It’s not news to anyone that the United States, and the world, have an energy problem. But we’ve had this problem for so long without the roof falling in on us that it has become a kind of psycho-political background noise. Administrations going back to Richard Nixon’s have talked about energy independence, or at least significantly reducing dependence on foreign sources of oil and gas, and yet no one ever seems to address the problem on anything like the scale required. And so the problem has only gotten worse.

Since the roof has not fallen in, optimistic observers in these libertarian-leaning times like to point to the market as our inevitable savior. The market is surely a powerful mechanism: It, not any government policy, is responsible for our ability to get more production out of less energy than was possible in the middle 1970s, and production has responded to price signals in ways that have brought more oil and gas into the market. Nevertheless, the market alone cannot save us from the problem we face now. Thinking otherwise will turn us into the proverbial frog in the slowly heating pot. If we trust only in the market and ignore the wider social ingenuity of which we are capable (and which enabled us to establish the market in the first place), then we’re cooked.

The crux of the oil problem, as an economist might put it, is a market imperfection with very large and intransigent cost externalities. Rather than try to define in lay terms what this means, let a simple illustration suffice: Despite a surge in demand, world oil production has not been able to rise above the peak it reached in May 2005, leading to prices above $100 per barrel. The reason for this is that the severe decline of “easy oil” is imminent.

Easy oil is petroleum that is low in sulfur, near the surface, geographically near markets and exportable. Nearly half of all such petroleum deposits worldwide have been produced—a fact documented by numerous expert sources. Sufficient quantities of good petroleum substitutes, such as natural gas or electricity from other energy sources, are far more expensive, and neither crude discoveries in remote or underwater areas, nor reserves of “heavy oil” in Canada and elsewhere, are any cheaper. At present levels of demand, therefore, most oil economists agree that the global economy will run through the remaining deposits of easy oil much faster than the world consumed earlier ones, resulting in abruptly higher and unpredictable price levels.

This analysis is not hypothetical, despite what some critics contend. The U.S. experience proves it. In 1970, much to the surprise of those who believed that market...