Have We Really Forgotten?
Returning from a week's vacation, I see that concerns about high oil prices remain staples for both the media and politicians. Today's Wall St. Journal included articles on oil's impact on the economy, and on the presidential candidates' positions on energy policy. But it strikes me as odd that we haven't heard anyone--so far as I've noticed--point out the blindingly obvious but genuinely noteworthy fact that current high oil prices are actually a strong signal that the markets are working, doing their job as intended and doing it well.

The last time we had sustained oil prices at this level in nominal terms--though not in real dollars--our worries were more immediate than a possible slowdown in economic growth. We had gas lines, gas rationing of a sort (odd-even license plate restrictions), and bizarre wholesale- and producer-level activity that actually reduced efficiency and held up supplies. All of this was the result of non-market based policy responses to an "energy crisis." As tempting as it might be to fiddle with things now in an attempt to push down energy prices in the short run, we should remember that there are worse outcomes than buying the energy we need at high prices.

Any meaningful long-term changes in our energy situation will require years to implement and still longer to take effect. That doesn't mean such changes aren't worth undertaking--quite the contrary--but the debate about them shouldn't be colored by short-term concerns, which are driven at least in part by short-term problems (Yukos, Nigeria, etc.,) and for which only smoothly-functioning energy markets can compensate.

It is also worth recognzing that those most affected by high oil prices are not consumers in the developed countries, such as the US, but the billions in the developing world living on a dollar or two a day. High oil prices represent a serious drain on hard currency for their nations, many of which have little alternative but increased external borrowing.