The road to economic growth and a full recovery lies in allowing the deficit to grow temporarily and investing in programs that put money in the hands of consumers, two nonpartisan experts said.  

Testifying before the congressional supercommittee yesterday, Congressional Budget Office Director Douglas Elmendorf warned that to avoid slowing the economy even further, the deficit must get worse before it gets better:

There is no inherent contradiction between using fiscal policy to support the economy today and imposing fiscal restraint several years from now. If policymakers wanted to achieve both a short-term economic boost and longer-term fiscal sustainability, a combination of policies would be required: changes in taxes and spending that would widen the deficit now but reduce it later in the decade.

Those policies to stimulate the economy should include tax cuts for the middle class, which increase consumer spending, says Josh Bivens, an economist with the Economic Policy Institute (EPI). In a post on EPI’s blog, Working Economics, Bivens cites a new study by the Center for Economic and Policy Research (CEPR), which shows the middle-class tax cuts in the stimulus package increased consumption.

Bivens says payroll tax cuts for the middle class are definitely a better stimulus for the economy than tax breaks for corporations. Corporate tax cuts would give a windfall to firms that are already sitting on a load of cash, he said.

But a better way to jump start the economy would be to put money directly in the hands of lower- and middle-class consumers, Bivens said, through increases in programs like food stamps, extended unemployment insurance and creating new jobs to rebuild the infrastructure. He also said increasing aid to state and local governments would create or save thousands of jobs as well.