vertices said:
No. Because at times like these, you need to get the economy moving - you need to stimulate it, and the only way to do this is to increase spending. Less spending means less jobs and basic economics will tell you this leads to deflation.
That's Keynesian economics, which itself is debatable (government could do no stimulus whatsoever and the economy recover fine on its own, historically the Keynesians claim we have never spent enough on stimulus and yet our economy has always recovered from recessions), which calls for trying to increase aggregate demand, and there are a few ways to do that:
1) Direct fiscal stimulus by the government, which is very debatable. Japan tried spending more than $2 trillion on their $5.5 trillion economy between 1991 and 1995 and it did virtually nothing. In fact, certain economists say that Japan spent more than enough and if anything, all that spending has hampered the Japanese economy by raising up the debt, crowding out private-sector investment, and making too much of the Japanese economy dependent on the government.
Some economists also say that the reason why stimulus did not work in Japan is that the Japanese did not flood their economy with the stimulus all at once, but instead spread it out over a few years.
Well we are spending a tiny fraction proportionally on stimulus of what the Japanese spent, and we didn't flood the economy with it, it too is being spread out. The one good thing the Japanese did get however was that a lot of the spending went into infrastructure development. That's what was intended here, however from what I understand, it hasn't quite happened.
To match Japan, the United States would need to spend probably around $6 trillion in fiscal stimulus and have to have a way to make sure it goes into infrastructure. This money would also need to flood the economy all at once, not be spread out.
All-in-all, Japan has spent more than $6 trillion thus far and has the largest public debt of any country in the industrialized world.
The United States cannot afford to take a risk like that. We enact $6 trillion in fiscal stimulus, that is out right dangerous.
Here is a good article that gives more details:
http://www.nytimes.com/2009/02/06/world/asia/06japan.html
2) Demand-side tax cuts - these are tax cuts meant to do the same thing as direct government spending, just instead of having the government take on debt and find ways to spend the money, they give tax cuts to people in the hopes that they will spend the additional money.
3) Helicopter money - this is kind of the same thing as the demand-side tax cut, but instead of per se giving tax cuts, the government takes on debt but instead of spending the money itself, it mails a bunch of checks out to the citizens (to create the effect of helicopters dropping money all over).
The stimulus President Obama signed I believe is a combination of tax cuts and fiscal stimulus.
One can also try to stimulate the economy via supply-side tax cuts, which are meant to stimulate investment and business growth (hence jobs). These taxes usually apply to the upper-income brackets (many small businesses file as individuals via S-Corporations), and corporate tax rates, and capital-gains and dividend tax rates.
Most tax cuts are usually a combination of both supply-side and demand-side, although they may lean more one way or the other. For example, I believe the JFK tax cuts, which were meant to be demand-side, also included some supply-side. The Bush tax cuts also were a combination of demand and supply-side.
As I mentioned above, ruthless spending cuts will depress GDP further. The only rational alternative is to increase taxes.
Increasing taxes will likely depress GDP, not cutting spending of fiscal stimulus that hasn't done much as is and on paper is not near large enough anyhow. If anything, cutting spending will encourage economic growth because investors will stop being as concerned about the debt and deficit (although such spending would have to apply not just to the stimulus but also to government overall.
