gasoline supply resulted in long lines at service stations, some increase in carpooling, some increased use of public transportation, some decrease in pleasure driving, and a substantial rise in public indignation. The economic effects of the OPEC embargo were discernible in reduced sales of large cars, lower demand for motel rooms, curtailed markets for recreational vehicles, and similar economic activities associated with automotive travel. While those effects may not be negligible and were especially severe to the businesses directly involved, they represent but a fraction of the economic injury which could have been anticipated if a greater share of the shortage had to be borne by the petrochemical industry, or any other industry for which the (energy) input-output ratio is relatively rigid, at least in the short term. At any rate, it is clear that in some cases the degree-of-dependence rule has to be modified to reflect the responsibility of reducing adverse economic effects by Government allocation actions. This would contemplate a tradeoff between reduced unemployment and loss in GNP, on the one hand, and public indignation and/or rationing at the consumer level, on the other. (7) Great concern was expressed in the interviews about the possible political use of an economic stockpile and the need to insulate the management of an economic stockpile from political pressure. An additional, secondary stockpiling function associated with the third option would be to assist other countries by providing supply during temporary shortages, by maintaining foreign production during temporary surpluses, or by using stocks in commodity trading. b. Category 2. - Stockpiling options in this category include (1) conserving scarce domestic materials, and (2) reducing domestic price variations through transactions only with domestic producer and producers. Additional functions which could be associated with the first option are stockpiling to support substantially uneconomic domestic sources of imported materials at a minimal level to provide standby capacity, to provide a market for promising new production technologies during early development, and to develop or stabilize the market for production from a recycling center. Table III-1 is a conceptual display of how the policies in these two categories might be used over the lifetime of an economic stockpile. E. DECISION CRITERIA-A MODEL FOR DEVELOPING AND IMPLEMENTING ECONOMIC STOCKPILING POLICY A fundamental proposition of this assessment is that the materials to be stockpiled must be directly related to the problem which the stockpiling policy is designed to alleviate. It is also clear that the materials will vary from one stockpile to another, both in number and in kind. For example, relatively few materials of certain types may be needed for a stockpile designed to overcome cartel actions which are limited in potential scope. On the other hand, a considerably larger number of materials of various kinds may be required for a stockpile aimed at compensating for temporary surpluses and temporary shortages in the economy as a whole. Since there is no direct U.S. experience with stockpiling to achieve economic goals, there is a need to consider the entire decisionmaking process related to developing, implementing, and operating an economic stockpile. The decisionmaking model developed in the assessment (hereafter termed "Decision Criteria Model") provides guidelines for determining, first, whether or not to stockpile for economic reasons and, second, how to determine the optimal quantity of materials to acquire and disperse from the stockpile once it is established. 1. Components of the Decision Criteria Model The Decision Criteria Model is composed of four components: (1) Materials Selection Criteria, (2) Economic Welfare Model, (3) Specification of Functional Nature of 77-119 0-76-5 Table III-1.-Matrix of stockpiling policies and possible operational actions Stockpile, and (4) Operating Cost Model. The Materials Selection Criteria, which are developed and explained in this chapter, are basic considerations or guidelines to use in identifying the materials most directly related to the supply or price problem which the stockpiling policy is designed to alleviate. The Economic Welfare Model is a set of econometric equations which are based on the theory of welfare economics and which can be used to determine the benefits and costs to the United States of implementing an economic stockpile. The Functional Specification is a set of guidelines which can be followed in determining such factors as stockpile location and storage, the form of the materials, and the time factors implicit in stockpiling decisions. Finally, the Operating Cost Model is a means of quantitatively estimating the direct, out-ofpocket costs to the U.S. Government of operating an economic stockpile. The Materials Selection Criteria are developed and explained immediately below; the Economic Welfare Model, in chapters IV and V; and the Functional Specification and the Operating Cost Model, in chapter VI. 2. Materials Selection Criteria The selection of materials for each stockpiling policy involves a series of criteria directly related to the particular policy under con sideration. Some of these criteria are common to more than one policy. In fact, one criterion may be considered as common to all policies, i.e., the consideration as to whether the material is significant to the U.S. economy as a whole or technologically significant in the manufacture of components important to the U.S. economy. Petroleum and iron ore could qualify for the former, while platinum used in antipollution control devices in automobiles could qualify for the latter. It is apparent that definitions of "significant," "important," and the other terms mentioned will be needed, preferably in quantitative terms to the extent possible. This would be a proper function for the agency involved in stockpiling and would require a considerable amount of statistical computations and measurements. For the present assessment, selections were based on judgmental decisions by a limited group of persons knowledgeable in the materials field. These selections will therefore be illustrative rather than definitive. Having determined that a material meets the first criterion applicable to each of the policies, one must then consider whether or not it also meets other