Could the Chinese Economy Be Headed Towards a Crash?

     A very smart guy who writes a blog (Kortaggio) has just put up a post on China, mentioning an article by The Economist that allows people to try and estimate when China's economy will overtake America's. He also links to a previous post I made questioning whether or not China could be overstating their GDP (thanks Kortaggio!).
     Anyhow, this is a good coincidence, as I have just come on to post some more thoughts about China I have had over the past few days. A big question many are wondering right now is "when" will the Chinese economy surpass America's. But one question I have been wondering is could the Chinese economy be headed towards a crash of epic proportions, sort of like Japan's in the 1980s?
     Recently, Time magazine put out an article titled Why China Does Capitalism Better Than the U.S. Now one of the big ways many members of the intelligentsia these days seem to view China's economy is that it is more efficient in many ways as opposed to the American economy. As opposed to America, with our inefficient democratic system and our market economy (as they see it), China with its efficient authoritarian government that can "guide" its economy, is much better suited for long-term economic growth than a country like America.
     I don't buy it though (I'll get to the details in a bit). Personally, I think it is just a result of the intelligentsia's always being prone to fall for central planning. They never quite got over that the Soviet Union didn't work, or how they had fallen hook, line, and sinker for all of the Soviet propaganda that led almost the entire Western intelligentsia to believe that the Soviet economy was far more efficient and better-managed than the American economy. Now I think we are seeing the same thing with regards to the Chinese economy. Many in the intelligentisa seem to think that the Chinese government can walk on water, that its combination of market capitalism with a slew of state-run enterprises and central direction from the government is a far better way to operate than America with our mostly pure market economy, and that it is only a matter of time now before China finally surpasses the American economy in terms of overall size, in particular considering that it just passed the Japanese economy in total GDP.
     So, WHY am I rather skeptical of China's economy? Well, for a few reasons. To start with, let's look at a few parts of the Time magazine article:

One of the great ironies revealed by the global recession that began in 2008 is that Communist Party–ruled China may be doing a better job managing capitalism's crisis than the democratically elected U.S. government. Beijing's stimulus spending was larger, infinitely more effective at overcoming the slowdown and directed at laying the infrastructural tracks for further economic expansion.

     Well there is a lot of assumption in this statement. Fiscal stimulus regarding the government spending money has never really been effective in the Westernized liberal democracies. According to economist John Cochrane of the University of Chicago School of Economics, fiscal stimulus was given up on all the way back in the mid-1970s because it doesn't work in either theory or practice.
     One of the reasons why fiscal stimulus doesn't work in practice is because the government is always so incredibly slow at getting the money out. The government has to figure out what infrastructure projects to spend the money on, which requires various cost-benefit analysis, then there are issues regarding the environment and people's property, the federal government has to deal with the state and local governments, unions likely have to be dealt with, and then there's the time it takes to gather together the materials and resources, and actually start the construction work, which can then be plagued by corruption issues and cost-overruns. There is also the question of are the projects just creating temporary work for the workers without creating any real economic growth.
     Because of this, along with certain other reasons, no matter how large the fiscal stimulus had been in the United States, it probably would not have worked. The Keynesian multiplier, according to classical Keynesianism, is about 1.5, in that for every dollar of government spending, you get a $1.50 in economic growth. The problem is that there isn't a whole lot of empirical evidence to back this up. Much of the experience shows the multiplier is likely zero, or even negative.
     One of the reasons for this is because the Keynesian multiplier of 1.5 is based on the idea that government can manage resources more efficiently than the private sector. This is simply not true as almost everyone knows today, but at the time Keynes wrote The General Theory of Employment, Interest, and Money, socialism was widely considered the best way to organize an economy. The notion that a market could better coordinate an economy than the government was considered laughable. So the Keynesian multiplier of 1.5 was widely accepted without much skepticism.
     One of the greatest examples of Keynesian policy not working however, was Japan. Japan tried a stimulus of $2 trillion with a $5 trillion economy. Proportionally, the United States would need to spend about $5.6 trillion in fiscal stimulus to match Japan. The result is Japan had a lost decade with very weak and anemic economic growth. Stimulus proponents resort to the argument of, "Well, imagine how much worse their economy would be if they had not spent that much money..." but that argument could be used if they had spent $4 trillion and not gotten much economic growth. It's a default argument a proponent of fiscal stimulus can always fall back on, "They haven't spent enough!" One asks, how much should they spend? Japan's debt-to-GDP ratio is the largest in the industrialized world, about 230% of GDP. If Japan had to raise their interest rate by one percentage point, the cost to service their national debt would be astronomical. Japan got a LOT of infrastructure from their stimulus, including quite a few bridges and roads to nowhere apparently.
     There are also two other reasons why stimulus doesn't seem to work in Western liberal democracies: in addition to taking too long to spend the money, it may crowd out private sector investment (this is debated hotly from what I understand) and also, if too large of a segment of the population become too concerned over the increasing deficit and debt due to the stimulus, people may curtail their spending and businesses may curtail investment and hiring, thus making the stimulus actually act as a form of a tax on the economy, and thus not have any stimulative effect whatsoever.
     So let's get back to China and what the Time article claims. The article makes two claims: that the Chinese stimulus was "infinitely more effective at overcoming the slowdown" and "directed at laying the infrastructural tracks for further economic growth." It also points out that the stimulus was far larger. Now, one thing that one will immediately notice is that, at least in the short term, China does seem to have weathered this economic crisis. It really looks like Beijing's stimulus HAS worked. But how so? Especially since just wrote up a bunch of reasons for why stimulus does not work?
     Well, in short, I actually do NOT believe the stimulus has worked, at least, not in the long-term. I think the Chinese have essentially given themselves a short-term boost, but are going to suffer some major long-term pain as a result. However, China also has a couple of differences as opposed to the Western liberal democracies, which the article mentions:

