No it doesn’t transfer money from the poor to the rich (the act of borrowing does PRECISELY the opposite). What it does is transfer WEALTH from the poor to the rich.

Unemployment can be caused by:
(1) Lack of (unconstrained) demand for work product. This would be the world of Star Trek: The Next Generation and its replicators. This has probably never happened.
(2) Lack of demand for the work product produceable by the people who are unemployed; in other words, skills mismatch. This happens sometimes but is clearly not happening during recessions, as this would involve massive overdemand for another group of workers, which isn’t happening in recessions.
(3) Missing cofactors of production. For instance, suppose every product requires oil as well as labor to manufacture, and there’s an oil shortage. The manufacturers raise their prices due to the oil shortage, and keep doing so until demand drops to meet supply — but at that point there are lots of unemployed people, because there just isn’t enough oil to keep them busy. This may have happened during the ’70s in the US but also seems rare. It would be associated with inflation.
(4) Shortage of money in the hands of average people. Recall that most goods and services are bought by poor to middle class people; one very rich person is almost never capable of making up for a drop in purchasing by thousands of poor people. This means that demand is constrained by the poverty of the general population. This happens when businesses are not following Ford’s rule (“I pay my workers enough to buy a Ford”). The solution is to put wealth in the hands of the population, by one means or another: when done by government, this is always called “fiscal policy”. This is the *most common* sort of recession and is associated with deflation.

“Monetary policy” does sort of involve putting money into the hands of the population, but involves forcing them to take on “debt” in exchange for getting the money — and only under certain circumstances will they be able to pay back that debt; eventually they will be unable to take on more debt due to the interest costs and monetary policy will be useless. Monetary policy has no virtues over fiscal policy except that contraction can be done quickly. (Is this actually a virtue?) It does consistently transfer money from the poor to the rich, which rather explains its political popularity.

http://www.theonion.com/articles/us-treasury-cowboy-claims-something-done-spooked-e,29850/

Demand stimulus? Little if any additional demand is created by monetary stimulus, after rates get close to zero.
So the tools are only two:
Measures to reduce cost of labor (highly impolitical and with backloaded, small effect), and
Fiscal spending financed without crowding out, that is, with Central Bank printing. There are plenty of public goods in short supply, from education to environment, from subways to hospitals, from urban development to safety.

By “not interested in the data” I don’t mean no appeal to empirical evidence – Krugman and those he cites do this a lot. I mean that economics seems averse to actually getting into and assimilating the enormous amounts of information about behaviour over time, the relations of economic movements to particular social formations, what actually happens inside families or corporations and so on. There is some very good economic history, but it seems distant from the main run of professional argument. Marx set a standard here which has been very much neglected since.

Please read Krugman for a start, and then read those to whom he links approvingly. Lots and lots of uses of the data, and lots and lots of consideration on the nature of the stimulus.

The two sides are not the same; that’s the first lesson from the Crash.

The reason this debate is barren is because it is not about how society can create a program of higher AD effectively It’s especially hard when the policy makers on the classical side rely on shibboleths about the evils of “collectivism” and government spending. I am sorry to say the track record of the current US administration is not that much better in this regard.

Until government spending becomes ” respectable” again, there will never be enough traction to drive the academic debate on fiscal multipliers forward, in my opinion.

On the technical issue, the Fed is purchasing these treasuries by printing money. It has been purchasing MBS’s in the same way for years now. Meanwhile, whatever money it has left over after paying its bills and the guaranteed return to the member banks is supposed to be given to Treasury anyway. I think any balancing of assets and liabilities at an institution that has unlimited ability to manufacture assets from thin air, but also a perpetual blanket liability that can expand or contract arbitrarily, has to be considered accounting kabuki ™.

On the political issue, first of all, loss of Fed independence is from my standpoint a feature. I don’t think an institution with the degree of power that is held at the Fed by commercial entities has any business running the economy in a democracy. Of course, the Fed will not see it this way.

Second, there is a real problem with regard deliberate default on the debt as a “fiscal controversy”. The fiscal controversy was settled when Congress passed the budget. The question here is whether the government can deliberately choose to disobey its own laws, since the debt we are discussing is a legal obligation. Whether the government has to obey its own laws should not be considered a normal political controversy. If the government steps deliberately and non-trivially outside its own law, it has become a fundamentally different kind of government. Therefore, the existence of such a controversy constitutes a Constitutional crisis, since the legislative branch is simultaneously requiring and prohibiting that the executive spend money. This is particularly so since there is no external force compelling this action. The crisis is being deliberately engineered.

Meanwhile, the Repubs are threatening to bring the whole house down over a debt ceiling, while the Fed is now buying treasuries. The Fed hasn’t gone for full monetization in that they are not burning the treasuries, so it is still, on paper, debt, and they still presumably plan to resell them at some point. But that money is supposed to go back to the Treasury anyway, so the Fed could just write it off, which, ISTM (someone please tell me if there is some reason this is not true), would reduce the outstanding federal debt and keep us below the ceiling.

Two issues here, a technical one and a political one. The technical one is that like any bank, the Fed has to maintain a balance sheet that equates assets and liabilities (or has traditionally maintained one, not sure if it is a legal requirement). If the Fed simply cancels debt or writes it off assets will fall below liabilities, making the Fed technically insolvent. The political issue is that if the Fed tries to use its monetary powers to take sides in a key fiscal controversy and empower one political side over another then it will likely lose its political independence, or at least create great danger of such. At the least Congress would eventually restrict its powers.

multiplier = (aggregate benefit)/(gov’t stimulus)

this is >1 if AB>GS, 1 if AB=GS, and <1 if AB<GS.

now, if the economy gets WORSE as a result of the government spending, then AB is negative, so the multiplier would indeed be negative

Others disciplines looking at complex, path-dependent systems take the history of those systems seriously. People get prizes in climate science for making better guesses about the climate of the Jurassic, because the answer further constrains the field of possible answers to current questions. Likewise biologists take evolution seriously enough to study what evolved, where, how. Economists seem to think the answers lie in some platonic void, or in the application of some grand universal to some tiny patch of behaviour – an essentially amateur approach.

I don’t know what might bring the discipline back into some more relevant frame – I am not sure that there is any path forward starting from where it is.

Things have loosened up a lot post-GFC, but before 2008, suggesting such a small variation as having the Fed buy or sell long-term bonds with an eye to affecting long rates relative to short, was treated as heresy. Banking regulation was completely neglected, of course, though that is the largest part of what a central bank traditionally does. Capital controls? Forget about it!

It is past obvious that the world needs to hold a Bretton Woods Redux conference and devise some kind of multipolar currency and managed trade system, but, instead, we’ll probably ride the U.S. dollar and U.S. hegemony right into oblivion for both, but none of our priestly experts know their jobs. (Can you imagine hiring any of the imbeciles, who gave the world the Euro, to devise a post-dollar global regime? No one else is credentialed, though.)