina.
If the government had flooded the market with oil to temporarily tamp down prices, what good would come of it? It would have been a short term bailout, which would ultimately just mask the larger oil problem. As we wrote last year, “Long-term problems require long-term solutions.”
In that regard, last years oil spike can be seen as a blessing. It was relatively short lived, and it provided a clear wake up call to the American people and the government that oil is not an abundant commodity that should be taken lightly. It’s helped set us on a path towards more long term reduction of oil consumption.
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