1) China can ride roughshod over people's property. If the Chinese want to build a road, and there's a village in the way, tough. The people move, or the army goes in and forces them out.

2) China has no environmental controls, regulations, or movement. There is no Sierra Club equivalent in China or Environmental Protection Agency there. If the Chinese want to dump toxic waste into their rivers, they'll do it.

3) China has a huge surplus right now with very low debt. So it is likely that their people (assuming a large enough portion of the population even pays attention) would not be concerned over the size of the Chinese stimulus. Businesses wouldn't stop investing or hiring and people wouldn't stop spending money over fear of the Chinese government's spending because, unlike in America right now, China isn't running any large deficit or debt. Another thing to keep in mind is that China has yet to really establish a self-sustaining middle-class. China depends mostly on foreigners to buy their stuff or the government to engage in construction; otherwise, their own population still consumes too little to sustain the Chinese economy on its own. What this means is that the consumers who drive the Chinese economy are likely mostly Americans and Europeans (one of the primary reasons for the Chinese government to engage in stimulus in the first place is because of a drop-off in demand from American and European consumers). Because of this, the Chinese government doesn't have to worry a whole lot about what their own citizens think of their spending because their own citizens don't spend enough as it is.

     Okay, now, all that said, I see two HUGE problems with China's so-called "stimulus:"

1) The speed at which the money went out. The laws of economics don't get suspended because the Chinese government wants to say so. They're there irregardless. I do not at all believe that the Chinese government can order their banks to loan out money, and their state-owned enterprises to receive that money, and those loans be of decent quality. It would take too much time to go through all the analysis to figure out what to build, where to build it, and so forth. The Chinese stimulus had to work immediately, which meant loan the money and start building.
     Now in the short-term, this will work fine. Build roads to nowhere, build skyscrapers that won't be sellable (and nevermind the lousy build-quality of a lot of those skyscrapers as well!), etc...all of this counts as GDP growth. So it gives the appearance that the Chinese economy is growing and doing fine in the recession. The problem is that sooner or later, the piper must be paid.

