Central bankers usually don’t like to admit that their economies are in recession. But Federal Reserve Chairman Ben Bernanke did just that earlier this week in testimony before Congress. He had little choice. The financial storm he has been weathering has almost certainly unleashed a global and national recession. The pain of the recession and the accompanying job loss is already being felt by families and communities across the country, and it is likely to get worse before it gets better. Bernanke realizes that the job is far from done and he gave Congress his blessing for a further expansion of government spending to stimulate the economy. He did so without saying what exactly should be in the bill.

When talk of recession emerged late last year, legislators in Washington quickly passed a bipartisan stimulus package that featured almost $120 billion in tax rebates. The plan was to combat an economic slowdown by pumping money into the economy and keeping demand high and consumption steady. And when second quarter GDP rebounded to 3.3 percent (since revised to 2.8) from the more anemic 0.9 percent, economists widely credited the influx of cash distributed in the spring courtesy of the Federal Treasury. Even before the initial Paulson and Bernanke plan was presented, legislators were already discussing what would go into their next "stimulus" package.

But the focus on stimulus is now misplaced. American families and the overall economy would benefit more if our elected officials served up a suite of policies that instead focused on security. This economic security bill will be most effective if it combines provisions designed to ameliorate immediate hardships with policies that provide access to economic opportunity over the long term. In other words, we need both a safety net and a stronger economic security platform.

The safety net should include provisions to help viable homeowners remain in their homes and communities. No one will be served by allowing massive foreclosures to spread across the country. Additional federal funds should be deployed to state and local governments to support efforts already underway. One such pilot program in Philadelphia requires the convening of a conciliation conference of borrowers, lenders, and the court before a house can be sold. With additional public resources, these sessions can more easily lead to agreements that allow arrears to be paid or forgiven, and for loans to be modified so families can remain in their homes. Government action should also support a number of perennial proposals designed to help vulnerable families make it through hard times. These include such good ideas as increasing the funding for food stamps, extending unemployment insurance, and offering targeted relief for rising home heating and utility costs. And then there is health care. This is no time to forestall the type of expanded coverage promised by an Obama administration.

Besides these insurance protections, constructing an economic security platform will require dusting off an old-time virtue -- savings. Although lost in recent years under an avalanche of easy credit, savings is an essential component of economic security which is capable of stimulating the type of growth that can power the economic recovery. This is because savings can be used to weather unexpected changes in income at the household level. But increasing our collective pool of savings also serves as a source of capital available to fund the next wave of productive investments in machinery, research, and infrastructure which can fuel long-term economic growth. Government spending needs to substantially increase but it will have its limits, and savings will be needed to fill in the gaps. And perhaps more fundamentally,  secure savings allows individuals to embrace the opportunities and risks of our dynamic economy. Savings provide a foundation for the risk taking, creativity, and entrepreneurship which creates economic opportunity and drives economic growth.

A sudden increase in savings could exacerbate the recession, especially if it occurs without expanded public sector spending. While we may wish to see some consumer spending sustained, this may be precisely the right time for families to become reacquainted with the concepts of thrift and temperance. It is particularly vital that our policymakers recognize the dynamic and multi-faceted role that savings will play in our economic future and enact policies that facilitate the savings process. What we certainly don't need again is the plea from Congress that it is patriotic to keep on shopping. Beyond a rhetorical packaging, it is more imperative that our policymakers create the necessary support structures that can effectively facilitate greater household savings. What exactly would these support structures entail? Well, there are three primary components that can each be summarized in a word: incentives, infrastructure, and inertia.

Our current incentives which consist of tax deductions and promises of tax-free earnings don't work very well. They don't reach many households with lower incomes and smaller tax liabilities and they end up rewarding people that just move current assets around rather than save money they otherwise would have spent. Instead, the government should provide a direct match to savings deposits just as better employers match the contribution of their workers to 401(k) plans. And rules can be established so this incentive is targeted to the families where it would make the most difference. Senator Menendez (D-NJ) has proposed offering a Saver's Bonus to families that make a commitment to save when they file their tax return. He suggests linking this bonus to eligibility for the Earned Income Tax Credit, so it targets families left out by current policy.

Better incentives will be more effective if people actually have a place to store their assets. Right now, only about half of American workers have access to a savings plan at work, and most of those are focused on retirement. Yet we know that there are a number of beneficial features to savings plans which serve as the essential infrastructure and plumbing to maximize savings behavior. These include economies of scale, limits on investment options, consumer protections, and perhaps most importantly, a link to payroll deductions. It is time we thought about creating a national savings plan that is accessible to all workers, and includes savings for other needs besides retirement. Other countries, such as the United Kingdom, Australia and Singapore, have already implemented successful savings plan programs and provide a blueprint for how it could be done here.

The system will work best if it is set up automatically. We have learned from the growing field of behavioral economics that inertia is a powerful force. It may be better to have fewer decision points. Rather than deciding what a monthly savings allocation should be, earnings can be seamlessly diverted from each pay check. This is how it works from many current participants in 401(k) plans. Recent research has shown that savings outcomes are highest if workers are automatically enrolled by their employers into these plans and when a sufficient contribution level is set as an automatic default.

It will likely take more than one legislative package to re-create an economy based on savings, investment, and innovation. But events of the day have made the calls for economic stimulus seem a bit obsolete. While it may be appropriate for the U.S. government to continue its borrowing on the international markets, individual households should begin to consider how to realign their spending with their incomes and savings needs. In the short term, we are in for a credit crunch, but it was cheap credit that got us into this mess. Wise savings, followed by wise investment will help get us out of it. In the long term, the revival of savings and a rise in the personal saving rate will offer a foundation for the type of vibrant economic growth which will in turn generate meaningful economic security. Congress should help deliver the message that frivolous spending is out, and tried and true savings is in.