I cannot see anything in Wolf's remarks that constitutes a meaningful reply to my points. Let us slightly rephrase the key question into, "Does an increase in the budget deficit—due, say, to a rise in government spending unaccompanied by higher taxes—increase demand and output?". Consider a plausible reply from an intelligent layman, someone who has had the good fortune not to have endured a university macroeconomics course. He might say, "It depends, but a possibility is that the extra government spending is offset by less spending by the private sector." Further, if the extra government spending were large and the rise in the deficit were to an unsustainable figure, he might conjecture that the reduction in spending by frightened, unhappy and conservative-minded private-sector companies and individuals would exceed the extra spending by the state. (Think of Greece, Portugal and Ireland in the Great Recession.)

Wolf's attitude towards evidence is casual, but in the last few years he has read some of the headlines of the newspaper for which he is chief economics commentator. He is aware of Greece, Ireland, and so on, and he does say that fiscal policy can sometimes be "unusable". Fine, but a mere three paragraphs later he refers to "an econometric model" (without specifying which one he has in mind) and proposes that "other things being equal, fiscal contraction is contractionary." He then proceeds to the claim that "The only question is over the size of the multipliers, that is, the relationship between changes in fiscal policy and in economic activity," with "no doubt about the direction of impact". Am I alone in finding it strange that Wolf has "no doubt" about the effectiveness of fiscal policy just a few sentences from an admission that it can be "unusable"? Where, exactly, is the boundary? 

The truth must be established by evidence and work on data, not by mere assertion. In the tragic cases of Greece, Ireland and so on, the fiscal multipliers in the key period were not 0.5 or 1.5, but negative. It is no good parroting the catechism according to Paul Samuelson, whose famous (if rather left-of-centre) textbook translated The General Theory into the form that was taught in those dreary university macroeconomics courses. The debate turns on the relative power of fiscal policy and the "other things" that Wolf wants held constant; it pivots on their relative power in real-world conditions that have been observed in recent experience.

Wolf (and Krugman, Summers, etc) ought to re-read their Keynes and try to understand what their mentor said. Yes, national income is determined by the intersection of aggregate demand and supply, and is in equilibrium only when the demand to hold money is equal to the quantity of money created by the banking system. If the banking system is up the spout, so also is the economy. The stance of fiscal policy is neither here nor there. Money and banking really do matter, and—in real-world conditions in recent experience—changes in the quantity of money have smothered changes in the budget deficit as an influence on aggregate demand.