2) The sheer number of the loans. In addition to the speed at which the money was spent, there is the sheer number of the loans that were given out. I do not believe that the government can loan out that much money and expect to have enough reasonable things to spend it on. Imagine for a second if the United States government was to try to spend, very quickly, $5.6 trillion to stimulate the economy. Well in addition to the question of how to spend it fast but not recklessly at the same time (which would be impossible), there's the question of WHAT. What exactly would the U.S. spend the $5.6 trillion on?
     Perhaps build a bunch of skyscrapers (which would ultimately be disastrous considering the commercial real-estate market is already greatly struggling due to oversupply), or maybe some roads to nowhere (as no time to do all the analysis to figure out what roads need to be built, and this is assuming no problems with environmentalists, unions, private property, etc...), a bunch of military equipment (again which would probably be useless, as it takes time to scale up the production, and then that's assuming one has figured out what to build...maybe some new aircraft carriers, a bunch of new Humvees, new Abrams battle tanks, a bunch of F-22s, etc...) one can see the problems that come with trying to spend a monumental sum of money, very quickly, and do so in a quality manner. I think that the sheer size of the Chinese stimulus means that a lot of the things they are spending it on have to be worthless. But we are supposed to believe that the Chinese government is able to both spend a monumental sum of money, spend it very quickly, and do it in a quality manner. No government can do this. With a smaller amount of money, it is impossible to spend it quickly and not do so in a reckless manner. Spending an enormous sum of money very quickly not only results in recklessness, but also the fact that you probably do not have enough good things to spend it on.

     Thus, I think that the Chinese stimulus is giving the rest of the world the illusion that China is handling the recession well, but in reality, I think this kind of spending is going to blow up in China's face. For example, a big point made by many is how the Chinese have about $2.4 trillion in reserves. Okay. But what are their liabilities? The Chinese government has to have some major liabilities on its books due to the fact that a large amount of these construction projects are not going to pay for themselves most likely.
     Let's look at the next point of the article: that China's stimulus was directed at laying the infrastructural tracks for further economic growth. This again flies in the face of reality as I see it. Good quality infrastructure development that will truly help facilitate long-term economic growth, is not something that you can just engage in at great speed. Again there is the analysis the government must do, or else you will build infrastructure in all the wrong places, and shoddy-quality infrastructure at that. The fact that the Chinese government is loaning out so much money and spending it so fast, I think greatly undercuts the argument that they are laying the infrastructure necessary for long-term growth.
     One major criticism of the U.S. financial institutions is that they are flush with capital, but are refusing to lend. The reason they won't lend is because now they realize the importance of adherence to proper lending practices, and thus only will lend to people and businesses they are sure will be able to pay them back. This is smart, as doing the opposite is what helped create the crises in the first place. However, in the short-term, it hurts because there is a lack of money in the system. To many in the intelligentsia, it appears as just another way in which the U.S. private market system is supposedly inferior to the Chinese system, where the government can just order the banks to lend. Some have suggested the U.S. should nationalize its banks; I am of the firm belief that this might create short-term gain, but longer-term, would blow up in the country's face even worse, as I believe it will blow up on the Chinese.

Three examples of the recklessness of the Chinese government could be the following:

Skyscrapers - the Chinese are constantly putting up new skyscrapers even though the current ones are vacant. These new skyscrapers count as GDP growth as they go up, but it seems as if the Chinese government is basically doing what the private sector just did in the U.S. that led to an almost total meltdown (i.e. overbuild real-estate with no concern for the fact that the market would be over-supplied and thus crash). Right now, real-estate prices in China keep going up. But what goes up, must eventually come down. Some believe China's economy is in a bubble that is getting close to popping. What is interesting is that, just like with the Japanese, the Chinese (and everyone else) seem to think that their economy will keep growing at a very high rate for many years, and that their real-estate market will not crash. They also are like the United States in that just as the U.S. assumed that because housing prices "always go up" (something that was supported by decades-worth of data), the Chinese assume that because their economy has grown at an extraordinary rate for the last three decades, that it will continue growing. But just like with housing prices, just because they went up for many years didn't mean it was an established fact that they "always go up." I view China in a similar manner. Just because their economy has grown for three decades doesn't mean it is going to keep growing like that. What is really interesting is that they seem to be in a real-estate bubble, yet so much of their economy is based on construction and manufacturing. Which means if/when the bubble pops, the repercussions could be massive. Another entity that believed the real-estate market would keep on going up and up is Dubai.

The South China Mall - yes, the Chinese built the largest mall on the planet and it is mostly vacant. That is a sign of some major recklessness in terms of their real-estate construction.

