And we’re back to debating what’s driving the increase in oil prices. As James Hamilton explains, there are monetary forces pushing prices higher, but it’s always good to keep in mind the demand dynamics. Here’s the key takeaway for American consumers:

The first point I’d emphasize about this hypothesis is that the recovery people are talking about isn’t necessarily in the U.S., Europe, or Japan. Developments in those countries are not what have been driving the oil market in recent years. These regions reduced their consumption of oil by almost 800,000 barrels per day between 2005 and 2007, a time when the price of oil was booming. The increases in demand over that period came instead from places like China, India, and the Middle East.

And, as Dave Cohen notes, the additional drops in consumption from the major industrialized countries since the start of 2008 have been quite remarkable. U.S. oil consumption in the first three months of this year averaged 18.8 million barrels per day, almost 2 mb/d below the value for 2007:Q1. Japan’s real GDP fell at a 15% annual rate in the first quarter, and its overall oil product output for April was 14% below year-earlier values, though the April measure of Japan’s industrial production showed a sharp gain. GDP declines in Europe also exceed those in the United States.

So to the extent that oil speculators see any green shoots, perhaps they’re in the nature of Asian bamboo rather than American prairie grass. Chinese oil consumption was up 4% in April, though that was the first year-on-year gain for them in 6 months. India’s oil consumption also seems to be growing. But so far those gains are well below the drops seen in the U.S. and elsewhere.

As is increasingly the case in this world, it’s not about us. But it will affect us. A $70 barrel of oil is a much greater burden on household budgets than a $30 barrel of oil, but a $120 barrel is an economic disaster, particularly with households pushed to the limit by unemployment and debt. It’s long past time for policymakers to begin speaking plainly about this; we can never again count on consistently cheap oil, and so what can we do to protect ourselves economically?

You know my preferred solutions. A substantial increase by steps in the gas tax beginning in 2011, improved efficiency on highways via congestion tolling, and the use of tax and toll revenues on investments in rail and transit. Combine all of that with the impact of the gas tax and higher oil prices on consumer preferences for automobile efficiency, and we’ll have made substantial progress in limiting our exposure to high and volatile oil prices.