Coyote Blog

As a train enthusiast, I have to admit this sings to me.  I give them double points for being honest that their technology is not yet economic

The wind doesn't always blow, the sun doesn't always shine. So utilities are in search of ways to store surplus energy when they've got it, so they can distribute it later, when it's needed.

The most "duh" approach to energy storage is very big batteries like the ones Elon Musk peddles, which are poised to become a lot cheaper in the next five years. Pumped hydroelectric facilities are another option. Or you can move compressed air around underground caves. But none of these options has emerged as the best way to fix the grid.

Then there's rail energy storage, which is about to get its grand debut. In April, the Bureau of Land Management approved an ARES—that's Advanced Rail Energy Storage—project, conceived by a Santa Barbara-based energy startup called, well, ARES. By 2019, ARES operations head Francesca Cava says, the facility will occupy 106 acres in the excellently-named town of Pahrump, Nevada. By running a train up and down a hill, ARES can help utilities add to and subtract from the grid as needed.

It's a wonderfully simple idea, a 19th century solution for a 21st century problem, with some help from the abundant natural resource that is gravity. When the local utility's got surplus electricity, it powers up the electric motors that drag 9,600 tons of rock- and concrete-filled railcars up a 2,000-foot hill. When it's got a deficit, 9,600 tons of railcar rumble down, and those motors generate electricity via regenerative braking—the same way your Prius does. Effectively, all the energy used to move the train up the hill is stored, and recouped when it comes back down.

 

Per the WSJ:

This is what happens when a major American state lets its bills stack up for two years.

Hospitals, doctors and dentists don’t get paid for hundreds of millions of dollars of patient care. Social-service agencies help fewer people. Public universities and the towns that surround them suffer. The state’s bond rating falls to near junk status. People move out.

A standoff in Illinois between Republican Governor Bruce Rauner and Democratic Speaker of the House Michael Madigan over spending and term limits has left Illinois without a budget for two years. State workers and some others are still getting paid because of court orders and other stopgap measures, but bills for many others are piling up.

...Susana Mendoza, the state’s Democratic comptroller, is in charge of doling out limited funds to organizations demanding payment—a job she likens to handing out crumbs to starving children. She predicted unpaid bills will soon top $16 billion. “It is almost hard to say those numbers out loud because they seem so insane, but that’s where we are right now,” she says.

For reference, the entire tax revenue of the state of Illinois is just $32 billion a year, so even if the government were to close tomorrow and fire everyone, it would still take 6 months of taxes to just catch up on the bills.  And you can bet this does not include the most common form of borrowing done by most government agencies -- deferred maintenance.  Pretty much every government agency in the country at every level of government does not fully fund the maintenance of its capital assets (from parks to school buildings) preferring instead to fund the maximum salaries and retirement benefits for the maximum number of headquarters staff.

By the way, you may notice at the budget link that the proposed budget still calls for $6 to $7 billion a year in deficit spending, and does not include any provision for catching up on Illinois's sky-high $130 billion in unfunded retirement benefits (a number that represents a full 4 years of tax revenues).  Illinois is functionally bankrupt, and the only good news is that Illinois favorite son Barack Obama is no longer in the White House to bail them out.

I am simply exhausted with the notion that seems to have taken over both political parties that trade with China is somehow the source of US economic woes.

Remember that voluntary trade can't happen unless both parties are benefiting from each trade.  Remember the masses of academic evidence that the (largely hard to see) benefits of trade in terms of lower costs and more choice tend to be greater than the (easier to see) job losses in a few trade-affected industries.  But even if none of that is compelling to you, consider that our trade deficit with China is just 2% of GDP.  It's almost a rounding error.

If politicians want to know why lower-skilled laborers struggle to find employment, they need to look past imports from China and Mexican immigration and look at their own policies that are making it more and more expensive for businesses to hire people in this country.   I have written about this many times before, but some of the most prominent include:

• minimum wage laws, rising to $15 an hour in many parts of the country, and increasingly draconian overtime rules, both of which substantially raise the cost of hiring someone.
• minimum benefit laws, including expensive health care requirements in Obamacare and a myriad of other state-level requirements such as mandatory paid sick leave or family leave
• payroll taxes that act as sales taxes on labor  -- we understand that cigarette taxes are supposed to reduce cigarette purchases but don't understand that payroll taxes reduce purchases of labor?
• employment regulations, such as chair laws and break laws in California, that make employing people more expensive and risky
• employer liability laws, that make employers financially responsible for any knuckleheaded thing their employees do, even when these actions violate company policy (e.g. making racist or sexist statements)**
• laws that make hiring far more risk, including those that limit the ability to do due diligence on potential employees (e.g. ban the box) and those that limit the ability of employers to fire poor performing employees.

And this is just employment law -- we could go on all day with regulations that make life difficult for lower income workers, such as the numerous laws that restrict the housing stock and drive up housing prices and rents for these same folks who are struggling to find a job.