Ordos, Mongolia - an entire CITY China has built that is also mostly vacant. This does not give one much faith that the Chinese government knows precisely how to develop the infrastructure for future economic growth.

    Much of China's current economic growth seems to be entirely government-fueled. What I do wonder is if, or when, China crashes, is it going to be spectacular? As in instead of being the economy that pulls the global economy out of the recession, it yanks the global economy into an even deeper recession? Just as China has experienced phenomenal growth over the past three decades, will they see a form of reverse of this? Will their fall be as spectacular as their rise? Will the Japanese economy end up overtaking the Chinese economy once again?
     The Chinese seem a bit cocky as of late, such as with President Jintao talking about how the U.S. dollar should no longer be the world's reserve currency, but to me, China is like a bank that is thriving during an economic boom. A bank can make bad loan after bad loan during such a boom, and all will appear fantastic. It's when the market crashes or the economy goes into a recession that we get to see how the bank really has been performing.
     In the case of the United States of America, many of our banks were making enormous profits during the real-estate bubble. Then when the bubble burst and the loans all turned out to be, well, CRAP for lack of a better word, the entire U.S. financial system almost literally collapsed. So what will be the case with China when their bubble pops or their economy hits a major recession?

Let's look at another part of the article:

Beijing is also doing a far more effective job than Washington of tooling its economy to meet future challenges — at least according to historian Francis Fukuyama, erstwhile neoconservative intellectual heavyweight. "President Hu Jintao's rare state visit to Washington this week comes at a time when many Chinese see their weathering of the financial crisis as a vindication of their own system, and the beginning of an era in which U.S.-style liberal ideas will no longer be dominant," wrote Fukuyama in Monday's Financial Times under a headline stating that the U.S. had little to teach China. "State-owned enterprises are back in vogue, and were the chosen mechanism through which Beijing administered its massive stimulus."

     Alright, well I just wrote a lot about how I do not at all believe the Chinese are actually weathering the economic crisis, or that they are effectively tooling their economy to meet future challenges. Let's look at the bottom part, about state-owned enterprises. Note that it mentions that the state-owned enterprises were the mechanism through which China administered its massive stimulus.

    
Well two things:

1) State-owned enterprises are not efficient, because they do not have a profit motive. One could imagine the horrors if all the major companies in North America were to be nationalized! The way in which the author of the article says it, however, I think indicates just how in love with socialism so much of the intelligentsia still is. They truly never have been able to get over that it doesn't work. So the article actually takes seriously it seems the idea that state-owned enterprises are not only an efficient portion of the economy, but very efficient at how to spend money for something like a stimulus. 

2) Bureaucrats. One thing the Chinese economy has is a huge state-influence and what a huge state influence means is a lot of bureaucracy. Big bureaucracy means inefficiency and corruption. And corruption means misallocation of capital. In other words, capital gets allocated according to who has the best political connections or bribes. I do not believe for one second that these Chinese state-owned enterprises are models for efficiency and lean management. Private-sector corporations in a market capitalist system can become bloated and bureaucratic, let alone state-run enterprises that do not even have to turn a profit. Again, the Chinese do not walk on water when it comes to their economy. There is no reason to think that for some reason, despite the failure and inefficiency of state-owned and run enterprises everywhere else, that the Chinese have some magical formula whereby theirs are models of efficiency. This high degree of inefficiency and corruption (which likely will not be exposed until their economy finally experiences a crash), will also serve to hamstring the Chinese economy in the future. And approximately one-third of the Chinese economy consists of these state-owned enterprises. But we are back to the old media praise the Soviet Union used to get, about how central direction and state-owned enterprises are much more efficient than a free-market. It's a modified variant of it, that the Chinese model of market capitalism combined with a healthy dose of state direction and state-owned enterprises, is superior to America's, with our mostly free-market economy with virtually zero state direction (at least in comparison to China). But I don't buy it. Chinese state direction and state-owned enterprises have to be prone to the same problems as every other attempt at central planning and state-run enterprises.

3) Excesses. The other major problem of government management of the economy is that you get excesses. An example with China would be the manufacturing and real-estate concentration of their economy, but huge lack of a service sector. These excesses get covered over right now by China's economic growth, but when the growth slows down, they will likely become much more prominent.

