NOW IS THE time for a phased expansion of federal spending to stimulate the economy, put people back to work and make sure that we move into a period of truly sustained growth.

I know this goes against the prevailing wisdom of the Reagan administration, as well as of many Democrats in Congress. They are concerned about the huge federal deficit -- and rightly so. And they argue with some conviction that with economic growth estimated to have reached 6.6 percent in the second quarter of this year, the recovery is off to a good start.

Nonetheless, the fine print beneath the rosy economic headlines reveals real dangers that the recovery could abort. If that happens the deficit will be even worse than the $200 billion a year for "as far as they eye can see' that Office of Management and Budget Director David Stockman has warned about.

A strong case can be made that the best cure for the deficit in the long run is a government investment program to put muscle behind the recovery. This is also the only sure way to reduce unemployment rapidly, a goal that will not be met under even optimistic current forecasts. The spending should be accompanied by tax increases to make sure that politicians stay the course of fiscal responsibility.

The much publicized spring recovery is modest by historical standards -- as Federal Reserve Board chairman Paul Volcker acknowledged at his Senate confirmation hearings this week. The administration's official forecast is 4.7 percent average real growth for this year and 4 percent thereafter. Though the official projection for the next 12 months may soon be raised slightly, warnings of a possible collapse in 1984 have been sounded by both liberal and conservative experts.

One major problem is the unusually high value of the dollar, which makes U.S. goods relatively expensive for foreigners to buy. As long as this situation continues exports will not play their traditional role in keeping the recovery going.

Related to this is an even more ominous problem: global debt that could well lead to a crisis. The indebtedness of developing countries already has reduced their ability to purchase from the United States -- a fact that obviously affects the vigor of American businesses increasingly dependent on exports.

Another looming difficulty is the future of the housing industry, normally a strong factor in sustaining a recovery. New housing starts are considerably up over last year. But, again, they are low by historical standards. While the first five months of the year saw housing starts running at a rate of 1.5 to 1.8 million units a year (compared with 1.1 million units in 1981 and 1982), in 1977 and 1978 housing starts ran around 2 million units. Continued high real interest rates -- and fear of even higher ones -- threaten the ability of this sector to help the economy sustain its surge.

Overly optimistic government statements have also obscured the fact that business continues to sit on the sidelines, unwilling for the most part to commit itself to really substantial new investments in plant and equipment.

While investment normally does not rise significantly in the early stages of a recovery, it is not at all certain that it will rebound along traditional patterns. Why should it? Even if the economy improves considerably there will still be large amounts of excess capacity. With all the other uncertainties in the picture, and the precedent of the short-lived 1980-1981 upswing, there is every reason for business to be cautious.

Finally there are the much discussed interest rate problems, including uncertainty over the Federal Reserve Board's future policies and the impact of the recent economic spurt on interest rates.

Overshadowing everything, of course, is the deficit. Politicians on all sides are mesmerized by it. The Reagan administration and others have propo Commisssed that expenditures be reduced -- but this is a sure way to weaken the recovery. So, too, near term tax increases unaccompanied by new expenditures would reduce economic stimulus just when we need it.

Doing nothing but waiting and hoping opens us to the grave risk of the administration's conservative posture. We know for sure that future deficits will grow if the recovery collapses. If this happens we could be in real trouble, with a slipping economy hammered down even further by still greater borrowing and by the additional long-term interest rate problems that would bring. Excessively cautious economic policy, like an elderly person driving below the speed limit on the highway, can cause crashes too.

A decisive strategy to expand government spending is the one sure way to offset the negative factors threatening the recovery. It offers the promise of a higher growth rate, which will guarantee lower unemployment and reduce the deficit faster. Unemployment is currently 10 percent. If it were 6 percent added tax receipts and reduced recession-related social outlays would cut the deficit by roughly $110 billion. And this, in turn, would help reduce long-term interest rates -- the key to stimulating construction and other investment needed to sustain economic lift.

Federal Reserve Board action to lower interest rates would also help. But the effect of lower rates will be far less in the absence of real assurances of long-term growth.

The deficit, of course, arouses extreme fears about the effects of more government investment. After all, the $200 billion that the federal government is expected to borrow in 1983 will absorb a substantial amount of the $500 billion in funds available for investment by the private and public sectors. Experience shows, however, that there is no automatic connection between big deficits and interest rates.

In the two years since Ronald Reagan took office federal borrowing has tripled the $60 billion deficit recorded during the Carter Administration. Yet at the same time the broad trend of both short- and long-term interest rates has been down, not up. If the Federal Reserve helps accommodate an expansion, interest rates can be stabilized in the near term.

A related objection is that large deficits "crowd out" private investment. Again, however, this concern needs to be carefully examined.

