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.
Among its fatal flaws: It took an inordinately long time to pump the stimulus money into the economic pipeline. Much of the money was often wasted or gobbled up by government. And money went out just as the recession was coming to an end or had in fact ended.
But somehow Obama was able to sell this snake oil medicine to the voters, and to a lot of economically illiterate journalists, arguing that tax cuts do not work and are even detrimental to the economy.
But the Kennedy tax cuts certainly worked in the 1960s, boosting economic growth, which in turn led to increased federal tax revenues that produced a balanced budget by the end of the decade.
President Reagan's across-the-board tax cuts certainly worked in the early 1980s following the '81-'82 recession, at that time the worst recession since the Great Depression. There was a referendum on the success of those tax cuts in 1984. Reagan carried 49 states.
And the Bush tax cuts of 2001 and 2002 unarguably helped the country recover from the tech bubble collapse and the 9/11 terrorist attacks when Alan Greenspan said the economy stopped breathing.
The new health care plan comes with taxes, fees, penalties and other costs on businesses and families. The financial regulatory bill and the cap-and-trade energy bill just behind it carry a raft of other taxes and overhead expenses on our economy.
But the real economic killer will be when the Democrats, with the president's blessing, will allow George W. Bush's tax cuts to expire at the end of this year for those making more than $250,000 a year (while preserving the tax rate cuts for all those in the mid-to-lower income brackets).
These are the people who save, invest and spend the most, and are a key component of our economy. This is where venture capital investment comes from. This isn't a time to be increasing anyone's taxes. We need everyone pulling on the oars.
"We have been in recovery for more than a year -- wobbly, furtive and paper-thin as it is," Frank Ahrens says. But the very weak data we've seen in recent weeks tell us what "we've really known for months now: This recovery has been fueled by government money. And eventually that runs out."