     A major question I think is just how long can China keep its economy growing artificially (assuming that this is the case)? There are some others that have been calling for China's crash for some years now, but it hasn't happened. But that doesn't mean it won't happen. It just means that it may take longer than they thought, and long enough to "discredit" the naysayers until finally it blows up and takes everyone by surprise.
     The American model may seem lousy and "inefficient" right now, and in the short-term, perhaps it is, but while the Chinese model may have advantages in the short-term, long-term, it will likely have some enormous problems: misallocation of capital, excesses, too much bureaucracy and corruption, inefficiency, total lack of quality control, and then in addition, there's their huge population with complete lack of social safety nets, which means the potential of massive civil unrest when the economy tanks, and their complete mishandling of their environment as well.
     Even their "market" economy raises some questions, in that they cannot do quality-control worth anything right now, so everything they produce on their own is pretty shoddy, except the things they manufacture for Western companies. When China develops the ability to produce their own brands of things with quality control just as good as the West, develops standards for food safety, worker safety, worker rights, environmental controls, etc...then their market economy will be more comparable to the Westernized nations. Whether that will happen or not at all is questionable, as China is not a liberal democracy.
     On this issue of the Chinese people thinking highly of their government, well China has a powerful propaganda machine. The people's worldview and opinions are probably warped somewhat. The Soviet Union succeeded in warping Western opinion for decades until it finally broke apart. 

Good Retail Article

Eight Characteristics of Successful Retail Concepts

Good Article On Dick's Sporting Goods

     Sporting good is a fragmented industry and highly competitive. Dick's Sporting Goods is one of the big sporting goods chain (I believe the largest) and one of the best. This article gives some good information about the industry and company: Retail's Rising Star
     One of the most important points I think the article makes is about how the sporting goods industry differs around the country, that how people buy sporting goods and what they buy and when they buy differs in a state like Florida from a state like New York. Now having the right products stocked at the right time can thus lead to disaster for a sporting goods retailer.

Could China Be Overstating Their GDP?

So I was reading a short article by Steve Forbes in which he mentions the Soviet economy, and one of the reasons why its GDP numbers, despite seeming impressive, were actually greatly overblown: basically, because the GDP figures published for/by the Soviet Union included all of the extremely low-quality things the Soviet Union produced. As far as the Soviet economists were concerned, for example, cars from private companies versus cars from a government facility are both equal as far as GDP numbers went (so comparing say fifty cars produced by the Soviets and fifty cars produced by GM was pretty equal).

As a result, the Soviet economy appeared inflated and much more productive than what it actually was.

So I was thinking, China we know just recently surpassed Japan in terms of the size of their economy. However, China's economy also produces a lot of subpar junk at the moment. China manufactures things for Western companies, but in terms of designing and producing their own stuff, "Made in China" doesn't have a great reputation at the moment.

No one in the West buys Chinese-made, Chinese-brand automobiles yet, or Chinese-designed and made computers or electronics or appliances at the moment, and so forth. So what I was thinking is, could China's GDP numbers actually be inflated? Could their economy be appearing larger than what it actually is right now?

For example, I would imagine that in calculating their GDP, Chinese economists probably don't really much rate the difference between a cheaply-made low-quality Chinese vehicle and a much higher-quality Western-made vehicle. Or we could compare real-estate. Chinese buildings are not built to the same standards as in other countries (some have collapsed, one building rolled over because the foundation was so lax), yet I would bet their buildings are counted in the GDP with the same equivalence of buildings put up in the Western nations.

Thus, even though on paper, China may appear to have a GDP larger than Japan's, in reality, Japan may still have the technically larger economy if we could really measure the individual value of all the goods/services China produces.

Fashion Doll Ideas

     So I have been thinking, perhaps a way to pursue the fashion doll industry would be to make a go at it with two different brands of fashion dolls. One would be very much based on ultra-cool, stylish fashions, be urban, edgy, Hip Hop-based, rebellious in attitude, etc...whereas the other one could be very much into stylish fashions and be urban, but not as urban or edgy or rebellious or into fashion as the other brand. Whereas the other brand would be solely into fashion, this alternative brand would have girls with backstories, hobbies, and so forth. They would be independent, but not have an "attitude" like the dolls of the other brand.

