The best argument against a conventional fiscal stimulus that I have seen comes from John Cochrane of the University of Chicago. Here is his precise question:
Let’s think of a “fiscal stimulus” in which the government borrows money and spends it, but with the clear plan that the debt will eventually be repaid with future taxes, not just by printing money. Can this kind of stimulus work, and if so how?
And his answer:
In sum, there is a plausible diagnosis and a logically consistent argument under which fiscal stimulus could help: We are experiencing a strong portfolio and precautionary demand for government debt, along with a credit crunch. People want to hold less private debt and they want to save, and they want to hold Treasuries, money, or government-guaranteed debt.
But what is really first-best in these circumstances is not spending money on roads and bridges, but an expanded kind of open-market operations:
However, this demand can be satisfied in far greater quantity, much more quickly, much more reversibly, and without the danger of a fiscal collapse and inflation down the road, if the Fed and Treasury were simply to expand their operations of issuing treasury debt and money in exchange for high-quality private debt and especially new securitized debt.
(There is a lot of other useful stuff in Cochrane's piece, and since it is also very well written every macroeconomics student should read it in full).
I wonder if Paul Krugman would disagree, and if he does, whether the disagreement would be based on principle (i.e., Cochrane does not have the right model) or on expediency. Krugman's latest post (even though it doesn't refer to Cochrane directly) suggests it may be the latter:
Yes, there are other things the Fed could do — and it’s doing them, on an awesome scale. But they’re controversial, precisely because, unlike conventional monetary policy, they involve picking and choosing among potentially risky investments. And there’s a much stronger case for fiscal policy than in normal times, because we don’t know how well these unconventional measures will work.
And if I am right on the remaining source of disagreement, we can say two things. First, there is in fact a reasonable consensus about the economics of the situation (as described by both Cochrane and Krugman, although they do use different words). And second, the remaining disagreements are largely philosophical, political, and practical--revolving around the role of government, the extent of rent-seeking and public-choice concerns in government programs, and the right mixture of prudence and boldness that the situation requires.
It wouldn't be the first time that economists are discussing such questions--for which their PhDs have done little to qualify them--in the guise of discussing economics. But it would be too bad if disagreements on the second score obscure the apparent convergence on the former.