In the first place, a substantial amount of private investment is generated from company profits. This is money that is available to a firm without it going into capital markets, where interest rates are sensitive to federal borrowing. In 1982, such sources of funds generated $236.1 billion for corporations -- only slightly less than the $246.2 billion that they actually invested in new plant and equipment.

It is also worth noting that roughly $85 billion of the deficit goes to paying the interest owed to banks, individuals and companies holding government bonds and securities. Much of this money gets cycled back into the economy and is again available for investment.

In opposing more government investment now, politicians are also responding to a fear that deficits cause inflation. But inflation has actually been declining dramatically even as the budget deficit has been rising.

None of this is to say that proposals to increase taxes so as to radically reduce the deficit when and if the recovery achieves high levels are in error. Quite the contrary. At the moment we have a window of opportunity to spur the economy with a carefully scheduled program of government investment. Later, when production picks up, "crowding out" would be a real threat. But that is not yet the case.

The Reagan tax slashes of recent years have seriously weakened our revenue base, and we badly need to repair the damage -- preferably by eliminating some of the most egregious loopholes in the system and by reducing favored treatment for the wealthy. Despite lip service to a proposed "standby tax" which would go into effect if the future deficit were above 2.5 percent o Commissof the Gross National Product, however, neither the administration nor the Congress has shown serious support for a tough schedule of tax increases. Congress has passed a budget conference report that would only raise taxes modestly, but the president has already vowed to veto any new taxes in the coming year.

In fact, it would make sense to increase taxes substantially in the near term provided this were matched by new expenditures so that the economy would not be weakened. This reversal of our current fiscal mix would have the added benefit of reducing the near term deficit. The reason is that the positive economic effect of government spending is greater, especially in the near term, than tax cuts. Spending produces more jobs in the economy, dollar for dollar, than tax cuts. And more jobs mean more money flowing back to the Treasury. Indeed, investment went down rather than up after the Reagan administration's business tax cuts for investment.

Even intelligent deficit-reducing tax proposals, however, still put the cart before the horse. The heart of the matter is the need for decisive action to make absolutely sure the economy does not falter. Were our sights set clearly on the recovery rather than the deficit, we could plan a careful expenditure package which simultaneously strengthened our long term economic prospects. Work on this should start now so that it will be in place by 1984.

Some social safety net programs, training efforts, and low skilled, quick-hitting jobs in energy conservation, housing rehabilitation, and health care should be expanded in the near future. Mid-range investments in road maintenance, infrastructure repair, and housing could follow. If our goal is unemployment in the 5-6 percent range, there is also enough lead time for targeted industrial investments to improve both basic and high technology industries, and for longer term public works projects. In connection with recent congressional proposals for a high production strategy, American University Professor Nancy Barrett has analyzed several alternative investment options involving such a policy mix. All of these options produce more jobs, lower unemployment and, when combined with appropriate tax increases, a lower deficit by 1988.

There are risks involved in using government spending to stabilize the economy. If we do not take adequate action on the tax front, the future deficit could lead to high interest rates. If we add too much spending too fast we could produce excessively high growth. If the Federal Reserve Board, fixated with monetarist concerns about the growth of the money supply, is uncooperative, it could block the recovery.

But there are concrete answers to each of these concerns. Taxes can and should be raised. While the rate of additional government spending needs to be carefully scheduled, recent studies demonstrate that we have considerable leeway for speeding up growth without unleashing significant inflation. The administration and Congress have the power to require the Federal Reserve Board to accommodate a faster recovery. With commodity and gold markets both strongly indicating very reduced inflationary expectations, the government could legitimately exercise this power if a firm decision to reduce the deficit were taken.

Of course, there is a danger that as more and more people return to work and begin spending money we could have a new round of inflation. Accordingly, in advance of unemployment rates dipping downward toward 5 or 6 percent, the government should institute a series of new inflation-fighting measures. These should include encouraging increased productivity through research, development and training programs; targeting jobs to areas of labor surplus and weaker wage demand; negotiating a formal or informal incomes policy to slow the rise of wages and prices, and expanding oil and public grain reserves while establishing standby controls to prevent future price jolts in these areas.

Our present posture is one of vulnerability to intt o Commissernational uncertainties, changes in bond market expectations, reactions of the Federal Reserve Board and the unpredictable forces which govern longer term business confidence. The risks of a public investment policy, on the other hand, can be insured against.

Admittedly, it is going to be difficult to persuade the Reagan administration that this is the right course. And unfortunately many Democrats, who privately acknowledge that these measures are needed, are fearful of being labelled big spenders. So politicians of both parties bicker over relatively small tax and public investment programs.

Perhaps the fairy godmother who guards Ronald Reagan will make things work out for him and us. It is, unfortunately, more likely that as in 1980 and 1981 our failure to act will ultimately produce renewed massive unemployment, business failures and industrial deterioration.

If so, we shall one day have to repair the damage. But by then we will have paid even greater costs in money and human misery for our lack of courage.