Intriguing, but surely the main aim of the vast majority of business in a global downturn (ie there's pretty much nowhere to sell to) is to cut costs? Giving them tax breaks would simply accelerate their disinvestment whilst maintaining payouts to shareholders. Apart from the fact that most corporations avoid a significant part of their existing tax burden. However, when the upturn comes (assuming that the depth of the recession is not exacerbated by the tax cuts) your plan would, I think result in marginally quicker re-investment because of larger capital bases. I would agree with you that income tax cuts would have no effect - quite sensibly, people will save against the storm - but I would argue that this applies to corporations too.

The other issue with tax cuts is that at a time when tax revenues are falling significantly anyway, you are going to substantially increase the deficit. I don't really understand how this is much different from increasing the deficit by borrowing - you're still in a whole world of debt. Unless of course, you substantially cut huge federal programmes like welfare and defence - which I would support.

This has so far proven impossible, and banks are unreformed. Even in Europe where several banks have been effectively nationalised, politicians haven't found the testicular fortitude to actually set bank policy. (And one might argue, what do civil servants and politicians have to offer in running the financial sector efficiently? ) How do you force the banks to deliver when no-one actually knows what the black hole of debt looks like - how do you gainsay a bank that says Fred the Baker's business is not credit-worthy?

Unfortunately, we don't have a control experiment to check against. We tend to interpret the Great Depression through our own beliefs. I don't know of a major economy that has tried to step away entirely and let the whole thing go to the wall to see what happens, but maybe a keener student of economics can illuminate.

Subject to the caveat noted above, I don't disagree. But the effect of letting the banks go bust is not measurable given the nature of the over-reliance on financial services for the latest spurt of growth. I think you are optimistic to think that such a go-to-the-wall philosophy wouldn't hugely impact on standards of living. If I understand it, the significant moment propelling the sharp downturn was the hands-off decision on Lehman Brothers.

Personally, I would have liked to see governments let the whole thing wash down the drain. Actually see if the market would respond properly, by picking over the bones of the destruction and using the good bits to start again. Conserving money, facilitate savings, drive down the debt while people are expecting hard times and cuts, and yes, at the right time, use tax cuts to fertilise the new growth.

However, I also recognise that I am pretty well off, and wouldn't lose my job, my home, my hope, my family and my ability to eat as most other people would in such an experiment. Since these needs are high on most people's agendas, I can see why they prefer bail-outs to the probable revolutions that would scar the world. Indeed, were it to get as bad as it might, the peasantry might well be at the door with their pitchforks and torches to dispossess me in lieu, as happened several times before.

So I'm still not seeing a coherent plan that doesn't involve indentured servitude for our grand-children or the Great Unwashed fouling the Orangerie.

Thanks BG for saying what I could not.

Well, lots of corporations are in danger of losing lots of money. Corporate tax cuts let them keep more money, so the business is healthier. Capital gains tax cuts encourage stock market investment.

According to some theories, tax cuts and burrowing have the same effect in terms of deficits. The difference is how the money you spend/give back to people affects the economy. This new stimulus, IIRC, offers great new amounts of funds to welfare and makes it easier for people to get on welfare.

Well here in the US we didn't put such requirements on the first $350B we gave out. It doesn't have to be idiot politicians saying who the banks have to loan to (In the US they've already done some of that, passing laws requiring a certain amount be loaned out to the poor and other bad business decisions). We just need to specify that the banks have to use the money we give for loans.

I'm not a keen student of economics? I am aghast sir! Anyways, neither do I, really.

I thought it was the effect of huge numbers of bad mortgages and people not being able to pay them. It has been speculated that Lehman Bros went down because they expected a rescue and so spurned several offers of private investment, after they saw the gov save other banks about a year ago.

I wouldn't expect all banks to fail, just the stupid ones. They'd be bought out by other businesses. We could help the smarter ones extend credit as needed. Instead we inserted the blunt instrument of federal policy into the equation and that hasn't helped.

I'm an unemployed student who has to get a new career in several months and I wanted the same thing.

EDIT:
Income tax cuts to lower and middle class people (or just handing money out to the lower class who didn't pay taxes in the first place) - which aren't that effective, since people just save the money.

As for socialism, we wouldn't insist they accept the money. As for Japan and long times to get the money flowing - won't the same thing happen with all the infrastructure we're financing?

CR