On the theory that there can never be enough posts on energy policy (I'm clearly thinking of you, clearthinker!), let's have some more.

There is one thing that doesn't seem to get mentioned when discussing Hillary's gas tax holiday pandering: Attempting to lower gas prices is the stupidest possible thing to do now. It means digging a deeper hole instead of trying to get out of it.

I am not an economist, but I will try to explain why the oil market is rather tricky, and why it's all a matter of supply and demand.

First let's take a look at the supply side of the equation. Drilling for oil is an expensive and complex enterprise. There is very little excess capacity and it is simply impossible to substantially increase production at a short notice. That is exactly why any production outages (equipment failures, wars, terrorist attacks, embargoes) have immediate and wide-ranging effects. Worse, oil is not a renewable resource, and that is the killer (more on whether oil will run out below).

Now the demand side. In the short to medium term, the demand is highly inelastic. Translated into English this means that oil/gasoline consumption does not respond to changes in price. If gas was two cents a gallon, people wouldn't suddenly start driving ten times as much, and if gas was twelve dollars a gallon, they wouldn't drive five times less.

Globally, the demand for oil is rapidly rising. The Chinese and Indians want to drive cars too, and they now finally have enough money to afford them. With rising demand but relatively static supply, the price has to go up. This places Americans at an unique disadvantage, due to an almost perfect storm of multiple influences.

First and foremost, Americans are dependent on cars and gasoline more than any other nation. Furthermore, oil prices are sharply rising at a time when dollar is rapidly weakening. Because gas was never significantly taxed in the US (unlike many other countries), the government cannot lower the taxes to offset the rising oil prices (and no, 30 cents a gallon won't have any effect). This last point (low gas tax) is also partially responsible for the American dependence on oil.

A short digression about peak oil and running out. Oil is not running out as fast as doomsday scenarios predicted, and it will never completely run out. None of that will really help, either.

The reason why oil isn't running out so fast is simple: As oil prices rise, new oil sources appear. If there is an oil field where extracting a barrel of oil costs $60, this field is not available as a source when oil sells at $50 a barrel. However, when oil is $120 a barrel, this oil field will be developed.

Oil will also never quite run out. This is because at $500 a barrel, burning oil will not be such a smart idea. What will happen is that oil prices will rise high enough for other sources of energy to displace oil. When people say "oil will run out", it is a shorthand for saying "oil prices will be so high that oil will no longer be useful".

What to do about it? The worst thing to do is attempting to bend reality (like trying to lower gas prices) because reality <i>will</i> snap back. With a vengeance.

A less bad thing would be doing nothing and letting things take care of themselves. The invisible hand of the market etcetera. The greatest danger is that there might be some crash or shock with far-reaching negative consequences. It is a given that oil will run out, but no one knows when and how. That's why doing nothing is risky.

The smartest but hardest thing to do is getting rid of the oil dependency as quickly as possible. That means reducing energy consumption in general, and replacing oil with alternative sources of energy. Rising oil/gas prices help by making other energy sources more attractive.

There is much the US government could - but almost certainly won't - do for its citizens. Subsidies for developing alternative energy sources, possibly funded by higher gas taxes. Building or improving public transport, especially in large cities. Subsidies for fuel efficient cars, and/or higher taxes on gas guzzlers - remember, burning oil is practically as bad as funding terrorists! It should not be encouraged.

The important point is that higher gas prices more or less gently force people to stop wasting oil. The question is how fast the oil prices will rise and whether folks will have enough time to do something about it. That is where government can/should help - just keep in mind that giving out free cigarettes is not a way to help people stop smoking.

The sad fact is that the problems we are facing today have been dreadfully obvious for decades, but instead of solving them it's always been easier to let the problems fester. Which means the eventual solution will be more difficult and painful. But then humans have never been known for their foresight.