Why Politicians Love Keynesian Economics

      So lately I've been doing some reading by the economist John Cochrane. According to him, Keynesian economics and fiscal stimulus have actually been mostly rejected by macroeconomics for decades now. That no major economics textbook teaches Keynesian policy or fiscal stimulus except for its fallacies, no respected economics program teaches Keynesian policy or fiscal stimulus except for its fallacies, and no major academic journal in economics has seen a policy simulation based on a Keynesian model in decades.

Fiscal Stimulus, RIP (also check out Mr. Cochrane's other articles on stimulus at his website: John Cochrane's Webpage

He says that the advocates of fiscal stimulus say that the economics profession lost its mind starting around 1975, but in his opinion (and that of other economists), it actually began to finally regain its mind around this time after having already lost it for many years prior. This is the view I would be much more inclined to hold as well, because starting in the 1930s with the introduction of Keynesian doctrine, economics also became dominated by socialists as well.
     If you had walked into an economics department in the 1950s or 1960s and said socialism doesn't work and free-market capitalism is the best way to organize an economy, you'd have been considered a borderline radical or a nut. The late great economist Milton Friedman was for many years regarded as such and was called many nasty things by people who disagreed with him.
     The late economist John Kenneth Galbraith for example, a Keynesian to the core, was also a believer in socialism, having traveled to Mao's China and praised it as a wondrous example of how to organize an economy (nevermind Mao killed more people via his socialism than pretty much anyone else in history, mostly through starvation).
     ANYWAYS, I am going way off-topic, the point of this post then, is that, if modern macroeconomics mostly has rejected Keynesian policy except for a few holdouts such as Paul Krugman, Brad DeLong, Joseph Stiglitz, etc...(well-known stimulus skeptics include Greg Mankiw, Eugene Fama, John Cochrane himself of course, Robert Barro, and John Taylor),  then why do so many politicians adhere to it?
     Well, my personal thoughts on this are that politicians adhere so much to Keynesian doctrine for about four primary reasons:

1) Leftist-leaning politicians are in particular prone to lean towards Keynesian policies. I think this is because many on the Left never quite got over the fact that socialism failed. An important point to remember is that it wasn't until the Soviet Union finally dissipated that it became very apparent that socialism (central planning) flat-out did not work, that it could not work. Even conservatives and libertarians who knew this all along, were shocked at the degree of decay and devastation that was within the former Soviet Union when it finally broke apart.
    I will us some quotes from Natan Sharansky's book The Case for Democracy: The Power of Freedom to Overcome Tyranny and Terror:

"In the early 1980s, when some were actually arguing that the Soviet Union could be challenged, confronted, and broken, the possibility was dismissed out of hand. The distinguished historian Arthur Schlesinger Jr., espressing the sentiments of nearly all of the Sovietologists, intellectuals, and opinion makers of the time, said that 'those in the United States who think the Soviet Union is on the verge of economic and social collapse, ready with one small push to go over the brink are wishful thinkers who are only kidding themselves.'" (bolding mine, and from the Introduction, page 7).

"When Reagan took office, and indeed throughout almost his entire presidency, few people believed that the USSR was seriously in danger of implosion. In 1984, the distinguished Harvard economist John Kenneth Galbraith noted admiringly that 'for the first time in its history the Soviet leadership was able to pursue successfully a policy of guns and butter as well as growth...The Soviet citizen-worker, peasant, and professional---has become accustomed in the Brezhnev period to an uninterrupted upward trend in his well-being.' That same year, Galbraith would also claim 'that the Soviet system has made great material progress in recent years' and that 'the Russian system succeeds because, in contrast with the Western industrial economies, it makes full use of its manpower.'" (bolding mine, and from the chapter Mission Possible, page 133).

(note John Kenneth Galbraith, the same economist who also had travelled to China and praised Mao's economy)

"In 1985, Paul Samuelson, the Nobel Prize-winning economist well known to American college students for his introductory textbooks on economics, was even more lavish in his praise for the Soviet's command and control economy: What counts is results, and there can be no doubt that the Soviet planning system has been a powerful engine for economic growth...The Soviet model has  surely demonstrated  that a command economy is capable of mobilizing resources for rapid growth.'" (bolding mine, from Mission Possible, pages 133-134).

