WASHINGTON -- There are well-grounded economic reasons that President Obama's spending stimulus was doomed to fail from the beginning. Foremost, it lacked serious incentives to spur capital investment, the mother's milk of new business formation and job creation. And it lacked sustainability. When the money runs out, as it has now, the stimulus stops.
The best example of this was the $6,500 to $8,000 homebuyer tax credit that the government was dishing out to boost home sales. The tax credit expired April 30. Existing home sales fell 30 percent in May, double what forecasters expected.
"The message is clear," said Washington Post economic analyst Frank Ahrens. "The tepid housing recovery we've seen over the past year was supported by the government handouts, not market demand."
In this sense, Obama and the Democrats were running a kind of government spending Ponzi scheme, not unlike the scam that Bernie Madoff perpetrated on his victims. As long as the money continued to dish out returns, people seemed to benefit. But when the money ran out, so did the payments and its purported long-term benefits. We saw that happen to the aborted "Cash for Clunkers" program that left taxpayers holding the bag to the tune of $3 billion.
In a deeper sense, most of the $800 billion Democrats stuffed into their so-called economic stimulus and jobs bill went into federal and state government agencies and programs. There were few federal departments and agencies that did not get a chunk of this money to fatten their budgets, with very little, if any, effect on economic growth.
In other words, Obama's big spending stimulus was a fraud from the beginning. We see that in the 125,000 jobs that were lost in June. We see it in the embarrassingly anemic 83,000 jobs created in the private sector last month. We see it in weaker consumer spending, growing at half the pace recorded in the early recovery from the 1981-82 recession.
And we certainly saw it in the wave of pessimism in the financial markets last week. The Dow was down by 10 percent. The broader S&P 500 and the tech-heavy Nasdaq were down by more than 12 percent -- sacking the pensions and retirement savings of millions of ordinary hardworking Americans.
Some readers of this column may recall that early in 2009, I wrote several columns about the inherent weakness of Obama's stimulus plan, particularly its public-works, pump-priming, spending programs. Economists, including some of Obama's own economic advisers in the campaign, had written scholarly papers questioning the spending stimulus plan's effectiveness and long-term sustainability.