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Economists think it is a mistake to blame price increases on speculators.  It is certainly true that some market participants are betting that oil prices will rise, and bidding up the prices, but this is just good economics: buy low, sell high.  By doing this, moreover, speculators do everyone else a service: they signal that oil is likely to be more scare, so people should take actions that protect them financially against the increase.

The energy market is a huge world market; U.S. policy can perhaps make some difference to world prices, but not much. 

When the government is running a deficit, it is spending more than it takes in as taxes. That means it is borrowing. This extra borrowing raises the demand for loans, pushing up the interest rate.

The deficit contributes to inflation if the Fed feels pressure to "monetize" past debts: higher inflation reduces the value of the amounts the government owes, to higher inflation is essentially another source of tax revenue.

The main factors in the run up of oil prices seem to be 1) higher demand comining from improving economies, and 2) the recent events in the Middle East.  I think the Fed's actions may have played a role, by contributing to expectations of future inflation, but I suspect that is a modest effect.

It is perfectly reasonable to hold some gold as part of a well-diversified portfolio.  But investing heavily in gold is quite risky: things that go up can also come down.  If gold were an obviously better investment than anything else - higher return, lower risk - everyone would have bought it already!

I agree that U.S. policy has been far too restrictive in allowing additional exploration and development of domestic oil  reserves.  At the same time, existing estimates do not suggest this would make a major difference to overall oil prices: the amounts appear to be too small.

I do not think we should treat any bank or other private company as too big too fail.  This does not mean such failures would be painless; they might well generate significant disruptions. But by bailing out big companies, we encourage them to take too much risk, and that creates an even bigger crises down the line.

Your hunch is probably right, although demand for air travel in the U.S. has also been increasing in the past six months, so higher prices are partly due to that effect.

Is it unfair for airlines to profit from nervousness about future oil prices?  No.  Everyone business in the world would do so, and the higher prices reduce demand for air flights, which way we accomodate the higher oil prices.

Your concerns all make sense to me.  I would add to your list the explosive growth of entitlement spending that we will see unless we change policy.  I doubt we can ever grow fast enough to address the debt: we have to cut spending.

Economists are loathe to make forecasts about asset prices!   On the one hand, we have a terrible track record.  On the other hand, the efficient market hypothesis tells us that it is not possible to predic these future price changes.  If a lot of people thought gold's price was going up, they would buy now, which would raise the price now, so it would no longer be a good investment!

The economy has been growing for over a year and a half.  The concern, however, is that the pace of growth has been modest in comparison to the recovery phase of most past recessions.  That is presumably why unemployment rates are still stubbornly high.

Opinions differ widely on why we have a slow recovery.  Some economists, like Paul Krugman, would say we did not have enough fiscal stimulus.  Others, however, believe that private sector uncertainty over "big government" is discouraging investment and growth.  There is no easy way to know who is right.

My sense is that many politicians know a good deal of economics, or they have high quality advisers who can explain it and guide them.  The problem is that it is often politically difficult to advocate the economically sensible policies.

A perfect illustration is national debt. Every economist agrees that we are on a path to bankruptcy, and most politicians know this too.

But opinion polls suggest that voters do not want to slow entitlement spending.  So politicians fight over trivial changes in spending that will not have much impact on the debt.

The crucial determinant of how oil prices affect the economy will be the Fed's reaction.  At one extreme, it might say, "well, inflation is getting higher, but it will eventually calm down, so we are going to keep monetary policy steady."  At the other extreme, it might get nervous that inflation is out of control, slam on the monetary brakes, and general a new recession.

My bet is that Bernanke will try to steer the first course (tolerate higher inflation), but political pressures will make this difficult.  So, the outcome is anyone's guess.

A lot of data do suggest that commerical real estate is overvalued and that when it comes back to earth, banks will suffer.  I think this will start to happen when the Fed begins selling off its stock or mortgage-backed securities; this is going to expose the fact that many bank balance sheets are still quite weak.

The Austrian school has many useful insights, and I think their concerns about inflation and credit cycles caused by policy are well-taken.

At the same time, the Austrians do have a tendency to sound so alarmist that they get written off as being extreme.

I think economists - and others - tend to be relatively interventionist because we all want to believe that we "can do something," rather than accepting that bad stuff happens that we can't fix.

It's a perfectly understandable instinct.  But free market economists - of which I am one - believe we should be more cautious about our ability to actually make things better.

The sad fact is that there may not be any good policies that will whelp people like your brother.  Productive economies are highly dynamic: new skills, new industries, new locations for business arise all the time. When this happens, some people are displaced, and many cannot easily retrain or relocate.

