Hoarders often exacerbate food and fuel shortages and price spikes. Steve Hanke, Johns Hopkins economics professor, notes that some of the worst hoarders these days are governments that stockpile staples because they think they can manage things better than the market. In his latest Forbes column, Hanke says:

Over the past year rice prices have more than doubled. Not because of private speculation and hoarding but because of governmentspeculation and hoarding. As the price of rice began to climb, governments invoked their concerns for food security and increased their hoarding propensities. Exporting countries imposed restrictions tokeep rice at home, while some of the largest rice importerssignaled that they intended to significantly increase their buffer stocks. This proved to be a deadly supply-demand cocktail that set off panic buying, a price surge and food riots...

The mother of all commodity hoards is the U.S. Strategic Petroleum Reserve. At its current status of 97% full, the SPR is more than twice the size of private crude oil inventories,
with enough reserves to cover about 71 days of U.S. crude oil imports or 47 days of total U.S.
crude oil consumption...

What should be done with the hoard of crude? It’s time to remove the release rules from the
grip of politics. Market-based release rules would transform the SPR into an oil bank. It would provide the country with a huge precautionary inventory of oil, generate revenue to defray some
of the government’s stockpiling costs, smooth out crude oil price fluctuations and push down spot prices relative to prices for oil to be delivered in the future.

How would an oil (or rice) bank work? The government would sell out-of-the-money call options on its stockpiles. It might, say, sell December 2008 oil options with a strike price of
$200 a barrel. If the price surged above that level, the option buyer would exercise and take delivery of crude oil from the government’s stockpile. If the price never reached $200, the
option would expire worthless, and no crude oil would be released.

Let the market, not politicians, determine the flow of rice, oil and other commodities. Lower, more stable prices will ensue.