Let's say you live in California.  Who has killed more jobs in your state -- China or the California legislature?  The answer is no contest.   The California legislature wins the job destruction race in a landslide.   While California's high-tech community enjoys a symbiotic relationship with China that has created immense wealth, the California legislature works overtime to make sure low-skilled workers in the state don't benefit.

**Postscript:  Of all the factors here, I won't say that this is the largest but I think it is the most underrated and least discussed.  But think about it.  If you are going to be personally financially libel for ignorant, insensitive, or uncouth remarks made by your employees, even when you have explicitly banned such behavior in company rules and don't personally tolerate it, how likely are you going to be to hire a high school dropout without a good work history to interact with customers?

If you search Coyoteblog for the title of this post, you will see a number of others with the same title.  It seems to be a theme we keep having to come back to.  Here is one example of where I tried to explain why the trade deficit is not a debt.

Take the Chinese for example.  One thing that people often miss is that the Chinese buy a LOT more American stuff than the trade numbers portray.  The numbers in the balance of trade accounts include only products the Chinese buy from the US and then take back to China to consume there.  But the Chinese like to buy American stuff and consume it here, in the US.  They buy land and materials to build factories and trade offices.  They buy houses in California.  They buy our government bonds.  None of this stuff shows up in the trade numbers.  Is it somehow worse that the Chinese wish to consume their American products in America?  No.  How could it be.  In fact, its a compliment.  They know that our country is, long-term, a safer and more reliable place to own and hold on to things of value than their own country.

Dollars paid to a Chinese manufacturer have to get recycled to the US -- they don't just build up in a pile.   If I am a construction contractor in LA and build that manufacturer a new office or a local home and get paid with those recycled dollars, I am effectively exporting to the Chinese, only the goods and services I sold them never leave the country and so don't show up in the trade numbers.  So what does this mean?   In my mind, it means that the trade deficit number is a stupid metric to obsess over.

Another way I think about it is to observe that the US is winning the battle of stuff.   Money as money itself does not improve my well-being -- only the stuff (goods and services) I can purchase with it can do so.   So i t turns out that other countries ship far more stuff to the US than we ship out. And then these folks in other countries take the money they earn from this trade and buy more stuff in the US and keep keep that stuff here!

I am reminded of all this because several other folks are taking a swing at trying to make this point to the economically illiterate.   Don Boudreaux does so here, and Dan Ikensan here.  And here is Walter Williams as well.

Let's start by saying that I have an imperfect layman's view of Keynes and Hayek.  This is my understanding and over-simplification of how these camps deal with economic downturns.

• Keynes:  Economic downturns result from some sort of failure of aggregate demand.  There are positive feedbacks in the system such that a small downturn can lead to a larger downturn if left unchecked (but on the flip side mean that a small stimulus can have a disproportionately large effect on demand).  The proper government response to a downturn is to create demand through government deficit spending.   Failure to emerge in a timely manner from a recession likely is the result of the government not being aggressive enough in its spending.
• Hayek:  Economic downturns result from mis-allocation of savings and investment capital, often due to government policy by not necessarily so (one can argue the housing bubble was driven by government policy, but the first Internet bubble likely was not).  The proper government response to a recession is to stop any distorting government policy that drove it and let the economy sort itself out by restructuring.  Failure to emerge in a timely manner from a recession is likely due to interventions that slow this necessary restructuring (e.g. bailouts, government-directed investment programs).

I will say that if my Hayek description is not correct for the Austrians, it is correct for me -- this is what I believe happens.

That said, I have long thought the Japanese lost decade(s) were pretty much final proof of the Hayek vs. Keynes explanation, and I am sort of amazed people still argue about it.  I remember in the 80's people in the US admired the Japanese MITI system of industrial management that carefully directed investment into government-preferred industries and, by the way, stomped on the Japanese consumer (including laws that kept both the retail and agricultural sectors backwards) in favor of promoting the export market.

In the 20+ years since Japan slid into a downturn, they have been the poster child for Keynesian stimulation.  They have deficit spent like crazy and have driven up -- by a longshot -- the largest government debt as a percent of GDP of any of the industrialized nations.  Yet still they flounder -- I would argue precisely because they had an Austrian recession, based on years and years of government-enforced mal-investment, but have refused the Austrian solution.  Watching it evolve over the years, I have thought it impossible to miss the point, but it appears that Krugman-Keynesians can always argue, not matter how much government debt was run up, that the problem was that they just didn't spend enough.

Well, in my view we have another such test coming, perhaps even more stark -- in China.  China, perhaps more than Japan, has filled their economy with investment distortions -- the huge empty cities that get shown on the Internet seem to be one example.

And over the past year or two, China has been deficit spending and stimulating like hell -- both at the central government level as well as with policies that have encouraged the accumulation of debt both locally and in industry.

This is why I think the crash is coming in China, and the longer they manage to delay it by artificial means, the worse and longer the crash will be.  There is probably a bet that could be had here, but I am not sure how it would be structured.

