Policymakers who want to stabilize the economy must decide how much to
change the money supply, government spending, or taxes. Why is it
difficult for policymakers to choose the appropriate strength of their
actions?

I think the difficulty is that Economics is a field where there are
multiple variables to be considered. Even the best Economist will fail
to consider *every* possible variable when creating an economic model.
There are an almost infinite number of things that can impact an
economy. While an Economist might know the theoretical effects of a
change in money supply, government spending or taxes, in reality,
there are an infinite number of other factors to consider.

For example: Theory suggests that government spending will cause an
economy to grow. However, one could increase government spending and
still find oneself in a recession because some other factor (perhaps a
huge decrease in consumer spending or even something much less
obvious) is causing the economy to dip.

Dear mrb1112-ga

Let me give you a real-life example. 

Several years ago, Congress was looking at changing the tax structure
of the USA. The senior Senator from California invited me to be part of
a small panel advising him on our perspectives about a new structure.
(The panel consisted of 20 people from industry, tax professionals, 
non-profit and aid organizations, education, government, etc.)

I came, after doing my research, ready to present a numerical analysis
of how my proposed flat tax system would benefit the country, make life
much simpler for both business and personal tax filers, reduce false
filings and keep income level for the nation. 

Despite the logic of my proposal, it never even got to the numbers stage.
The corporate folks pointed out that they were concerned about their bottom
lines. Ireland and several South American countries were inviting them to
relocate there. They were offering free land, no taxes at all. They'd even
build them the plants - in exchange for bringing jobs to their communities
and training their workers. So they wanted tax credits and incentives in
order to make it worth their while to stay in the USA. 

The folks from the aid organizations pointed out they were concerned about
their poor members. Their people needed food, medical attention, housing, 
more. They wanted tax credits and exclusions and rewards for donors, so
they could help keep their charges alive. 

All of the arguments were perfectly valid. 

It really made me realize why laws can't just be clean, simple and direct.
Nor can economic plans just be simple and logical. They all affect real people. 


Your TaxMama-ga

P.S. We ended up with the Tax Reform Act of 1986 (TRA-86), one of the most
extensive, and messy revisions of the Tax Code in 30 years.

Before you try to answer this question, you have to understand a
little bit about business cycles and how difficult it is to determine
when a recession or expansion starts and ends. Groups such as the
National Bureau of Economic Research (http://www.nber.org/) announce
that a recession has ended months after it actually has. So in August
it'll anounce that a recession ended in Feb. In addition, leading
indicators may predict that an expansion or recession is coming, but
it can't predict exactly when it will happen.
To answer your question, for the same exact reasons as described
above, policymakers may know that factors such as money supply and
government spending can promote economic growth, but since they figure
out economic growths months after it has actually happened, they don't
know exactly how much of it can be contributed to their policies and
how much was due to other variables. Therefore it is difficult for
policymakers to choose the appropriate strength since it takes time
for their actions to take effect and by that time its difficult to
gauge whether the results were due to their actions or natural
economic forces. Let's say that it is June and the National Bureau of
Economic Research announces that the economy went into recession in
January. If the policymakers take action now to help the economy out
of recession, then by the time that their policies take place, the
economy may have already come out of recession. Then there actions
affect an economy that doesn't need it. This could actually have an
adverse affect.