With crude oil touching on $117 a barrel last Friday and retail gas prices in the U.S. now averaging a record $3.50 a gallon for regular unleaded, it’s looking more and more likely that gas prices will be a major campaign issue. It’s already voters’ second biggest worry after the economy. So what now?

Well, unfortunately, there’s not a lot the government can do to directly affect prices at the pump. John McCain’s gas tax holiday is at best a very temporary solution and, at worst, nothing more than pandering. But I imagine numerous voters would eagerly accept a price reduction, even if the plan behind it is economically unsound.

The problem is, we don’t produce enough of our own fuel and we have to share what is available with hungry emerging markets, primarily China and India. Those nations are only going to increase their demand and the OPEC nations are not planning to raise production. To make matters extra-special difficult, our biggest alternative energy solution, bio-fuels, has yet to lower prices and is causing a rise in global food costs. Wonderful. Neither the free market nor government-funded solutions have done much to keep us out of this mess.

The best hope is that we’re experiencing a commodities bubble not unlike the housing and technology bubbles. That would mean both oil and food costs are temporarily and artificially high and as soon as the bubble bursts, prices will drop. Sure, another burst bubble is the last thing the global financial markets need but at least this one would come with a very real benefit to average consumers.

I wish I could end this post with a pithy solution. But I can’t. All I know is that we should all be very wary of anything the presidential candidates propose regarding the cost of gasoline. Their “solutions” are more likely to be based on pandering. The reality is, no president will be able to do much to immediately stem the rise in fuel prices. Long-term plans are necessary. International cooperation is necessary. Private innovation is necessary. And, most importantly, an aversion to panic is necessary.

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