Q: Is it not the case, though, that we begin to see a problem when the providers of "discretionary" services/products (or, we might call these folks, "recipients of discretionary dollars") do not receive the income they "need" (ie., rely upon) for their livlihoods (i.e., necessities) - ?

Yes, there will be a lot of jobs that will be made redundant. That is why WT says in his ELP plan "Get thee to the non-discretionary side of the economy."

Q: Will this be enough to offset the loss?

Supply and demand will adjust to each other to stay in equilibrium, albeit a constantly changing equilibrium. Shrinkage and elimination of the discretionary side of the economy will obviously be a big part of it. I suspect that our definition of discretionary and non-discretionary, luxury and essential will change with time.

Q: What about as the supply declines and the decline continues on...?

See above. While some of our past experiences (Great Depression, WWII, 70s Energy Crisis) offer some useful lessons and templates, this time around things will be different. In the Great Depression, there was a 3 1/2 year economic collapse, and then the slow recovery; WWII lasted a few years and then was over; The energy crisis lasted a few years, and then the spigots were opened and oil prices plunged. This time, energy price increases will just keep going up and up and up for decade after decade, without relief. There are not many precedents for such a long term, unrelenting crisis.

Q: Do you see any way to bring about these "elastic" changes now, in an effort to use the energy we have for preparing for future/alternative sources, or etc.?

Individuals can always make their own lifestyle choices. Anything society wide is going to have to take a massive government intervention. I'm not so pessimistic as to think that nothing will be done, but I am realistic enough to recognize that what is done will mostly be too little, too late, and sometimes not even the right thing.