In a comment on this article about declining startup activity and the growing average size of businesses, a commenter wrote:

The high foreign trade deficit is also a barrier to the formation of small new companies. The annual trade deficit of the US is greater than the rate of GDP growth, which explains a lot of things. Probably more companies are being destroyed than created in the US. Legislate and reverse the foreign trade deficit and there will be a massive surge in small companies.

I wrote in return

As for wolf-dogs comment on the trade deficit, I think this is totally wrong. Most of the trade imbalance is with stuff like cars and steel which are unlikely startup businesses. The easy availability of Asian manufacturing sources for nearly anything you want to make or can dream up facilitates startups and entrepreneurship. My gut feel, just seeing what entrepreneurs around me are doing but not from any hard data, is that globalization and easy international sourcing is a net positive for small business formation.

I have never seen any data on this though.  Thoughts?

Repeat after me:  Y=C+I+G+X-M is an accounting rule.  It does not explain anything about the economy.  It is as useful to telling us anything interesting about the economy as the equation biomass=plants+animals+bacteria tells us anything about the ecosystem.

Which is why this kind of article in the press makes me crazy (emphasis added)

The U.S. trade gap narrowed in April as the effects of a West Coast port slowdown faded, easing one of the biggest drags on economic growth during the opening months of the year....

This year’s volatile import and export figures worked out to an overall drag on the economy in the opening months of 2015....

A surge in imports and falling exports subtracted 1.9 percentage points from the headline figure. As measured by GDP, exports are a positive for economic growth, while imports are a negative...

“The huge drag on GDP from trade in Q1 will almost certainly not be repeated in Q2,” said Jim O’Sullivan, chief U.S. economist at High Frequency Economics.

Here is the logic.  The GDP is calculated by adding Consumer spending + Industrial spending + Government spending + eXports and then subtracting iMports.  Because imports are subtracted in the GDP equation, they look to the layman like they shrink the economy.  How do we grow the economy?  Why, let's reduce that number that is subtracted!  But this is wrong.  Totally wrong.   I have tried many times to explain this, but let me see if I can work by analogy.

Let's say we wanted an equation to count the amount of clothing we owned.  To make things simple, let's say we are only concerned with the total of Shirts, Pants, and Underwear.   Most of our clothes are in the closet, so we say our clothes are equal to the S+P+U we count in our closet.  But wait, we may have Loaned clothes to other people.  Those are not in our closet but should count.  So now clothes = S+P+U+L.  But we may also have borrowed clothes.  Some of those clothes we counted in the closet may be Borrowed and thus not actually ours, so we need to back these out.  Our final equation is clothes = S+P+U+L-B.  Look familiar?

Let's go further.  Let's say that we want to increase our number of clothes.  We want wardrobe growth!  Well, it looks like those borrowed clothes are a "drag" on our wardrobe size.  If we get rid of the borrowed clothes, that negative B term will get smaller and our wardrobe has to get larger, right?

Wrong.  Remember, like the GDP equation, our wardrobe size equation is just an accounting identity.  The negative B term was put in to account for the fact that some of the clothes we counted in S+P+U in the closet were not actually ours.  But if we decrease B, say by returning our friend's shirt, the S term will go down by the exact same amount.  Sure, B goes down, but so do the number of shirts we count in the closet.  So focusing on the B term gets us nowhere.

But it is actually worse than that, because focusing on reducing B makes us worse off.  If B rises, our wardrobe is no larger, but we get the use of all of those other pieces of clothing.  Our owned wardrobe may not be any larger but we get access to more choices and clothing possibilities.  When we drive B down to zero, our wardrobe is no larger and we are worse off with fewer choices.

Returning to the economy, I don't want to say that it's impossible for increases in imports to drag the economy.  For example, if oil prices rise, the imports number measured in dollars will likely rise, and the economy will likely be worse off as we have to give up buying other things to continue to buy the oil we need.  But, absent major price changes, drops in exports more likely just mirror drops in C+I+G.  If consumers are hurting, they spend less on everything, including imported goods.   At the end of the day, none of these numbers (Mr. Keynes, are you listening?) are independent variables.

Postscript:  By the way, the trade deficit is a mirage in another way - it looks at only a subset of trans-national financial transactions.   The flow of dollars is (mostly) always in balance.  So if we are net sending dollars overseas when trading hard goods, the dollars come back in foreign purchases of investments and financial goods (which aren't included in the trade numbers).  Saying we have a trade deficit is the same as saying we have a net investment surplus.  For you physical scientists out there, measuring the trade deficit is like drawing your box around the process wrong such that you miss some of the forces.

If you really want to know our trade problem, it's not the trade deficit per se, but the fact that the funds coming back via investments are largely invested in value-destroying government debt rather than productive investments.

When I was in school learning macro 101 from Baumol and Blinder, my memory is that the theory of Keynesian stimulus and managing the economic cycle was that deficits should be run in the bottom part of the economic cycle, paid for with surpluses in the top half.   So we are now almost certainly in the top half of the cycle.  But I don't hear any Keynesians seeking to run a surplus, or even to dial back on government deficits or spending.  In fact, our Keynesian-in-chief says he is done with "mindless austerity" and wants to start spending even harder in 2015.

