I've been a student of Posner's for years, especially on his interest in the economics of property rights. Indeed, my dissertation was based upon some of his ideas. However, his statement that
anything that takes money of the economy, such as reducing federal spending will deepen the recession is suspect. The federal gov't spends money either by borrowing or from tax revenues. If the gov't reduces spending because taxes are reduced, it is actually a net plus for the economy. The reason is because the gov't expenditures multiplier (b/1-b where b=MPC) is always one less than the private sectors' expenditure multiplier (1/1-b). That is, a
permanent and meaningful tax cut will enhance consumer spending, which leads to more demand, which leads to more inputs (labor) which actually leads to greater federal tax revenues as more people are hired back into the labor force, making a larger tax base. Also, borrowing by the gov't can crowd out real investment that might take place in the private sector.
In my mind, the path to recovery is clear: Cut personal and corporate income taxes across the board and cut gov't spending. Indeed, I'd love to see a flat tax of 17%, as suggested by Friedman years ago. (BTW, Poser and Friedman worked together at Chicago years ago.) In a nutshell, we can get along quite nicely with less gov't spending. The idea that the gov't knows how to spend my money better than I do is simply a position I don't agree with.