    So we can see from the above just how strong the Leftist belief in socialism was up until the Soviet Union collapsed. That socialism turned out, to use a modern phrase, to be the be Epic Fail of the Century, really irked many of them. Keynesian economics, of course, provides the second-best alternative. A free-market economy is what's needed, but it must still be guided by the "wise hand" of the government. To have to acknowledge that this doctrine of economics is also not true is just too much for many a Leftist.

2) A second reason is that Keynesian economics is the perfect justification for big-government spending. Politicians and bureaucrats love to spend money. That's how they win votes or win prestige. Elected politicians love to promise "freebies" to the general public, and bureaucrats who run government agencies are given an allotment of money to spend. Their job is to spend all of it and then they can demand even more money for their agency. If they fail to spend all of it, then the government will reduce their budget because they apparently didn't need all that money in the first place. To the head of any government agency, this of course doesn't look good. You want to get the largest budget possible for your agency, that is what wins you prestige and advancement. Failing to get a larger budget can get you fired.
    In my own opinion, the Left has somewhat warped Keynesian doctrine because it doesn't call for structural increases in government spending; it doesn't literally call for big government. It in fact calls for fiscal consevatism, to run a balanced budget with a healthy surplus in good economic times, so that when a recession hits, you can gun up spending to stimulate the economy out of said recession, upon which you then curtail spending after the economy recovers so you can focus on paying down the debt and deficit you built up.
    Instead, the Left has kind of perverted Keynesianism to justify permanent increases in spending. But nonetheless, any policy that calls for massive-scale government spending, and also claims that it doesn't matter how the money is spent even, just that you spend it, will be music to a politician's ears, even if only meant for recessions or to be temporary.
     Hence, the Left is very reluctant to have to acknowledge that Keynesianism is no longer viable. We can see this especially with the Democratic party's so-called stimulus under President Obama, which was more of a wishlist of spending programs on all sorts of things Democrats have wanted to spend money on for decades.

3) It doesn't sound good from a political standpoint. One of the myths that much of the general public seem to adhere to is that the President, and to some degree Congress, "manage" the economy. This is of course, mostly nonsense. Congress can write laws, which create regulations over the economy, they can create regulatory agencies, and they can raise or lower taxes, all of which can have an affect on the economy, but otherwise, the economy is a mostly self-functioning mechanism of extraordinary complexity. The President even less-so, as the President does not technically raise or lower taxes, write laws or create regulations. They have to have the cooperation of the Congress for all of this if they want to do it. When Ronald Reagan "cut taxes," what that really means is the Congress passed tax cuts that Reagan asked for.
    So if the economy is bad, and a politician is running for office, it doesn't really sound good if they say to a crowd, "Yes, the economy is bad, but there really isn't anything I can do about it. The government has little to no ability to actually stimulate the economy, all we can do is mantain a relatively hands-off approach and hope for the best." That doesn't work, at least not during elections.
    The only exceptions would be if taxes are prohibitively high, and/or regulations are too excessive, then reducing regulations, reducing tax rates, allowing privatization of nationalized industries if a country has such, working to reduce a debt and/or deficit if it is too excessive, these kinds of things are ways a politician can create a direct economic turn-around. But once these things have been done, there isn't much else a politician can do.
    No politician wants to say they are powerless to "fix" the economy or they won't get elected. The simplistic idea is, "The other guy/party was in office, the economy tanked under him/them, so 'obviously' he/they 'managed' the economy badly, therefore, vote for me and/or my party and we'll manage it correctly."

4) Ideology. Unfortunately, for most people, economics is not really a quest for truth. It isn't really a quest for knowledge about how economies actually work, it is more a set of debating points to argue for a set of policies which one has arrived at due to an ideology. Acknowledging that Keynesian economics is not viable is a severe blow to the ideology of the Left, because it means government needs to have a far more diminished role in the economy than they think it should have.

Articles On Systems

http://www.boxtheorygold.com/ - check the articles section, this guy appears to have some good articles on the subject of building business systems.

