Forget whether the stimulus will work (colour me skeptical, though). It seems to me we got into the current recession because (for several reasons) people had been grotesquely over-spending for the past five years or so. People borrowed too much and saved too little and had negligible cushions against downturns. People were generally over-leveraged and faced sizable losses in their wealth when the economy made a slight downturn, and these wealth losses led to more of a downturn.
For a vivid graphic example of the dissaving, look at how the number of people who had mortgages <b>four times</b> their annual incomes changed between 2000 and 2007. All I can say is, "Wow!" It sure looks as if lots of people were caught up in the bubble mentality and were not doing their due diligence. That link was provided by Casey Mulligan, who remains in a distinct minority among economists, arguing that the recession is not and will not be very deep.
But the solution is likely NOT to reinflate the housing bubble. The solution is likely NOT to encourage people to continue their zero saving or even dissaving.
Rather, the better solution, especially for the longer-run, is to encourage more saving, more investment, and hence more growth.
Quite frankly, I'm a little annoyed that the US is trying to find ways to bail out those who overspent in the past; such policies will do little more than encourage such profligacy in the future. I hope that disease doesn't spread to Canada.