criteria related to the policy under review. These Materials Selection Criteria are listed below, with brief descriptions of how each one is applicable to the five stockpiling policies considered in detail. a. SP-1: Discourage or Counteract Cartel or Unilateral Political Actions Affecting Price or Supply. (1) Economic or technological significance: Materials of economic significance are those which are basic to manufacturing, construction, and ancillary industries, and without which these industries would be unable to operate. Petroleum and iron ore are examples. Materials of technological significance are those possessing specific inherent qualities or properties (often unique) which are critical to insure the functioning of industrial operations or technological processes. Platinum used in antipollution control devices in automobiles is an example. (2) High degree of import dependence: This criterion need not refer to total or almost total dependence on imports. For petroleum, for example, the 30- to 40-percent import dependence is high enough to create supply and price concern. On the other hand, setting the degree of dependence too low would tend to blanket in an inordinate number of materials. The potential for substitution should be taken into account in measuring import dependence, but this becomes a difficult problem from at least two standpoints: the extent to which substitute materials can meet the performance standards of the original material, and the new intermaterial supply effects resulting from the substitution. (3) High potential for political control of supply and price: This is the basic screening criterion for this stockpile. Materials with little or no potential for cartel or unilateral actions could be excluded from consideration at the time the stockpile is established, regardlesss of the other two elements described above. However, since the creation and effectiveness of cartels are subject to change, a continuing review of developments would be essential. b. SP-2: Cushion the Impact of Nonpolitical Import Disruptions. (1) Economic or technological significance: Same as (1) under a, above. (2) High degree of import dependence: Same as (2) under a, above. (3) High degree of concentration of supply: This is the basic screening criterion for this stockpile. The total uncertainty of physical disasters, such as earthquakes, fires, explosions, and shipwrecks, could make every material vulnerable to nonpolitical import disruptions. Strikes either at producing installations or on shipping or distribution lines may be partially anticipated and must be monitored continually where periodic labor negotiations are involved, although wildcat strikes are wholly unpredictable. In any event, the seriousness of disruptions would follow from the degree to which supply is concentrated geographically, through industrial combinations, or because of labor union relationships. c. SP-3: Assist in International Materials Market Stabilization. (1) Economic or technological significance: Same as (1) under a, above. (2) High degree of international trade: International materials market stabilization involves those commodities in which international trade is a significant enough factor to influence stability in foreign markets and therefore in U.S. domestic markets. (3) Significant volatility of international prices: Significant price volatility of commodities which are traded on an international basis often show wide degrees of fluctuation over short periods of time. As in the case of domestic price volatility, the degree and frequency of fluctuation provide indications of the extent to which stability is needed. These variations can be measured in import and export values or in such markets as the London Metal Exchange, in terms of departures from average price levels in a base period or of spreads between high and low prices over time. d. SP-4: Conserve Scarce Domestic Materials. (1) Economic or technological significance: Same as (1) under a, above. (2) High degree of import dependence: Same as (2) under a, above. (3) Significant lack of domestic availability: This is the basic screening criterion for this stockpile. The relative unavailability of domestic resources from which production can be pursued without recourse to governmental assistance will determine the extent to which a stockpile is necessary to achieve the policy objective set forth. The elements to be considered include the quality of the resources, present and future, their accessibility, and the potential for technological breakthroughs. e. SP-5: Provide a Market for Temporary Surpluses and Ease Temporary Shortages. (1) Economic or technological significance: Same as (1) under a, above. (2) Significant volatility of domestic prices: Since domestic price stability is the basic objective of this stockpile, estimates of price volatility as a measure of instability provide indications of the extent to which stability needs to be achieved. Price volatility as a reflection of supply/demand relationships during various phases of the business cycle could be measured, for example, in terms of variations from average price levels or of spreads between high and low prices for each material. (3) Wide fluctuations in domestic demand/supply: This criterion supplements the price volatility measurements under (2). It could help delineate the extent to which supply surpluses or shortages are responsible for price variations and thus help determine those materials in which governmental intervention in the market place is likely to be most effective. 3. Modified Delphi Technique Used To Identify Problem-Related Materials For the present assessment, materials have been selected based upon the judgments of a small group of people knowledgeable in the materials field. The primary goal of these experts was to identify those materials which are directly related to the national problems which the stockpiling policies are designed to alleviate. In this way, a list of Problem-Related Materials was constructed: first, as a means of testing the economic and noneconomic impacts of implementing a stockpile to achieve economic purposes; and second, as illustrations of classes of materials which should be analyzed in more depth by the agency responsible for economic stockpiling. For these reasons, the materials selected in the assessment should be considered illustrative, rather than exhaustive. |