The FT has reported that Mervyn King has said:

British households must learn to live with higher prices and without increased wages

I suspect that Mervyn King is right, but not for the reasons that he might give. The reality is that the changes in fuel and oil prices are indicative of something much more profound than a temporary blip in the economy caused by speculators looking for something other than sub prime mortgages from which to make a fast buck.

That profound reality is the physical constraint of the world in which we live. It is reaching its limits. The change in prices that we are seeing are a reflection of that.

The challenge that we face is twofold. First we have to learn how to consume less. Second we will have to learn how to distribute the excess profits that will result from the command of scarce resources in a just and fair way. Neither is going to be easy. There are significant tax implications in this.

We have interesting times ahead.