The unemployment compensation system, traditionally the government's chief weapon for providing anti-recessionary expenditures and insurance, has, he says, become a "time bomb," because the system is so inadequately financed that a recession could make many state programs insolvent.

After failing time and again to work out a plan to eliminate the budget deficit during the years when the economy was climbing, the White House and Congress finally made a deal to cut the deficit by an estimated $40 billion in the next fiscal year and by $490 billion or so over the next five years - just when most economists believe the economy is weak and falling into recession.Is this, as some are saying, a horrendous blunder, comparable to the decision made by President Herbert Hoover to put through a huge tax rise, nearly doubling rates, as the economy was falling into the depths of the depression in 1932?

Hoover's aim was to prevent inflation by closing the budget deficit when businesses were failing, unemployment rising and incomes falling, and the real threat was deflation.

Fear of inflation, in this time of falling employment and prices, also greatly restricted the efforts of the Federal Reserve to make more money and credit available and to reduce interest rates.

The perverse Hoover fiscal policy and timid Fed monetary policy, which allowed the money supply to shrink by one-third, as banks slashed their lending to business, deepened the depression.

Are national leaders about to make the same mistakes and thrust the weakened American economy into depression?

Should they just forget about reducing the structural budget deficit, regarded as a cause of big trade deficits, savings shortfalls, low capital formation and productivity growth, as well as weakened American competitiveness - and instead focus on the short-run necessity of fighting recession by increasing the deficit through lower taxes and higher spending?

C. Eugene Steuerle, who was deputy assistant for tax analysis at the Treasury Department before joining the Urban Institute in Washington in 1989, contends it would be a serious mistake to forget about reducing the debt burden, which has been growing faster, even in good times, than the national income, for the sake of using short-term fiscal policy to combat the recession.

Indeed, he maintains it is possible to achieve a fiscal policy that will meet both the objectives of short-term economic stabilization and long-term deficit reduction aimed at strengthening national economic growth.

To get both, he calls for "automatic fiscal stabilization through the tax and transfer system" within the context of long-run fiscal balance.

To get greater fiscal responsiveness to short-run cyclical swings without sacrificing long-term economic stability, he calls for improving public insurance programs.

The unemployment compensation system, traditionally the Government's chief weapon for providing anti-recessionary expenditures and insurance, has, he says, become a "time bomb," because the system is so inadequately financed that a recession could make many state programs insolvent. Less than one-third of the jobless have received benefits in the last decade.

He would provide the financing to unemployment compensation that would make it one of the strongest automatic stabilizers, increasing total demand when the economy slumps and decreasing it when the economy booms.

While improving the automatic stabilizers for short-term fiscal responses, he supports a long-run deficit-reduction target and would stick to it over the course of the business cycle.

Negotiators of the recent budget deal, in Steuerle's view, "score fairly high marks on their overall deficit-reduction strategy, but score less well on their choice of specific cuts."

However, if one relies only on the automatic stabilizers, rather than on discretionary changes in taxes or spending, to check a recession, will the economy fall into a depression?

Hyman P. Minsky, a visiting professor at Bard College of Columbia University and author of "Can `It' Happen Again?" answers no - because today's economy is far less vulnerable to deep depression.

In 1929 the U.S. government constituted a mere 3 percent of the total U.S. economy; it now accounts for 25 percent, and its spending will be stable throughout the business cycle.

In addition, the Fed, in the event of crisis, would move in, as Minsky says, "to flood the economy with reserves and to prevent a collapse of asset values."

After the New York stock market crash of October 1987, which swiftly spread to markets around the world, the central banks behaved as a close fraternity, and they are likely to do so in any future crisis.

As the former Fed Chairman, Paul A. Volcker, put it in his 1990 Per Jacobson Lecture before the International Monetary Fund: "In a turbulent world, the importance of restoring a sense of stability is more clearly recognized."