Ultimately, the answer to high oil prices is a lot more production. That?s exactly what the Bush administration intends to do. New Energy Secretary Sam Bodman has been put in place to implement Bush policies for greater nuclear energy use, increased use of clean coal, the development of a free-trade national electricity grid, and the foreign coordination of liquid natural gas. Also in the policy mix is new oil and gas drilling in the Arctic National Wildlife Refuge (ANWR).

Is Bodman the right man for this job? Absolutely. Bodman, a chemical engineering scientist who has taught at MIT, was the chief operating officer of the super-sized Fidelity mutual fund company and is a former venture capitalist. This is a guy who will quietly manage the U.S. effort to break out of the current OPEC-reliant paradigm and shift to the development of multiple new energy sources.

We?re already seeing signs of progress. The Excelon utility company has just received an early site permit for nuclear power, and Duke Power has nearly completed its combined operating license permit, which includes a pre-approved reactor design.

Meanwhile, there?s still a lot of oil out there. ?Hard Green? author Peter Huber has suggested that there are 3 trillion barrels of oil buried in Venezuela and Alberta, Canada. Washington policy analyst James Lucier also notes that individual states are taking matters into their own hands by exercising states? rights to drill on the outer continental shelf. In Virginia, Democratic governor Mark Warner is expected to sign an OCS drilling bill from his legislature to do exactly that.

The key point is to let markets work. Free-market pricing will best allocate the shifts in both demand and supply. Spiking energy prices will reduce consumption. They will also attract capital investment leading to much greater production. That is, if government policies allow markets to work.

In the meantime, small investors thinking about jumping on the gravy train of higher oil prices should beware. Bubbles happen. And a major oil bubble could be on the verge of bursting.