A great many “solutions” to the oil/gasoline-price “problem” have surfaced in recent days, each of which will ostensibly drive the price of energy back down to levels that will satisfy consumers. But it’s funny (or not so funny) how each of these “solutions” will do exactly the opposite.

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A windfall profits tax? Oil corporations will pass this tax back to consumers, thus penalizing consumers. Increased gas-mileage standards for new vehicles? This will punish consumers since more-efficient automobiles will cost more. Mandates for the addition of oil substitutes in the production of gasoline? This at first will penalize oil refiners who must invest in new blending equipment, but the cost of that investment will soon be reflected in higher pump prices. Price controls? This will only benefit consumers who like to wait in line for gas.

In one sense, we’re being presented with dangerous solutions to a non-existent crisis. In another, we may see an artificially induced energy crisis grow out of misguided government policy. As is usually the case when the Beltway elite get their dander up, something bad may very well happen. But one must question why their dander is up at all.

While the media rant about suffering consumers who cannot possibly deal with rising gas prices, recent reports from the Conference Board tell us that consumer confidence has risen to a four-year high. Meanwhile, more Americans are working than ever before — despite this energy “problem.”

The media are good at getting their microphones in front of the grumpiest among us, but the truth is: Americans are at work and increasingly prosperous. Three-dollar gas is not slowing us down.

The question is, Why are so many elected officials chomping at the oil-price bit, looking to lay blame anywhere and everywhere they can? Two reasons: First is to demonstrate to their constituents that they are taking action; second is to cover up the fact that they are to blame for high energy prices.

While all our politicians (and Bill O’Reilly, too) jump off the deep end, let’s the rest of us take a step back and rationally analyze today’s high energy prices.

First, let’s be sure to analyze both sides of the equation. If consumers are indeed poorer over gas-price increases, then somebody else is richer — namely oil producers and refiners. In this sense, an increase in the gallon price is a simple wealth transfer between two economic entities, a transfer that has both short- and long-term effects.

As this wealth transfer from consumer to producer takes place, consumers will either buy less gas or allocate more disposable income to gas. Over time, the same consumers will opt for more efficient automobiles. They also will figure out ways to consume less gasoline if the rise in the price of gas offsets the falling prices of other consumer goods. At the same time, the burgeoning resources of energy companies will be deployed to increase the supply of gasoline and/or develop alternative fuels. (Full-page advertisements by British Petroleum currently document such efforts.)

In truth, this wealth-shift adds to our rising standards of living — even though, in the short run, it means we have to forego some discretionary spending. If gas prices were to remain low, then consumption would rise and oil would (in the long term) be depleted before alternative energy sources were developed. But as long as the price of oil stays high, we can be confident that innovation, conservation, substitution, and increased supply will provide for the ultimate fall in energy prices. This relationship is well known to economics students, but not to politicians who rush to artificially push gas prices back down.

There is some history to rising and falling oil prices. Back in 1981, after an Arab oil embargo triggered an oil shortage, market prognosticators were predicting the barrel price of oil would climb into the $80 to $100 range. President Reagan had decontrolled oil and gas prices, and speculators anticipated a further surge in energy prices. But to the consternation of many of the energy bulls, the price of oil began a long-term price decline as innovation, conservation, competition, and substitution all acted to slow the consumption of energy.

This time around, the problem is not foreign embargoes and domestic price controls, but a bona fide increase in the worldwide demand for oil. As a result, efforts to reduce consumption are the equivalent of putting a thumb in the hole in the dike. However, lower regulations, additional tax-induced exploration and production, and incentives for innovation and substitution will all work to alleviate a potential real energy crisis farther down the road.

Recently, China was confronted with a shortage of farmers, and the government response was to eliminate income taxes on farmers. Maybe the appropriate solution to high energy prices is to eliminate effective taxes on energy production rather than install the proposed opposites — windfall profits taxes, et al.

Tax something less, get more of it. There will be affordable energy for all of our cars, now and in the future, if we just let markets work.

— Thomas E. Nugent is executive vice president and chief investment officer of PlanMember Advisors, Inc., and principal of Victoria Capital Management, Inc.