My first premise is the context that I frame my thoughts in. 

Premise 1:  Money changes.

a. We are only half way through the foreclosure crisis right now. 
- it is many people's faults
- it makes everyone feel poor when their most valuable asset crashed in value
- one foreclosure takes 3 years under the current process.  So the duration of working this mess through the system has to be considered within a realistic time frame.

b.  The "Shadow" banking system. 
- We now circulate 4,000 billion dollars less through the system of derivatives... and all sorts of packaged financial things that were flying around the globe.  We are at 6,000 billion instead of 10,000 billion circulating.  A lot of that money just went into thin air.
- Turning on that faucet again, out of the shadows could cause a 26% jump in GDP (based on what percent that money is in relation to GDP) 

Expectations:  All expectations of recovery and growth must be tempered with the realities as they exist.  We grow from here.  Above are the conditions we try to grow from. 

This was not a normal business cycle.  This was a crash of the entire financial system of the US and Global economy.  These are healed over a longer duration of time - and the only thing we can do is try to bend the curve to shorten it - and try to come out in the future stronger. 

If you are looking for a rebound based on a normal business cycle - you are looking for the wrong thing. 

Premise 2: What drives people?

The premise here is that if all day 24 x 7 on every news channel you hear every single thing wrong with the economy.  Every crisis in the midst.  And at the same time... opposing political parties are demonizing every single action taken by each other... The news media has created a problem relationship with the American people.

This creates the hold onto everything you've got mindset.  Half of this is driven by Republican's main objective of seeing that Obama fails and is thus a one term President.  Failure for Obama is congruent with failure of the nation. 

Here is the leader of the Republican party:
http://youtu.be/W-A09a_gHJc
If Obama fails.  Then for the duration of his time in office - America fails. 

Analogy: Imagine a marriage where every single problem is focused on all day... every day... and the entire marriage is about fixing every problem possible, or talking about them all day every day.  The news is talking about every problem all day - every day - and this creates a problem relationship with the economy.  The marriage would end - the economy would struggle.  Never has an economic crisis had such vivid and heightened coverage all day, every day, around the globe. 

Savings rate has jumped to 3%.  If it maintains indefinitely at 2%, just two percent of everything everyone earns being saved and invested... all can retire on their own - no social security needed.

Spending:  Entitlements... etc

First, Democrats identified a tremendous amount of cuts they were willing to make to entitlements.  Republicans are stuck on taxation - as though the entire universe revolves around it.  The point of contention is taxation with regards to those earning a million, or a billion each year.

My belief: I believe all liberal ideas should be executed in a highly highly conservative manner.  The concept of liberal - we work together to solve large national problems - is not at it's core a bad one.  Some things we do better together.

The problem is, "Bleeding heart liberals."  Where we go too far and cover too many people for too many things.

Social security, I believe is a great idea.  The idea that we provide a safety net for those too old to work, who did not prepare for retirement... so that they are not living on the streets... is a good idea.  It is based on solving an actual problem.  Is 65 too old to work?

No way in hell.  Today, we live much longer, more able bodied lives.  I believe we pull back to the safety net level and start social security much later. 

Medicare is the biggest problem though.  And has seen massive cuts in the last few years.  I believe changing to digital records and cutting dramatically the side of the costs associated with administration and the price of pushing paper... turns it far forwards. 

Budgeting:  We must end the "Use it up now, or don't get it next year mentality."  A friend who is a soldier spoke of being brought with his group to unload 13,000 rounds of ammo because if they had it left over - they wouldn't get the funding next year when the training group was expected to be larger.  It pretty much all works like that.

Including medicare.  If one is in the hospital and gets a bunch of meds under medicare... they can't take those pills home as part of the supply they take already.  They have to be thrown out.  The entire system is antiquated and full of poor moves like this.  This is actually changing now. 

Medicaid has been mostly dismantled and moved under the more functional of the two systems - because medicaid was being run even worse.         

My belief: Government spending on items that appear on the budget indefinitely must be maintained at the revenue low water mark.  Aka.  We don't pass spending bills including 10 year expenses when the business cycle is 7 years...and we are guaranteed to see the low water mark in that time.  When we have money above the low water mark - then we invest in things that would lead to long term growth, pay down debt, and cut taxes.

Tax structure:  Corporate taxes are an issue, not exactly how people talk about it.  If we took out loopholes and special deductions that keep some corps paying 11% taxes while others pay 38% we simplify the code and could achieve the same revenue at 25%. 

Tax breaks for oil companies were a smart move - around world war two.  Oil companies provide the gas that fuels the entire military machine.  But, today - we have enough flowing that from a military standpoint we will not face a national security issue due to oil.  Thus, subsidies in the context of oil companies achieving record profits no longer make sense. 

That can become part of tax cuts for all corporations.   