Its enough to make one suspicious that all the stimulus talk is just a Trojan Horse for a desire to increase the size and power of government.

But for Keynesians who really believe what they are saying, that deficit spending somehow saved us from a depression in 2009 and 2010, then I ask you -- what are you going to do next time?  It appears that when we enter the next recession in this country, that US debt as a percentage of GDP is going to be almost twice what it was entering the last recession.  Don't you worry that this limits your flexibility and ability to ramp up deficit spending in the next recession?

The situation in the US is the same as it is worldwide.  While those evil private short-term-focused private actors have used the improving economy to de-leverage back below 2007 levels, governments have increased their debt as a percentage of GDP by just over 50% since just before the last recession.

Since 2007, according to my old friends at McKinsey, global government debt has risen by $25 trillion since 2007.  If you really care about Keynesian stimulus in recessions, and not just "mindlessly" (I can use that term too) increase government spending, wouldn't you want to be building up some reserves for next time?

The other day I said I was confused by what exactly creates Keynesian stimulus, and in reverse, what constitutes austerity.  I had thought that it was deficit spending that creates the stimulus, but then sometimes it seems to just be spending and in the case of the Kevin Drum post I was discussing, he says it is not the level of spending but only the first derivative of per capita real government spending (with no reference to whether it is debt or tax funded) that matters.

I figured that I was just confused because I had not formally studied economics past my undergrad years, but apparently practicing economists are also confused.  Here is Scott Sumner:

What is the proper measure of austerity?  The textbooks talk about deficits.  But most of the Keynesian bloggers focus on government purchases.  So which is it?  And if it’s purchases, why did these same bloggers claim that austerity would result from big tax increases in the US in 2013, and a big tax increase in Japan in 2014?  And why does the measure chosen (ex post) usually seem to be the one that best supports their argument in that particular case?

As a postscript, I will add that every climate skeptic can totally empathize with this Sumner concern:

A number of Keynesian bloggers have recently expressed dismay that the rest of us don’t buy their model.  Maybe it would help if they’d stop ignoring our criticisms of their model, and respond to our complaints.

Update:  I have posted an update with a side by side chart comparison here.

Last year, Kevin Drum wrote what I believe was the cover story of the September / October issue of Mother Jones (I read the online edition so exactly how the print version is laid out is opaque to me).  That article, entitled "It's the Austerity, Stupid: How We Were Sold an Economy-Killing Lie" features this analysis:

He described the chart as follows:

 In the end, for reasons both political and ideological, Obama decided that he needed to demonstrate that he took the deficit seriously, and in his 2010 State of the Union address he did just that. "Families across the country are tightening their belts," he said, and the federal government should do the same. To that end, he announced a three-year spending freeze and the formation of a bipartisan committee to address the long-term deficit.

The Beltway establishment may have applauded Obama's pivot to the deficit, but much of the economic community saw it as nothing short of a debacle. Sure, there were still a few economists who believed that even in a deep recession government spending merely crowded out private spending and thus did no good, but they were a distinct minority. Most economists acknowledged that deficit spending was appropriate at a time like this. Paul Krugman fumed that Obama was cravenly trying to score political points by doing a "deficit peacock-strut" that would be destructive in the wake of the financial crisis. Mark Zandi, a centrist economist who has advised leaders of both parties, used more judicious language, but likewise warned that spending cuts might "cost the economy significantly in the longer run."...

Taken as a whole, these measures have cut the deficit by $3.9 trillion over the next 10 years. And that doesn't even count the expiration of desperately needed stimulus measures like the payroll tax holiday and extended unemployment benefits.

This was unprecedented, as the chart above shows. After every other recent recession, government spending has continued rising steadily throughout the recovery, providing a backstop that prevented the economy from sliding backward. It happened under Ronald Reagan after the recession of 1981, under George H.W. Bush after the recession of 1990, and under George W. Bush after the recession of 2001. But this time, even though the 2008 recession was deeper than any of those previous ones, it didn't.

I thought the choice of baseline dates for his charts was deceptive, but never-the-less for the moment lets accept this at face value.  Make sure to take a note of the red line, which is the current recession, and the brown line, which was the recovery from the recession in the late Clinton / early Bush years.  By Mr. Drum's earlier analysis, the earlier 1990 recession was better handled than the current one (against his Keynesian assumptions) by the government continuing to increase spending after the recession to keep the recovery going.   The point of Drum's earlier article was to say that Republicans in Congress were sinking the current economy by not increasing spending as was done after these earlier recessions.

So this is what Drum published the other day, I think based on a Paul Krugman article.