The Importance of Business Systems

     So one of the primary components to building up a business of any kind, that many people miss over, is systems. Systems are what let the business operate independently of you, the owner, and prevent you from having to micromanage every little aspect of the operation. Not recognizing this fact, I have a feeling (I don't know of exact statistics), is one of the reasons why so many businesses fail. Because so many of the people who start them just don't realize this.
     The first person I saw to really point this out was Michael Gerber, in his book "The E-Myth." This book really opened my eyes up to how a business should be run, as I had never thought of it in this way. Some entrepreneurs will understand this kind of thing instinctively, but many others must be taught it. For example, many of the entrepreneurs and businessman of the 19th century understood all this about the need for organization, efficiency, details, standardization, etc...for an industry instinctively.
     Michael Gerber's main points are that few of the people who start businesses are actually entrepreneurs and most people do not start businesses for entrepreneurial reasons. He says one of the main problems with people starting businesses is that they start them thinking that because they know how to do the technical work of a business, that they know how to run the business itself.
     For example, being a fantastic hairdresser doesn't mean one knows anything about how to run a hair salon, or say a chain of hair salons. Being a great computer programmer doesn't mean one knows anything about how to run a software company. Being a brilliant chef doesn't mean one knows anything about how to run a restaurant, or a chain of restaurants. And so forth. Thus the person, who had a job and would like to seek "freedom," ends up now having to do their original job, but also having to do a bunch of other jobs that they likely do not even like in addition to not knowing really how to do them.
     This then leads into the other big mistake of trying to do every little aspect of the business as opposed to systemizing things. Thus "the business" is what arises up as a result of the efforts of the person starting the business, as opposed to planning the business from the get-go and implementing systems. The true entrepreneur, on the other hand, will think up the concept of the business from the get-go, and think about everything from a business plan, to marketing, to systems implementation, so that it becoems a professionally-run operation. 
     This is very important because the systems do a few crucial things (also pointed out by Gerber):

1) They create a sense of ORDER out of the chaos of the world. The world we live in is extremely chaotic. Crime, pollution, loud noise, weather, life overall. As a result of all this chaos, people crave order. Businesses are a big part of this. When a person goes into a business, a chaotic business will turn them off. What turns people onto an enterprise is if it is ordered, efficient, where they can expect the same experience each time. For example, whether you go into a Starbucks in Los Angelos or a Starbucks in New York City, you get the same experience each time. Same with McDonalds. You know what to expect. And the reason a Starbucks operates the same anywhere, or a McDonalds, or a Wal-Mart, or whatever, is because of systems.

2) Systems allow quantification. Think about the different components of the business. Finance, accounting, marketing, sales, ordering merchandise, etc...(just a few off the top of my head). How can one really determine if their business is doing this stuff efficiently without use of systems? Quantification allows one to increase efficiencies and quality of service to customers.

3) Systems allow freedom. One thing pointed out is that while initially you may work in your business, you want to get where you are working on it, not in it. If you are working in it, you can't work on it. And in order to work on it, much of it must be able to function without you. This is how the freedom aspect comes in. The idea for most people in starting a business is to enhance their life, not take from it. And in order for the business to do this, you must have systems in place. What the systems allow is for the business to operate independent of the owner, so that they can enjoy other aspects of their lives.
    One protest sometimes given to the idea of even trying to start a business by some people (I have seen it on Internet forums) is that they do not want to be "chained to a brick and mortar store" (or chained to any physical business). One woman said, "I would rather DIE than be chained to a B&M." These people have no concept of the idea of systemizing the business. They would end up working in the business as opposed to on it. Essentially, they would have bought themselves a job. Without their daily presence, the business can't function and they can't make any money.
     Systems allow the business to function without them, so they can go see their child's baseball game or attend the PTA meeting or do whatever. A world-class business need not be big at all. One could operate a single bakery, but it be extremely professionally-run and truly world-class, to the point that some people might even think it is part of a chain, even though it is not. But because it is systemized, the owner doesn't need to be there every single day. They can hire a manager to run it with whom they meet weekly. This is part of how a chain of restaurants or stores is grown. Obviously if one starts a restaurant and wants to build a chain, they cannot be present at every single restaurant they open. Managers and systems are needed.
     For the entrepreneur who would like to own multiple small businesses, systems are crucial as well.