On this issue of fiscal stimulus vs. monetary in talking to UnlearningEcon I got a good suggestion. I think a big part of the problem is that the they think macroeconomic policy can only effect nominal GDP rather than the real economy.
In a previous post and in a comment at Money Illusion I made this observation. If a meteor hit the earth wiping out Europe and Asia, monetary policy would be pretty irrelevant.
In answer to this Johnleemk answered that my question betrayed my ignoring the difference between aggregate demand-which stimulus can effect-and aggregate supply-which it can't.
In a way this is true but it also shows that in an aggregate supply problem-obviously the disappearance of Europe and Asia is an extreme case of an aggregate supply problem-fiscal rather than monetary solutions are required.
What would we do if that meteor hit? We'd have to respond with radical actions to provide people food, medical care, and shelter. We'd suddenly have a radical shortage in scarce resources.
The radical responses called for would be radically fiscal responses having nothing to do with monetary policy. As Unlearning suggests, "they seem to ignore the positive impact FS can have on AS if it's on infrastructure/education etc."
This shows why in at least some cases fiscal rather than monetary policy is the more direct route for stimulus and is required.
If some terrible earthquake like in Haiti suddenly leaves us all homeless there would be a need to build or provide huge shelters with food and medical supplies. This is the real economy in a quite extreme sense. Which has nothing to do with monetary policy. The point is that there are crises that can't be fixed by monetary policy alone-in the case of Europe and Asia disappearing of course, monetary policy would be wholly irrelevant.
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