But I think Krugman undersells his case. He shows that the current recovery has created more private sector jobs than the 2001-2007 recovery, and that's true. But in fairness to the Bush years, the labor force was smaller back then and Bush was working from a smaller base. So of course fewer jobs were created. What you really want to look at is jobs as a percent of the total labor force. And here's what you get:

The Obama recovery isn't just a little bit better than the Bush recovery. It's miles better. But here's the interesting thing. This chart looks only at private sector employment. If you want to make Bush look better, you can look at total employment instead. It's still not a great picture, but it's a little better:

Awesome, Kevin!  So I guess that austerity you were complaining about was the right thing to do, yes?

Seriously, in his article a year ago Drum argued that the Republicans in Congress were sinking the economy vis a vis the 1990 recession by not continuing to boost spending in the years after the recession.  Now, he admits  (though since he does not refer back to the original article I guess it is not an admission per se) that this "austerity" led to a stronger recovery than the spending-fueled 1990 version.  All hail smaller government, the solution to growing employment!

PS-  I wonder how much of this change in private employment since the last recession came in the oil and gas industry, whose expansion the Left generally opposes?  Well, they'll bash on oil tomorrow but today, they will take credit for the jobs added.

Update:  Here are the two charts combined, with other recessions removed and the colors on the data series set to match (click to enlarge)

Here is the problem:  There exists a highly dynamic, multi- multi- variable system.  One input is changed.  How much, and in what ways, did that change affect the system?

Here are two examples:

• The government makes a trillion dollars in deficit spending to try to boost the economy.  Did it do so?  By how much? (This Reason article got me thinking about it)
• Man's actions increase the amount of CO2 in the atmosphere.  We are fairly confident that this has some warming effect, but how how much?  There are big policy differences between the response to a lot and a little.

The difficulty, of course, is that there is no way to do a controlled study, and while one's studied variable is changing, so are thousands, even millions of others.  These two examples have a number of things in common:

• We know feedbacks play a large role in the answer, but the system is so hard to pin down that we are not even sure of the sign, much less the magnitude, of the feedback.  Do positive feedbacks such as ice melting and cloud formation multiply CO2 warming many times, or is warming offset by negative feedback from things like cloud formation?  Similarly in the economy, does deficit spending get multiplied many times as the money gets respent over and over, or is it offset by declines in other categories of spending like business investment?
• In both examples, we have recent cases where the system has not behaved as expected (at least by some).  The economy remained at best flat after the recent stimulus.  We have not seen global temperatures increase for 15-20 years despite a lot of CO2 prodcution.  Are these evidence that the hypothesized relationship between cause and effect does not exist (or is small), or simply evidence that other effects independently drove the system in the opposite direction such that, for example, the economy would have been even worse without the stimulus or the world would have cooled without CO2 additions.
• In both examples, we use computer models not only to predict the future, but to explain the past.  When the government said that the stimulus had worked, they did so based on a computer model whose core assumptions were that stimulus works.  In both fields, we get this sort of circular proof, with the output of computer models that assume a causal relationship being used to prove the causal relationship

So, for those of you who may think that we are at the end of math (or science), here is a class of problem that is clearly, just from these two examples, enormously important.  And we cannot solve it -- we can't even come close, despite the hubris of Paul Krugman or Michael Mann who may argue differently.    We are explaining fire with Phlogiston.

I have no idea where the solution lies.  Perhaps all we can hope for is a Goedel to tell us the problem is impossible to solve so stop trying.  Perhaps the seeds of a solution exist but they are buried in another discipline (God knows the climate science field often lacks even the most basic connection to math and statistics knowledge).

Maybe I am missing something, but who is even working on this?  By "working on it" I do not mean trying to build incrementally "better" economics or climate models.  Plenty of folks doing that.  But who is working on new approaches to tease out relationships in complex multi-variable systems?

From the recent exchange activity report (I can't call it their enrollment report because they do not actually report enrollment numbers)

• Number of people added to Medicaid or CHIP:  803,077
• Number of people who have selected** a private plan:  364, 682

The Administration knows, but refuses to tell us what percentage of the 364,682 are eligible for subsidies.   By the unfailing rule of political life, this means the news is bad (ie the percentage subsidized is high).  We do know the percentage of applicants who were determined to be eligible for subsidies:  41%.  Since a lot of people who go through the process are doing it just to see if they get a subsidy, there is good reason to believe that applicants who actually are selecting policies will be subsidized at a higher rate, but certainly no less than 41%.  So using that number we come up with

• Medicaid or CHIP:  803,077
• Subsidized private:  153,166 (at least, probably more)
• Entirely private: 211,516 (probably less)

So, at best, only 18% of the people enrolling** in an exchange are doing so with their own money.  82% or more are doing so partially or entirely with taxpayer money.  Note that these are all people, by definition, who were paying for their own health care before, so the one thing the exchanges are definitely doing is converting independent citizens to government dependents at an 80% rate.

By the way, I am pretty sure the CBO did not score the PPACA as being "deficit neutral" based on more than double as many Medicaid applicants as private applicants and a less than 20% unsubisidized rate.

** These are not actual enrollments until the customer pays.  Essentially these are the number of people who have put a plan in their online shopping cart.

