More on stimulus vs. austerity discussion

The Economist is currently hosting a debate about the nature of the current economic situation in the US and the possible ways to improve it.

The pro-stimulus advocate describes the nature of the current recession as follows:
"... a rare type of recession that happens only after the bursting of a nationwide asset-price bubble financed with debt. In this type of recession, now called balance-sheet recession, the private sector is actually minimising debt instead of maximising profits because the liabilities it incurred during the bubble days are still on the books while the assets it purchased with borrowed funds have collapsed in value, leaving its balance sheets seriously underwater and in need of repair." [Emphasis mine]
(This was a subject of one of my earlier posts.)

The stimulus-based solution to the problem is then formulated as:
"Since the government cannot tell the private sector not to repair its balance sheets, the only way for the government to keep the economy from collapsing is to borrow and spend the unborrowed savings in the private sector and put them back into the economy's income stream. And this stimulus must be maintained until the private sector has regained enough financial health to borrow money again."

On the opposing sides, the doubts regarding the value of the stimulus and temporary tax cuts are summarized as follows (see my other recent post regarding the tax cuts):
"A main implication of their work is that permanent tax cuts have a lasting effect, but temporary tax cuts do little or nothing. Recipients of a temporary windfall reduce debt or save. The same is true of a one-time increase in spending. The teachers and firemen who kept their jobs for a year because states received large transfers from the federal stimulus in 2009 did not run off to buy a car or furniture. Most of them knew that temporary assistance comes to an end quickly, as it did. Many of their jobs ended. By saving instead of spending, they prepared for an uncertain future." [Emphasis mine]



Hence, the proposed austerity measures are:
"Here are some useful first steps. Reduce uncertainty about future tax rates by adopting a long-term plan to reduce entitlement spending. Declare a five-year moratorium on new regulation, except for national security. Adopt an inflation target with enforcement to make sure that high inflation will not return. Pass the trade agreements. And pay for reduced corporate tax rates by closing loopholes."