By J. Randolph Evans

On June 24, 2011, the United States and the International Energy Association announced plans to sell approximately 60 million barrels of oil from emergency reserves. About half (30 million barrels) will come from the U.S. Strategic Petroleum Reserve. When combined with additional production and supplies on the open market, the release should further drive down gas prices providing consumers some much needed relief.

Not surprisingly in the current political climate, Democrats and Republicans disagreed about whether President Barack Obama’s decision to release about 4% of the country’s petroleum reserve was good timing or bad timing.

Republicans complained that the time to release reserves was when prices were heading up (generating real headwinds to a struggling economic recovery), not when gas prices were already headed down. As a result, Republicans charged that the release from the oil reserves was more about President Obama’s sagging poll numbers than a sagging economy.

Democrats responded that synchronizing the release with existing downward trends in gas prices was smart timing in order to maximize the benefit of juicing up the economy in conjunction with other trends in order to get the economy back on the right track.

Regardless of who is right, the release of oil from the reserves does signal growing desperation for solutions because, unless something is done and done fast, the economy is headed back into another recession. Unfortunately, the federal government has exhausted most of its traditional options for reviving the economy.

The Federal Reserve cannot lower interest rates any further because the interest rates are already near zero. In some respects, many could argue that the rates are actually below zero since the Federal Reserve has effectively paid banks to take money by loaning it to the banks at one rate, and then borrowing it back from the banks at a higher rate.

The federal government itself cannot afford to fund another stimulus package – not that the stimulus packages to date have had any lasting long term impact. With the federal deficit at $14 trillion and a potential default on the federal debt looming, the federal government simply does not have the money.

So, the federal government is left with trying other ways (like driving down gas prices) to stimulate a receding economy. And, the truth be told, driving down gas prices is a good effective short term way to stimulate short term growth.

Lower gas prices help the bottom line of consumers directly and quickly. There is no more direct and timely way of getting money in the pockets of consumers than lowering the amount of money that they pay to fill up their tank.

Importantly, it is also a stimulus that does not vary based on how much people earn. The lower price at the pump is the same regardless of whether the consumer is making more than $250,000 or less than $250,000. (Indeed, assuming higher income earners drive bigger vehicles, they presumably benefit more than lower income earners.)

Effective stimulus packages do that – generating more consumer spending regardless of who is doing the spending.

Interestingly, the release of oil has a secondary (under the radar) benefit for the Obama Administration. Since the gas is sold, it should raise approximately $3 billion in cash for the federal government. For an Administration focused on a potential default in 30 days, every little bit (a day or so) of cash, is big.

Yet, such quick fixes are not without consequence – especially if they are based on assumptions that are wrong. Many in the Administration believe that all of the fundamentals are there for a strong viable economy. As a result, they think the economy just needs a little push to get the ball rolling for real. If they are right, a dramatic reduction in gas prices could be exactly what the doctor ordered.

On the other hand, many believe that the fundamentals of this economy are not sound. They cite growing deficits, tax uncertainty, healthcare regulation, and unsustainable federal debt. If true, the artificial downward pressure on gas prices treats the symptoms of a struggling economy, but offers no help for a cure.

In fact, it could actually make things worse. Like any disease, rather than treat the cause, artificial stimulants mask the core causes with short term positive signs while long term problems get worse.

Worse yet, these temporary ‟feel good” fixes become the preferred method of addressing weakness as each critical moment comes instead of making the hard decisions required for a meaningful long term recovery.

The truth is that the federal government has a spending problem. It has a tax problem. It has a regulation problem. It has a debt problem. Two aspirins and a cup of coffee are not going to fix that. Anyone who thinks otherwise is part of the problem.