Hurricanes and Broken Windows

Note that the US is not technically in a recession.  But this is more of a problem with the official definition of a recession than with the following analysis.  
Moneybox:

On the question of hurricanes and short-term macroeconomic indicators, here's how I would put it. Right now the American economy is [operating below capacity]. Recessions shouldn't happen. The planned saving behavior of firms and households ought to be balanced by the planned investment behavior of firms and households, creating a situation in which roughly all available resources are employed.

When that fails to happen—a recession—it's an indication that the interest rate is too high. A lower interest rate would, at the margin, decrease desire to save and increase desire to invest and bring the system closer to equilibrium. Cut the interest rate low enough and you've restored balance, creating a situation in which roughly all available resources are employed.

But suppose that interest rates are zero. What happens then?

Well, then you've got a recession. The recession could be cured by unorthodox monetary policy or by fiscal policy measures, but it hasn't been. So you're left hoping that the marginal product of capital will increase, thus bringing savings and investment back into equilibrium. An exciting new technological discovery could make that happen. And so could a hurricane. If there are already a bunch of perfectly good cranes in town, then nobody wants to invest in new cranes, and the crane factory sits idle. But if a hurricane wrecks a bunch of cranes, then the marginal value of a new hurricane goes up, and people want to invest in new cranes.

Now before everyone starts screaming "broken windows fallacy," take note: This is a terrible solution to unemployment. By reducing society's stock of capital goods and consumer durables, the hurricane spurs new production into being. But it's also making us poorer.

The point I want to make about this isn't that hurricanes are "good for the economy." The important point is that suffering through a downturn without adequate fiscal and monetary stimulus amounts to rebalancing the economy through a slow-motion hurricane. We will, eventually, return to full employment. But we're getting there by allowing the per capita stock of capital goods (as it happens, mostly houses) and durables to deteriorate year after year. Eventually this will lead us to a rebalancing, but it's a form of rebalancing via impoverishment. Stimulus is much better.

Fiscal Multipliers

Moneybox summarizes an IMF report:

Kate Mackenzie at FT Alphaville gives us the latest from International Monetary Fund chief economist Olivier Blanchard who wrote a little box in the latest IMF World Economic Outlook report arguing that fiscal austerity has been more damaging than the pre-crisis consensus in the economics profession would have suggested. Here's Blanchard:

The main finding, based on data for 28 economies, is that the multipliers used in generating growth forecasts have been systematically too low since the start of the Great Recession, by 0.4 to 1.2, depending on the forecast source and the specifics of the estimation approach. Informal evidence suggests that the multipliers implicitly used to generate these forecasts are about 0.5. So actual multipliers may be higher, in the range of 0.9 to 1.7.

This is part of an ongoing transformation at the IMF over the past decade to becoming a major international opponent of the kind of harsh austerity regimes that the IMF was known for in the mid-to-late 1990s.
The research issue here is that, methodologically speaking, it's difficult to know what "the" fiscal policy multiplier is supposed to be. A lot of good research has been done on the macroeconomic impact of deficit financed military spending. But such spending isn't meant to stimulate a depressed economy and in fact is often paired with monetary policy or other measures specifically designed to strangle domestic consumption (wage and price controls, rationing) and prevent total economy-wide spending from expanding. A country with a depressed economy and a central bank that wants to see total economy-wide spending go up but isn't willing to forcefully deploy tools beyond interest rates to make that happen can see a much bigger fiscal impact. Conversely, a country whose fiscal authorities are trying to paddle upstream in the face of a central bank that wants less demand and less inflation isn't going to get anywhere.
Back to Mackenzie, the bottom line is that we need less budget cutting from countries that have cheap borrowing costs:

And the IMF is urging that countries who have ‘room to maneuvre’ such as the UK, France and the Netherlands, should “smooth their planned adjustment over 2013 and beyond” if growth falls significantly below the IMF’s increasingly gloomy forecasts.

Now what it makes the most sense to do depends on circumstances. In Germany where unemployment is very low already and public services are quite good, it seems like a VAT cut to let Germans enjoy higher living standards (and perhaps buy more goods from southern Europe) would be ideal. In the US we should be avoiding a disastrous payroll tax hike and probably creating slush funds for our budget-strapped state and local governments.