Economic Models: 
I hear you on Keynsean economics.  But, that is not what was practiced.  Every single possible thing that anyone could think of - including the kitchen sink - was thrown at the economy to stop it from falling.

What math are you using to call the model failed? 

Here is my math:

Q4 2008 GDP Revisions:  Contraction Negative 8.9%
Source: Wall Street Journal
Q3 2009 GDP:  Growth 1.7%

By the time the stimulus had been passed and the benefits of tax cuts and spending were being felt - there had been a 10.6% swing in the GDP of the entire country.  From a massive run in the wrong direction, to growth. 

As economists have received revised GDP figures, they have learned that the GDP contraction was far greater than it was believed to be during the time the stimulus was created and past.  So, economists believe that jobs were not created because things were far far worse than anyone believed. 

On what planet does one exist, where a 10.6% swing in the positive direction for an economy of 300,000,000 people is deemed an utter failure?

This has nothing to do with politics.  This is a subject I call math. 

Now today, the economy is on a more solid footing.  I believe Americans are a lot less shell shocked right now and the government needs to pull way back and allow Americans the space to fix the problems.  When the stimulus was passed... that is another story. 

In terms of roads... traffic is horrendous.  And we need more roads.  It doesn't fix the economy - it fixes a problem.  When we can borrow at zero percent interest rates - and get a 3 for one deal for every road we buy - that is a time to fix the thousands of major crunch points and traffic zones across the country.  A new road led me to re-open my Baltimore magic market, and increase the number of weeks and hours of each week that I am running my summer camp next summer.

I am one exit from 370 the head of this road.  I took it for thanksgiving dinner and saved 30 minutes.  I moved HERE because I knew this road was being built and it would make the area a massive transportation hub. 
http://www.iccproject.com/
 
Fundamental Structure of Society Changes:
Yes, we have an erosion of elements that led to American pre-emminence.
The larger problem is not exactly a problem it is a transition. 

The entire country was founded on a physical economy that has dramatically shifted. 

Disruptive technologies have changed everything about the way we do business.  Personal and business computers, robotic automation, software automation, globalization, the internet, ebook readers, mobile phones, social media marketing, google Search engine optimization, the list goes on and on... and all the old world infrastructure is melting like quick sand under us.

The degree this effects everything can be seen in two examples:
1) Borders shut down because it did not succeed in the transition to ebooks and e-readers.  Barns and Noble is now 50% ebook revenues.

Borders is shut down.  Next Friday I am performing at a massive holiday party with two magicians on it.

2) Oil supply.  I entertained for a company that has double hulled barges for moving oil up and down the coast.  The CEO is an older man.  He told me that oil markets are pricing by the supply of oil stored on shore.  Commodities traders read the numbers and the price of oil goes up.

The CEO told me the oil in his barges goes up and down the coast to exactly where needed, when needed, and none is stored on shore.  They move to the exact location needed to deliver exactly when ordered by who needs it.

Commodities traders as said are trading based on how much supply we have on shore. 

The CEO said that when there is not an order, automatically, by computer, the barges turn across the Atlantic and deliver the oil over there. 

Thus, when supplies look really tight - and prices go up - nobody is having any trouble getting the oil they need to fulfill their orders... it just isn't sitting on land.

3)  Packaging of mortgages... they were bundled up and sold over the internet.  All of this happened on technology that never existed.

Well, today, some businesses who take greatest advantage of technology are winning like crazy.  All those who neglected it entirely such as Borders are gone.  But, we are in the conditions where a technological/digital revolution is disrupting and changing everything - and shaking the bricks and mortar economy that society has been based on since the start of time. 

Yes the world has changed. 

Yes it is hard to create solutions. 

Yes structural elements need to change.

This includes entitlements, taxes, regulations, and all.

Over-regulation was not the problem in the financial industry which created the crisis.  But, some industries are having a massive hard time due to government encroachment. 

Some of the encroachment is also 100% valid! 

Remember, we exist in a context where there are already thousands of everything - hundreds and hundreds of Italian restaurants for example.

So, if we don't need more of those - why not regulate what we have and keep the standards high.

We exist in an economy where even with a restaurant based in 1416 we keep hearing the name of our nearest competitor. 

Today, is the time to release Americans to launch the economy for themselves.  Today, is the time that Americans are beginning to talk about real issues and solutions.  Today, is the time when Americans have realized the government was able to stop the free fall - but, going forwards is on us! 

This is the moment for government resources to be focused on fixing the tax, regulation, insurance, and other dead-weights that hang around the economy - and unleash things to launch forwards. 

Months ago - in a climate where nobody was lending... and few were taking risk... it would not have made that much of a difference. 

(But, remember simplifying the tax code dramatically could lead to mass job losses for CPAs.  No answer comes without it's problems that someone will have to bear.)