(Note: This is a joint post with my EPI colleague Andrew Fieldhouse.)

The economy remains fragile and well below potential. Major deficit reduction should not be on the table until the recovery is firmly on track, that is, until unemployment has dropped significantly and is on a downward trajectory. To be concrete, unemployment should reach 6 percent or lower before any fiscal contraction should be seriously considered. In fact, with unemployment hovering near 10 percent and with projections putting unemployment at elevated levels for at least the next couple of years, further job creation is indeed necessary.

The economic recovery remains fragile and a decrease in federal outlays could jeopardize the budding economic upturn. Falling state and local government expenditure and investment have taken an increasing toll on the recovery over the last three quarters, most recently shaving half a percentage point off of real GDP growth in the first quarter. Consumer spending perked up in the first quarter, but the increase in spending was financed by a depletion of personal savings at a time when real disposable incomes fell. With the euro sliding to four-year lows against the dollar, U.S. export competiveness will suffer and a widening trade gap will likely continue to drag at economic growth. A retrenchment of spending in the context of deficit reduction would only serve to further weaken the fragile recovery.

Should we do more? Objective observers agree that the Recovery Act has worked to stimulate growth and create jobs. The Congressional Budget Office (CBO) recently estimated that the Recovery Act added between 1.7 and 4.2 percentage points to real GDP growth in the first quarter, and increased employment by between 1.8 and 4.1 million jobs. Without the Recovery Act, the economy could have remained mired in recession or reentered a period of contraction. Other estimates, from Goldman Sachs and Moody’s Economy.com among others, have also shown that the Recovery Act has had a significant impact.

As this federal fiscal support fades (and the outlook for state and local budgets continues to deteriorate), the economy will lose some of the support that helped turn the tide. In a worst case scenario, a double-dip recession induced by premature fiscal tightening would counterproductively worsen the medium and long-term fiscal outlook.

(Note that the current budget deficit largely results from short-term economic factors, not from the Recovery Act. In a recent briefing paper, my EPI colleague Josh Bivens notes that the Recovery Act is projected to add only four percentage points to the debt-to-GDP ratio between 2008 and 2019 – a tenth of the total projected increase - suggesting that it is not a significant factor driving the long-term debt trajectory. Further, as the economy recovers, the deficit will drop by about half.)

The near-term policy priority must thus be fostering an economic expansion rather than enacting counterproductive, symbolic austerity measures such as freezing non-defense discretionary spending or rescinding unobligated Recovery Act balances.

Simply put, more must be done to address the cumulative loss of 7.4 million jobs since the beginning of the recession in December 2007. While piecemeal stimulus measures such as extensions of federally funded unemployment benefits or tax credit extensions are beneficial, more fiscal aid to state and localities, as well as other targeted job creation measures should be enacted. Further stimulus will put the economy on surer footing and help to alleviate the pain inflicted by the worst recession of the last 75 years.

In this time of economic weakness and near record levels of unemployment, the top national policy priority must be job creation rather than deficit reduction.

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The question presumes that having the federal government in the United States (or the national government in other nations) spend more taxpayer dollars creates jobs and economic growth. Please explain how taking one dollar-- through taxation or debt-- from someone who earned it and giving that dollar to someone else will increase net wealth, income or employment.

Should Obama, Reid and Pelosi stand on one side of a lake and each draws a bucket full of water from the lake and they then march around the lake to the other side and in front of camera’s and court economists pour the three buckets into the lake….is the lake stimulated to new depths. If they do this 800 billion times is there more water in the lake? If you believe there is more water in the lake after this Fiscal stimulus then one would fear ending this process. If, however, you recognize this as a cover for paying off one’s political friends with other people’s money, then stopping the exercise is the beginning of a real recovery and economic growth.

Note the creation of government “jobs” and the failure of this economy to create real jobs. The sooner this is reversed, the better.

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