Via Kevin Drum

Dave Weigel notes a conundrum today: according to a new poll, 54 percent of the public disapproves of Barack Obama's handling of the deficit. And yet, as the chart on the right shows, the deficit is shrinking dramatically. Last year it dropped by $200 billion, and this year, thanks to a recovering economy, lower spending from the sequester, and the increased taxes in the fiscal cliff deal, it's projected to fall another $450 billion.

Weigel notes that this has deprived conservative yakkers of one of their favorite applause lines: "You don't hear Republicans lulz-ing at Obama for failing to 'cut the deficit in half in my first four years,' because he basically did this, albeit in four and a half." That's true. It's also true that contrary to Republican orthodoxy, it turns out that raising taxes on the rich does bring in higher revenues and therefore reduces the deficit.

The logic here is that Obama has been diligent about cutting the deficit, so therefore Republicans are wrong to try to use the debt ceiling and continuing resolution as a vehicle for forcing more cuts.

It is just possible that a person from another planet landing today might buy this story, but how can anyone who has lived through the last 5 years read this without laughing their butts off?  Every one of Obama's budgets have been dead on arrival, even within his own party, because they have raised spending to such stupid levels.  There has not been even a hint of fiscal responsibility in them.  And the Democratic Senate has passed one budget in something like five years**.

The only fiscal discipline at all has come from the Republican House, and they have only had success in keeping these deficit down by ... using continuing resolutions and debt ceilings as bargaining chips.  This is the President that treated the almost insignificant sequester as if it were the end of the world, and now these sycophants from team Donkey are giving Obama the credit for the deficit reduction?

PS-  This is not an advocacy for Republicans as much as for divided government.  The Republicans when they had years of controlling the Presidency and both houses of Congress under Bush II did zero to get our fiscal house in order and in fact with the Iraq war and Medicare part D, among other things, showed a profligacy that belies their current pious words.

PPS- Kevin Drum needs to have the balls not to play both sides of the street.  He has made it clear in other articles that he thinks it is an economic disaster that the government is spending so little right now.  When he shows a deficit reduction chart, if he were consistent, he should be saying that Republicans suck for forcing this kind of deficit reduction against Obama's better judgement and we need the deficit to go back up.  Have the courage of your convictions.  Instead, he plays team loyalty rather than intellectual consistency, crediting Obama for deficit reduction while at the same time hammering Republicans for austerity.  Dude, its one or the other.

PPPS-  For the first time during this Presidency, both the President and both house of Congress offered a budget:

[The] House passed a budget calling for spending $3.5 trillion in 2014, the Senate passed one calling for $3.7 trillion, and Obama submitted one calling for $3.77 trillion

So the actor that submitted the highest budget gets the credit for deficit reduction?

I have made this argument before -- your lifetime Medicare taxes cover only about a third of the benefits you will receive.   Social Security taxes are set about right -- to the extent we come up short on Social Security, it is only because a feckless Congress spent all the excess money in the good years and has none left for the lean years.

But Medicare is seriously mis-priced.  I have always argued that this is dangerous, because there is nothing that screws up the economy more than messed up price signals.  In particular, I have argued that a lot of the glowy hazy love of Medicare by Americans is likely due to the fact that it is seriously mis-priced.  Let's price the thing right, and then we can have a real debate about whether it needs reform or is worth it.

A recent study confirms my fear that the mispricing of Medicare is distorting perceptions of its utility.

As debate over the national debt and the federal budget deficit begins to heat up again, an analysis of national polls conducted in 2013 shows that, compared with recent government reports prepared by experts, the public has different views about the need to reduce future Medicare spending to deal with the federal budget deficit. Many experts believe that future Medicare spending will have to be reduced in order to lower the federal budget deficit [1] but polls show little support (10% to 36%) for major reductions in Medicare spending for this purpose. In fact, many Americans feel so strongly that they say they would vote against candidates who favor such reductions. Many experts see Medicare as a major contributor to the federal budget deficit today, but only about one-third (31%) of the public agrees.

This analysis appears as a Special Report in the September 12, 2013, issue of New England Journal of Medicine.

One reason that many Americans believe Medicare does not contribute to the deficit is that the majority thinks Medicare recipients pay or have prepaid the cost of their health care. Medicare beneficiaries on average pay about $1 for every $3 in benefits they receive. [2] However, about two-thirds of the public believe that most Medicare recipients get benefits worth about the same (27%) or less (41%) than what they have paid in payroll taxes during their working lives and in premiums for their current coverage.

Update:  Kevin Drum writes on the same study.  Oddly, he seems to blame the fact that Americans have been trained to expect something for nothing from the government on Conservatives.  I am happy to throw Conservatives under the bus for a lot of things but I think the Left gets a lot of the blame if Americans have been fooled into thinking expensive government freebies aren't really costing them anything.

