Tyler Cowen asks

The economist Scott Sumner stated the case against fiscal policy another way on his blog The Money Illusion. Sumner noted that no one believes fiscal policy (unlike monetary policy) could be used to target a price inflation rate of say 4 per cent a year. The implication is that fiscal policy is not very effective in managing overall demand in an economy, so why should we so trust it as a tool of crisis management?

The simple answer is that knowing exactly what you are doing is far less important in a crisis than near full employment.  Near full employment, not only does the optimal quantity of stimulus vary highly in percentage terms but it actually changes sign. Sometimes you want negative stimulus to keep the economy from overheating.

Far away from full employment much blunter tools can be used. You may not really know what the stimulus effect of fiscal policy is, but you don’t need to know. In a depression for example, optimal quantity of stimulus is big and positive, so you just do something big. You just fling resources in the general vicinity of the problem.

Obviously, I am attracted to this question because I think it is premised on a falsity of “far thinking”, that important situations call for carefully thought-out actions. This is not actually case.

Sometimes the net return-to-action is positive over the entire relevant range. In those cases smart finely tuned action is worthless and getting the most bang for your buck is actively harmful.

You always maximize simply by going full throttle regardless of the cost. This is because marginal benefit always exceeds marginal cost over your range. Note that this will generally not be the point that maximizes the rate-of-return or “bang for the buck.”

Thus, getting the most bang-for-your-buck is the wrong answer.

This is the perfect realm for something like fiscal policy. Efficiency is not something that central governments are good at. On the other hand, really-freaking-huge, is something that central governments are good at it.

A depression, where idle resources are plentiful and real borrowing costs are zero or negative is exactly where you find almost no return to precision.

Indeed, Austrians might find comfort in my suggestion that a general crisis is almost by definition a time when “knowledge of the particular circumstances of time and place” has low value. This is both why strong governments can do a lot of good in crisis and why people are wrong to assert that “if government is so good at mobilizing for war, then surely it can manage making shoes during a time of peace.”

That gets things exactly backwards.