All that money was spent on make-work projects to artificially stimulate the economy. The Broken Window Fallacy explains it perfectly, but I'd like to cite some examples from personal observation.
When Obama took office, one of the first big moves he did was send out hundreds of millions of dollars in money to the states to get the economic ball rolling. I think it was called "Americorps" or something like that. Everywhere I looked, money was being spent on things like road paving and public facility upgrades. The odd thing was that none of this money was spent on any necessities. It was entirely discretionary. Hundreds of miles of recent interstate highways were repaved. Meanwhile, overpasses were crumbling and local roads needed to be widened yet were put on hold because the funding wasn't there, The local airport received a "beautification" grant that resulted in the approach and facade being completely redone, yet it looked almost the same as before the work. Meanwhile, runways needed work badly, and offices that should have been condemned and rebuilt from the ground up were left untreated.
The problem with the government "doing something" is that they lack a fundamental element that helps move money where its needed, and that is the market signal. Demand drives production better than anything else including severe beatings, which is why slavery and collectivist government is/was doomed no matter what. Everything that naturally results from a need or a want ultimately is a much better director of capital than any guy from DC with a briefcase. I didn't fully realize this until I heard a lecture about just how beneficial price gouging is during times of disaster, and why price controls cause shortages. It was one of the most eye-opening things I've ever studied whether it was economics or philosophy or anything in between.
What China did wasn't build an economy. They simply played kick the can, just like the US government and our artificial money system has been doing for just about a century. Cheap borrowed money distorts any available market signals by reducing risk to investors, and when a government can take advantage of that money its the worst kind of distortion of that type. Besides using up valuable resources where there is no need, it creates waste from processed raw materials (look at the vast lake of neodymium waste at Baotou), and it also uses up what little demand exists both now and in the future. Homes were cheap to build, so was commercial space, and all those construction companies with government crony contacts needed to be kept busy to keep the economy going, so yes, there are now enormous empty cities sitting around China. And more kept being built.
The same thing happened here. Cheap money led to people living beyond their means. As house prices went up, speculation increased, and banks were allowed to cook their books to hide their poorly constructed loans. Reselling a loan is not necessarily a bad thing, but portfolio-ing entire blocks of loans is, especially when the block is sold as an asset. But that wasn't capitalism - that was crony capitalism. Aka fascism. The state teaming up with financial megabusinesses to promote the aims of oligarchs using a system of phony fiat currency around the globe to live off of our productivity.
You want to solve problems, don't tax people. Don't tax corporations that make things people want. Go pull the rug out from under the parasites that use us, use those companies, and then pit us all against each other while saying "we could fix this, if only we had that much more power and that much more money" to both sides.
