What are the pros and cons of fiscal stimulus to combat unemployment?

It only increases aggregate demand when it is funded by money creation. If it is funded by debt or taxes, those funds are just reallocated. While the arithmetic of a multiplier effect is unassailable, the economics isn’t. The fiscal multiplier has been shown to be very weak, even in WWII.

Lets look at the most unprecedented stimulus in US history: the covid stimmies. Given directly to the people, it acted as a pretty good experiment on UBI. The good? Crack for the economy The bad? We are dealing with the withdrawal symptoms What does this tell us? Fiscal stimmies can work if two problems can be resolved. 1) Inflation 2) manufacturing of goods and services in key sectors does not dip. With todays technology 1 is the big one. Inflation however is misunderstood by a lot of people, there is good inflation and bad inflation. Printing money is not a solution, just keep the spice flowing, the party must go on. Don't let money sit.

Neither of the two types of stimulus – public spending on the one hand, and reduced revenue extraction on the other – can clearly be shown to discourage private investment. In the case of spending, infrastructure investments (both hard and soft) have been shown to attract, rather than repel private capital investment. In the second, reduced fiscal extraction (taxation, fees) tend to encourage rather than discourage private investment. A common fallacy is that government spending crowds out private investment. This is based on an assumption of a fixed supply of savings in the economy, which in the era of global capital flows is no longer (if ever) accurate.

Fiscal stimulus only causes inflation when financed by money creation. It can also be financed by debt or taxes. There are a number of problems with it. By the time that the funds are actually spent they may be adding to demand pressures. There is the political problem of favoritism: do we really need a bridge to nowhere. There is issue that resources are going to be diverted from other uses. Are they going to be used most efficiently in the government projects or is the diversion of resources going to have the usual bureaucratic inefficiencies built in. The arithmetic is unassailable but the economics are not compelling. Unfortunately, most government spending is about vote buying and power.

It is only at the highly theoretical level, where black boxes of “capital,” “savings,” and “investment” substitute for real-world examples that crowding out gains a foothold.

Fiscal stimulus if any should only aid the economy and in job creation, such as incentives for growing the economy with new energy policy that make realsitic economic sense. If the fiscal stimulus does not grow the economy and increase the wealth creation and taxation base, then it can lead to inflation like we saw recently during Covid, where some fiscal stimulation was justified but a significant part was excessive.

One area of concern for the US economy, and which has led to Moody's and Fitch lowering their rating on the US economy, is that the debt to GDP ratio is over 100%, which means we have significantly more debt as a country then the GDP of the country. This will lead to a large interest outgo servicing those debts, leading to unproductive use of Capital. If that same Capital was used in Infrastructure funding to lower the cost of operating in the economy, it will have a more beneficial impact and will stimulate the economy and will lead to job creation. For example if our energy costs were lower, then we would be able to provide goods and services at a lower rate, this growing the economy.

While fiscal stimulus may seem like a good idea in theory, it can actually perpetuate the very economic and social issues it's intended to solve. Rather than relying on short-term, we need to fundamentally rethink our economic system and move towards a more equitable and sustainable model. One problem with fiscal stimulus is that it often benefits those who are already well-off, rather than those who need it most. In the wake of the COVID-19 pandemic, many stimulus measures primarily benefited large corporations and wealthy individuals, rather than low-income earners and small businesses. This exacerbates existing inequalities and can lead to even greater economic instability in the long run.

We need to lower the debt and cannot go on pretending that money grows on trees and can be printed at will to finace the government. This will make the economy unattractive and will not encourage other nations to invest in the USA, if we do not have a sound fiscal management policy.