In a perfect world the price for goods or service is determined by the law of supply and demand. A price of a product will be determined when a point is reached that equalizes those two elements. However in a real world the price is actually established by three other elements when the product such as oil has geo political implications. Those three additional elements are fear, greed and politics.
The fear element can be most graphically illustrated by the long gas lines during the Arab embargo of the seventies. The average driver motivated by fear that he or she would not have enough gas therefore at every opportunity waited in long lines so that they would be sure to have a full tank. Having a full tank in every car in America of course only exacerbated the problem.
The politics of the price of oil is so complex that I can only make some general observations. We have an oil man in the white house, high oil prices are vital to the reconstruction of Iraq and the stability of the former Soviet Union. It can also be said that high oil prices are placing enormous economic pressure on the tyrannical regime in North Korea.
The greed component of high energy prices is one that we can all attack. Their can be no question that a good deal of this increase can be attributed to more than just the emerging economies of India and China. In every commodity, real estate or financial instrument boom cycle we have always had a large element of speculation which has driven the prices beyond the equalization rules of the law of supply and demand. The American consuming public can reverse the tables and put fear in the hearts of the speculators by adopting a simple new mind set. Consume less energy.
It wouldn't really take a whole lot of effort to send the price of oil cascading in the other direction. Make conservation the focus of the TV news cycle, the blogosphere and the main stream print media. Put just the topic of conservation on the lips of every American and have some actually practice it and the speculators will run for the hills. Promote no energy consumption days, turn the heat off, car pool, turn all the lights out.
As in every boom and bust cycle the late stage speculators driven by greed will get the punishment they so richly deserve.
