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The United States is mired in a severe recession. The unemployment rate rose from 4.4 percent in March 2007 to 7.2 percent in December 2008 and nonfarm payrolls shed 2.6 million jobs from December 2007 to December 2008. Economic indicators make clear that the recession will continue for at least a number of months.

Although monetary policy and automatic fiscal stabilizers are usually the best ways to stimulate aggregate demand, current circumstances warrant the adoption of tax and spending measures to further boost aggregate demand. Proper timing is required, however, to ensure that fiscal stimulus stabilizes rather than destabilizes the economy. Personal and business tax cuts and increases in transfer payments can provide a timely boost to consumer spending and investment. Those government purchases that can be spent quickly in a cost-effective manner, such as repairs and maintenance, can also play a useful stimulus role.

Many types of government purchases of goods and services, including most infrastructure construction, cannot be done in both a cost-effective and timely manner. Those types of government purchases should not be included in a stimulus package; if they are desirable investments, they should be enacted through the normal legislative process. Buy-American provisions and rules requiring the payment of above-market wages should be strictly avoided.

Even a properly designed stimulus package will add to the debt burden, aggravating the long-run fiscal imbalance. At the same time that stimulus is adopted, therefore, measures should be taken to address the nation's long-run needs. A bipartisan commission should be formed to address the long-term fiscal imbalance.

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Alan D. Viard is a resident scholar at AEI.