Dan Mitchell describes three possible government responses to an impending bank failure:

1. In a free market, it’s easy to understand what happens when a financial institution becomes insolvent. It goes into bankruptcy, wiping out shareholders. The institution is then liquidated and the recovered money is used to partially pay of depositors, bondholders, and other creditors based on the underlying contracts and laws.
2. In a system with government-imposed deposit insurance, taxpayers are on the hook to compensate depositors when the liquidation occurs. This is what is called the “FDIC resolution” approach in the United States.
3. And in a system of cronyism, the government gives taxpayer money directly to the banks, which protects depositors but also bails out the shareholders and bondholders and allows the institutions to continue operating.

I would argue that in fact Cyprus has gone off the board and chosen a fourth option:  In addition to bailing out shareholder and bondholders with taxpayer money, it will protect them  by giving depositors a haircut as well.

The Cyprus solution is so disturbing because, hearkening back to Obama's auto bailout, it completely upends seniority and distribution of risk on a company balance sheet.  Whereas depositors should be the most senior creditors and equity holders the least (so that equity holders take the first loss and depositors take the last), Cyprus has completely reversed this.

One reason that should never be discounted for such behavior is cronyism.  In the US auto industry, for example, Steven Rattner and President Obama engineered a screwing of secured creditors in favor of the UAW, which directly supported Obama's election. In Cyprus, I have no doubt that the large banks have deep tendrils into the ruling government.

But it is doubtful that the Cyprus banks have strong influence over, say, Germany, and that is where the bailout and its terms originate.  So why is Germany bailing out Cyprus bank owners?  Well, there are two reasons, at least.

First, they are worried about a chain reaction that might hurt Germany's banks, which most definitely do have influence over German and EU policy.  There is cronyism here, but perhaps once removed.

But even if you were to entirely remove cronyism, Germany and the EU have a second problem:  They absolutely rely on the banks to consume their new government debt and continue to finance their deficit spending.  Far more than in the US, the EU countries rely on their major banks continuing to leverage up their balance sheets to buy more government debt.  The implicit deal here is:  You banks expand your balance sheets and buy our debt, and we will shelter you and prevent external shocks from toppling you in your increasingly precarious, over-leveraged position.

Update:  Apparently, there is very little equity and bondholder debt on the balance sheets -- its depositor money or nothing.  My thoughts:  First, the equity and bondholders better be wiped out.  If not, this is a travesty.  Two, the bank management should be gone -- it is as bad or worse to bail out to protect salaried manager jobs as to protect equity holders.  And three, if depositor losses have to be taken, its insane to take insured depositor money ahead of or even in parallel with uninsured deposits.

We have heard about the difficulty folks who are retired are having with low interest rates.  But low interest rates are having a huge impact on corporations that still have defined-benefit pensions.

Across America's business landscape, the gap between the amount that companies expect to owe retirees and what they have on hand to pay them was an estimated $347 billion at the end of 2012. That is better than the $386 billion gap recorded at the end of 2011, but the two years represent the worst deficits ever, according to J.P. Morgan Asset Management.

The firm estimates that companies now hold only $81 of every $100 promised to pensioners.

In general, everything happening on the liability side of the pension equation is working against companies. A big source of the problem: persistently low interest rates, set largely by the Federal Reserve....

Pension liabilities change over time as employees enter and leave a pension plan. For financial-reporting purposes, companies use a so-called discount rate to calculate the present value of payments they expect to make over the life of their plan.

The discount rate serves as a proxy for the hypothetical interest rate that an insurance company would expect on a bond today to fund a company's future pension payments. The lower the discount rate, the greater the company's pension liabilities.

Boeing's discount rate, for example, fell to 3.8% last year from 6.2% in 2007. The aircraft manufacturer said in a securities filing that a 0.25-percentage-point decrease in its discount rate would add $3.1 billion to its projected pension obligations.

Boeing reported a net pension deficit of $19.7 billion at the end of 2012.

The discount rate is based on the yields of highly rated corporate bonds—double-A or higher—with maturities equal to the expected schedule of pension-benefit payouts.

Moody's decision last summer to lower the credit rating of big banks hurt UPS and other companies by booting those banks out of the calculation. And because bonds issued by some of those banks carried higher yields than other bonds used in the calculation, UPS's discount rate fell 1.20 percentage points.

This is obviously not a wildly productive use of corporate funds, to divert ever-increasing amounts of money to pay people who are no longer producing.  But at least corporations are acknowledged the problem (I will give credit where it is due -- thanks to accounting rules and government regulations that force a fair amount of transparency here).

It is interesting to note the Boeing example, where their expected rate of return on pension funds fell from 6.2% to 3.8%.  Compare that to corrupt government entities like Calpers, which bravely faced this new reality by cutting its discount rate from an absurd 7.75% to a still absurd 7.5%.  This despite returns last year around 1%.  By keeping the number artificially high, Calpers is hiding its underfunding problem.  An interesting reform would be to force Calpers to use a discount rate equal to the average of that used by the 10 largest private pension funds.

In today's history lesson, we have something called the "Addled Parliament."  Surely that cannot be a good name to have, and in fact the name was given as a term of derision, very like how the Left describes the current Congress as obstructionist and ineffectual.

