This is sort of a post about nothing, but I think punditocratic discussions of stimulus (whether fiscal or monetary) have been misleading in some respects that can be illustrated via the suggestion that we ought to think of the issue as one involving real resources rather than money.
Think about a total war scenario like World War II. Here if we’re looking at a country that’s fated to fare poorly—Italy, say—it swiftly becomes apparent that questions about the Italian government’s budget are not so interesting. What matters are things like how many airplanes does Italy have? How many pilots does Italy have? And how many new airplanes can Italy build? The government “running out of money” isn’t a real concern in this situation. If there’s an airplane factory, and the factory has appropriately skilled workers, and the raw materials needed to build the plane exist, the state will find a way of mobilizing these resources to make the planes. Conversely, if the Italian aircraft industry is already operating at full-tilt, then it doesn’t help Mussolini to have extra cash (or, as the case may be, valuable works of art) on hand. Of course there is the possibility of trade, but this merely extends the scope of the analysis to the whole of the Axis. How many planes can Germany give to Italy?
So if a total war situation hits a country that’s already near full employment, wartime mobilization is going to prove costly. That’s not primarily because military purchases are “expensive” in the sense of costing a lot of money. It’s because in order to start making more planes, you’re going to have to make less of something else. In order to conscript more men into the army, you’re going to have to have fewer men working in some other field. The issue isn’t that “the money has to come from somewhere” and thus military spending will make us poorer. The issue is that the real resources have to come from somewhere, and thus military spending will make us poorer.
But what about an economy that’s severely depressed? Well here things look different. If you take shoe factory that’s shut down and a bunch of laid-off factory workers and have them go make army boots, then even though this “costs money” it doesn’t cost anything in terms of real output. If a bunch of unemployed people go become soldiers that, too, probably costs money (it depends whether their salaries are higher than any unemployment insurance they may be getting) but doesn’t deprive the economy of any real resources. It does, on the other hand, deprive their spouses and children of the real resource of their time and attention. But even if unemployment is very high, if you don’t have many unemployed physicists then persuading a bunch of physicists to go work on the Manhattan Project does cost real resources.
In all cases, though, there are a bunch of different methods by which you could mobilize the resources. You can print money, you can borrow money, you can conscript people and confiscate things, etc. It’s also true that in all cases your overall national strength will be largely determined by supply-side factors—Germany can make much more stuff than Italy—but that fiddling with supply-side factors doesn’t do you any good at all unless you take action to ensure that potential supply is in fact mobilized.
Drawing this back to stimulus, the point is that mass unemployment represents, among other things, an enormous wastage of potentially productive time and energy. And the question you need to ask about different kinds of ideas is what do they do to mobilize those resources. Ideally, you’d have the government build things that are useful and also that can be made by the idle resources. But it’s difficult to identify such projects perfectly. However, even building useless things isn’t so bad as long as you’re actually targeting the idle resources. Simply giving people money (tax cuts, or helicopter drops) can also work, but it doesn’t work well if the recipients of the money are rich people who use the money to buy financial assets (i.e., save it) rather than to buy real things or else if they use it to buy real things that all come from China. If you can raise inflation expectations, however, then that should make everyone more inclined to go out and trade some of their money for some real stuff, which will mobilize idle resources. Conversely, if inflation expectations fall, then people become less inclined to trade money for stuff and more resources fall idle.