That is unfortuate, but any policy that stops these dyanmic adjustments will be death for productivity growth.

So I think the right balance is for society to have policies that insure people against really bad outcomes - like welfare or a negative income tax - but not interfere with markets in any direct way.

I agree with you that disruptions so far in the oil markets do not seem big enough to generate big price spikes.  After all, these disruptions do not destroy the oil; they just postpone when it gets pumped or delivered, and other supplies can accomodate in the mean time.

But recent events do seem to raise the risk of upheaval in Iran, Saudi Arabia, Iraq, and more, in addition to the countries already in play.  So, I suspect there is a bit of "worst case scenario" affecting the speculator expectations.

To assist third world countries, the U.S. can

1) unilaterally eliminate all its trade barriers and encourage other rich countries to do the same.

2) expand legal immigration substantially.

3) end the war on drugs.

4) stop its military adventurism abroad.

Quantiative easing is a defensible strategy, but it carries serious risks, and it is possible Bernake is a bit too sanguine about these risks.

The argument for QE is simple: the US economy is still quite weak, inflation is low, and we need monetary stimulus to recover from the recession.

The risk is that the economy might start to recover much more quickly, or expectations of inflation might increase rapidly, leaving the Fed little time gradually undo the QE.

Bernanke is right to think the Fed has the tools to undo QE; that's easy.

But the political will might be more difficult.  Thus, stagflation - low growth, high inflation - is a real possibility.

To address underfunded government pensions, something has to give:

1. higher taxes;

2. lower pension benefits for those already in the system;

3. lower pension benefits for those who enroll in future;

4. lower other spending.

The magnitude of the underfunding is large in many states, but it is not yet totally out of control.

Of the available options, raising taxes is the least sensible: it lowers growth by driving away productive businesses and people.

Cutting pensions for existing retirees, or those near retirement, seems unfair to most people.

So that means adopting a less generous system going forward, and cutting other expendtiure; the key issue is Medicaid, which is large and growing.

Union busting is in some ways a side show: the crucial issue is, can governments hold firm in their negotations, and cut other items as well.

Adjust for inflation, gas has indeed been more expensive.

The argument for fiscal spending stimulus is that in a recession, we do not have enough demand for goods and services, so government should step in and supply that demand.

Sounds good, but the government can't generate demand from thin air: it can only do so by eventually raising taxes, which of course contracts demand.

So, theory makes a weak case for using spending stimulus.  Worse, the evidence from economists like my colleagues Robert Barro and Alberto Alesina suggests that spending stimulus does not work in practice.

What does seem to work is tax cuts; virtually all economic evidence supports this view. So, the administration should have focussed on this kind of stimulus, not higher spending.

Reduced military spending might have several effects, depending on one's perspective.

The standard Keynesian view suggests this would contract the economy, by reducing overall demand. I do not find that view very convincing, but many economists do.

If one thinks all the current spending is doing useful things for our national security, then of course that security goes down with lower spending.  My own sense is that much current spending is harming, not helping, our security, so reduced spending is a good idea.

This is a separate question, however, from using funds for job creation stimulus.  We need to have evidence that such stimulus works, and in my evaulation it does not.

I was a bit surprised by Buffett's optimism.  I would agree that the near-term outlook is better than six months ago, but I think we will face serious risks: undoing QE2 when that becomes necessary; dealing with out-of-control entitlement spending; and fixing all the misguided retulation and tax policy.

But, Buffett has a pretty good track record! 

I do not mean to suggest that speculators are not responsible for the run-up in oil prices; I am sure they are.  But I do not use the word "blame," since that implies they are doing something harmful or inappropriate.

Speculators are just betting that prices will go up. 
They have every right to do that.  And they frequently get these bets wrong, and lose lots of money; speculation is a risky venture.

So,  I am just saying that "blaming" speculators is not useful.

U.S. energypolicy is misgiuded in many ways, and a neutral approach to all forms would be ideal.

But that should include both eliminating subsidies to oil or gas and eliminating subisides to wind, solar, and other "alternative" sources.  These sources of energy may well be commerically viable one day, but they are not even close at the moment.  And even if one factors in "externalities" from oil (pollution, global warming, the oil weapon threat, etc), they still don't make economic sense.

HAMP was misguided from the start: policy should not have been trying to bailout homeowners in any way.

That said, it is hardly surprising that the program worked badly in practice, independent of whether it made sense: it needed to be huge and fast, goals that are difficult even in the best of times and impossible during a crisis.

Most economists agree with you fully: the income from investments is earned by taking risks, so there is no good argument for treating it more harshly than wage or salary income.