More important, however is the fact that there is no hard evidence to suggest that oil production is lower with OPEC on the scene than would have been the case in an alternative world in which OPEC did not exist. We might suspect that OPEC restrains production, but academics who have tested that proposition can't prove it.

Regardless, the public obsession over OPEC is largely driven by a fundamental misunderstanding of the oil market at present. Production restraint from OPEC did not cause this price spiral. Instead, it was triggered by an aggregate demand shock which was in turn triggered by an unprecedented and unexpected surge in global economic growth over the past several years (growth largely driving by China and India). Moreover, production decisions from OPEC cannot reverse the oil price spiral. As far as we know, cartel members are not holding back any substantial amounts of the oil grades the market is most interested in acquiring. For the most part, cartel members are producing flat out.

Hamilton's analysis suggested that the best unbiased predictor of future price is the present price, but the standard deviation of oil prices from the mean is 15.28%. If we that this historic "random walk" will continue, then a price forecast of $115 per barrel made in the 1st quarter of 2008 (when prices averaged $115 per barrel) would be your best guess for prices in the 2nd quarter of 2008, but the upper-boundary of the price given historic standard deviations would be $156 per barrel and the lower-boundary would be $85 per barrel. A 1st quarter 2008 price forecast for the 3rd quarter of 2008 gives you an upper boundary of $177 per barrel and a lower boundary of $75 per barrel. A 1st quarter 2008 forecast for the 4th quarter of 2008 gives you an upper boundary of $195 per barrel and a lower boundary of $68 per barrel. A forecast for one year hence – the 1st quarter of 2009 – would give you an upper boundary of $212 per barrel and a lower boundary of $62 per barrel. A forecast for four years hence – the 1st quarter of 2012 – gives you an upper boundary of $391 per barrel and a lower boundary of $34 per barrel.

The point here is that even rather small changes in petroleum supply and demand can have a major impact on crude oil prices, and hazarding to forecast those changes is a fool's errand. While past may not be prologue – there are a number of plausible narratives to suggest that scarcity is finally beginning to manifest itself in oil markets have a century-long hiatus – there is surprisingly little concrete evidence for that proposition at present. Policy makers should keep this in mind when going about the grand job of reengineering the energy economy.

Energy subsidies for all subsectors of the energy industry should be eliminated, not expanded. If Congress wishes to promote less polluting energy sources, then the best way to go about this is to tax or regulate emissions and let market actors decide how to most efficiently allocate resources under those taxes or regulations. In short, there are plenty of ways one might go about reducing pollution, and renewable energy is but one of several ways of doing that. Politicians are not in a good position to know how best to go about that job.