Now is NOT the time to cut back on government spending. Now is the time to borrow more and spend more.
Government's current borrowing rate is as low as it has ever been and, in fact, if it were any lower lenders would be paying for government bonds. But, I will agree, cheap money is not a good reason for going further in debt--unless there is a positive outcome.
Bear with me, this is an argument that runs counter to all of the political statements you have heard from both sides. It is an argument based on Bill Clinton's "arithmetic" and unless you understand it, it sounds so very wrong.
So here goes:
Government should borrow as much money as it can to do infrastructure projects. Projects like repairing roads, fixing bridges, constructing a 21st Century electrical grid. Few people are aware that our electrical grid was never designed, it was built in the beginning and middle of the last century and parts of it do not talk to other parts--it is one of the great disasters on the verge of happening. Like the dam construction that brought us out of the Great Depression, grid construction can pull us out of the Greatest Recession.
Having borrowed the money, government then creates the projects, hires the workers. Feeder industries and support services build up around them. Unemployment is quickly down several points, middle class families have income and they (unlike millionaires who send their surpluses overseas to avoid additional taxation) buy stuff.
Buying stuff forces the "job creators" to hire people to make stuff and the unemployment rate hits 4% (the point at which they call it "full employment").
All of this employment generates taxes (and here is where the problem comes in because it requires honesty and common sense from the political crowd) with which the debt can begin to be paid down.
But the simple fact is that austerity is not the solution to our debt problem, productivity is the solution and we come by that using the historically low cost of borrowing. AND we somehow get through to congress that extra income is not to spend but to pay off debt.
Millionaires and small business owners may be the job creators but it is the middle class that are the demand creators. No jobs are ever created without demand.