There is indeed no oil shortage, nor is there a food shortage. Global demand for both food and energy has been regularly outpaced by the supply but prices on both commodities have skyrocketed. Despite political rhetoric about needing to produce more oil and build more refineries domestically, that will not change the price, nor will any refineries come online anytime soon. All of those "solutions" will take years and cost a lot of money. Besides, here in Canada we're regularly increasing the output of our oilsands, and with production and exploration ramping up in Saskatchewan you won't need to worry about unstable overseas supply anytime soon.

So why are we paying so darn much if the supply is readily available?

The answer has to do with that nagging, detail oriented machinery that really does run our lives- the economy. And the thing that we are all experiencing right now is the same thing that has toppled governments in the past- INFLATION. Make no mistake, inflation is nothing to be so easily dismissed or ignored. It has been the cause of revolutions and regime changes in countries around the world. In fact, it was one of the significant contributing factors to the downfall of Weimar Germany (we all know the government that took over after that).

Quite simply, the reason why gas and food are so expensive is that your dollar is now worth less than it was in the past. The reasons for this are many and complicated, and the other day Bush actually said something I agree with wholeheartedly; he said "it took us years to get into this fix so it's not going to be over anytime soon". Part of the reason is related to but not directly caused by the problems in housing. The fact that poor people with bad credit took out loans they couldn't repay isn't the cause, although it does hurt. What the banks did with those loans, and lots of other financial instruments, is. The banks created these things called "exotic debt instruments" - they used the debts people owed them to create fake money, then they invested this money in the broader market. This could only last so long though- essentially they sold lies in order to make big money NOW, consequences later be damned. Once it was discovered that they were selling worthless toxic debt, that's when a lot of trouble began.

What made things worse was the fed's reaction- instead of penalizing the banks and big business for their criminal actions, the fed bailed them out, to the tune of several hundred billion. That's right- while you have to shell out more of your paycheque for gas and food, the fed has shelled out hundreds of billions of your dollars to the big banks so they can 'paper over' their losses. Free market indeed.

Anyway, shady banking practices aren't the only reason why your dollar is now worth less, and the whole story can and will one day take up a volume of books. Increased ethanol production, decreasing supplies of freshwater (aquifers across the continental U.S are in significant decline), the outsourcing of manufacturing, and yes, the war in Iraq are all contributors. Regarding the war, I speak of it only in financial terms in this article- regardless of your beliefs on the war, it has been paid for entirely on the U.S credit card- thus leading to a 500 billion dollar VISA bill that hasn't even had a single payment made on it yet. In regards to the outsourcing of manufacturing, remember that the U.S was able to pull itself out of the last depression because they were still able to build lots of stuff. At the end of the war they had factories that could build widgets and ship them all over the world. Now a significant portion of the economy that used to be manufacture based has been replaced with the service sector- that's consumer spending, which means retail etc. That means when the average consumer starts cutting back, because their dollars buy less and less, the economy hurts even more, and inflation gets worse.

But here's the real kicker why gas is so darn expensive- as the value of the dollar drops, people start to panick. They start to invest in things and commodities that will retain their value regardless of the state of the economy. Unless we develop the ability of photosynthesis, society is always going to need food for our bodies and energy for our homes, cars, industry and infrastructure. The availability and cost of energy and food is very intimately connected to the availability of water for farming, industry, the oilpatch (the oilsands in Alberta have nearly succeeded in draining a major river) and of course it's nice to have a drink from time to time.

Since food and energy are two commodities that we're sure to need forever, they are sure bets on investment, so that's where a lot of investors have been putting their money. The more people buy up these commodities, the more expensive they become, hence you have to shell out more dough to buy them. As food and energy become more expensive, the entire economy suffers- farmers have to shell out more money for gas and more money for feed for their animals- thus meaning they will have to raise their prices in order to stay afloat. Same goes for trucking, meaning they will charge more to the retailers, who will then have to pass the cost on to the consumer.

The consumer is already in enough trouble, meaning that more and more of their income will go to paying for staples. Food, energy (that means gas, electricity, heating oil, etc) and of course shelter. This then means less people buying cars and other big ticket items, which further hurts the economy.

How do these increased costs affect society? This isn't the end of the world, and most folks will indeed make due. For many it will mean eating out less and only buying something when you actually have the cash saved up for it (always a sound idea) Who will be hit the hardest will be the poor, those living on fixed incomes, and those with lower end incomes.

The tipping point when inflation seriously affects how a country is run comes when enough people are significantly impacted by it. Having to forego a vacation to Hawaii or holding off on buying that big screen is not being significantly impacted- it is an inconvenience. Having difficulty feeding your kids, or needing to go to a payday loan outlet that will charge 30 % interest in order for you to feed your kids, is.

When this happens you typically have one of three things;

A) A revolution- If enough people have trouble feeding their kids and keeping roofs over their heads, most folks start seeing red and go after those in power. This happened in Bolivia when a private company increased the price of water to 25 % of the average monthly income. The government was so terrified of the massive number of people in the streets that they threw that company out of the country and re-nationalized the water system. This has also happened in Argentina as the people literally threw several successive governments out of power when they didn't perform as desired and to differing degrees in most south and central American countries that have been IMF free market experiments in the past.

Segmentation of society- This also has happened in most south and central American countries, and is generally a precursor to a revolution. What segmentation means is that you have a certain percentage of people (usually a large minority, say 20-30 % of the population) that live generally well off, while the rest live in barrios or slum like conditions. Those at the top of the well off category tend to live a gold-plated existence, while most  in that category perform the necessary core functions like engineers, technicians and middle managers that run the power plants, manage the factories, officers in the army etc. Those in the slum category are disposable workers who exist at the whim of local market conditions. Because such a large percentage of the population lives in a poverty that is completely disconnected from the lifestyle of the well-off, these kinds of segmented countries tend to have large militaries or heavily militarized police forces to keep them in line. A lot of the front-line troops in these militaries actually come from the slums as barracks life is preferable to barrio life, and growing up on mean streets tend to create people who know how to fight. It also helps to create conflict in the lower class as you end up recruiting poor people to oppress and fight other poor people, with the bribe of a slightly better lifestyle. One such example of an economically segmented country (not racially, although there are many similarities) would be Chile during the Pinochet years.

C) Sweeping government reforms- this tends to happen before either A or B. This has happened in the States several times, in the form of price controls and the New Deal. These reforms can work both ways, either helping the little guy or instead paving the way for the kinds of countries detailed in option A or B. We have seen the precursor to some of these reforms in Bush's economic stimulus plan although that is merely a band-aid to try and maintain the status quo.

I would hope that we will see more government reforms- I hope that they will enact protections on the little guy, but fear they will instead serve to isolate and protect big business at the expense of the average Joe, thus leading us down the path to a segmented society (if we're not already there)