So why did it gain the name "addled"?  It turns out, for about the same reasons the current Congress comes under derision from Obama:  It did not give the King all the money he wanted.  Via Wikipedia:

The Addled Parliament was the second Parliament of England of the reign of James I of England (following his 1604-11 Parliament), which sat between 5 April and 7 June 1614. Its name alludes to its ineffectiveness: it lasted no more than eight weeks and failed to resolve the conflict between the king, who wished to raise money in the form of a 'Benevolence', a grant of £65,000 and the House of Commons (who were resisting further taxation). It was dissolved by the king.

Parliament also saw no reason for a further grant. They had agreed to raise £200,000 per annum as part of the Great Contract and as the war with Spain had reached its resolution with the 1604 Treaty of London, they saw the King's continued financial deficit as a result of his extravagance (especially on Scottish favourites such as Robert Carr) and saw no justification for continued high spending.

Moreover there remained the continuing hostility as a result of the kings move of setting impositions without consulting Parliament.

Wow, none of that sounds familiar, huh?  In fact, James was an awful spendthrift.  Henry the VII was fiscally prudent.  Henry the VIII was a train wreck.  Elizabeth was a cheapskate but got into expensive wars, particularly in her declining years, and handed out too many government monopolies to court favorites.  But James came in and bested the whole lot, tripling Elizabeth's war time spending in peace time, mainly to lavish wealth on family and court favorites, and running up debt over 3x annual government receipts.   History, I think, pretty clearly tells us that Parliament was absolutely correct to challenge James on spending and taxes, and given that it took another century, a civil war, a Glorious Revolution, a regal head removal, and a lot of other light and noise to finally sort this issue out, it should not be surprising that this pioneering Parliament failed.  Yet we call it "addled".

Kevin Drum is claiming that the government has already done much fine work on deficit reduction, reducing spending by $1.8 trillion and increasing taxes by $600 billion.

This is fantasy, pure and simple, and perhaps why the term "reality-based community" has fallen out of favor among Progressives.   There has been and will likely be no reduction in spending -- these "spending cuts" are merely reductions in spending growth rates from the Administration's initial wet dream spending proposals. I am sure the tax increases are probably real, but Obama and the Congress were already proposing to spend most of those in new stimulus and other boondoggles right in the end of year tax legislation.

The tax numbers are characteristic of the stupid budget games played by both parties.   For example, the recent tax law represents a tax increase over law in place on 12/31/2012, but represents a massive tax cut vs. law set to be in place on 1/1/2013.  This gives the administration cover to call it both!  When it wants to portray itself as a deficit hawk, as in this case, it was a tax increase.  When it wants to portray itself as being populist, it was a tax cut.

Charts like this are absolutely worthless.  We will likely get deficit reduction over the next few years, but it will be entirely due to rising tax revenues from an improving economy.

And here we are back to my constant theme -- if you want to posit a trend, then show the trend.

Matt Welch no the fact-checking genre:

But the real problem with such lists isn’t the lack of partisan diversity; it’s the glaring lack of lies told to the public in the service of wielding government force. Only one of PolitiFact’s Top 10—Obama blaming 90 percent of the 2009−12 deficit increase on George W. Bush—involved an official lying about his own record. The rest all focused on the way that politicians (and their surrogates) characterized their competitors’ actions and words. This isn’t a check on the exercise of power; it’s a check on the exercise of rhetoric.

And when it comes to rhetoric that motivates journalists into action, nothing beats culturally divisive figures from the opposing political tribe. So it was that in May 2011, the respected Nieman Journalism Lab set the mediasphere abuzz with an academic study of more than 700 news articles and 20 network news segments from 2009 that addressed a single controversial claim from the ObamaCare debate. Was it the president’s oft-repeated whopper that he was nobly pushing the reform rock up the hill despite the concentrated efforts of health care “special interests”? Was it his promise that “if you like your health care plan, you will be able to keep your health care plan,” something that has turned out not to be true? Was it the way Obama and the Democrats brazenly gamed and misrepresented the Congressional Budget Office’s scoring of the bill, claiming it wouldn’t add “one dime” to the deficit?

No. The cause for reconsideration of the ObamaCare coverage was not the truth-busting claims made by a sitting president in the service of radically reshaping an important aspect of American life but rather the Facebook commentary of a former governor, Sarah Palin.

Here is the issue with media bias:  It is not that journalists sit in some secret room and craft plans to overthrow their ideological opposition, Journolist notwithstanding.  It is that a monoculture limits the range of issues to which the media applies skepticism.  I am as guilty as anyone.  Hypotheses and pronouncements that do not fit with my view of how the world works are met with much more skepticism, checking of sources, etc.    The media is generally comfortable with a large and expansive role for government and seldom fact-checks the arguments for its expansion.

In fact, as I have written before, the media has an odd way of covering itself against charges of being insufficient skeptical about new legislation:  They raise potential issues with it, but only after it passes.

The fiscal settlement passed last night did absolutely nothing to improve the deficit or the financial sanity of government.  Its only purpose, as far as I can tell, was to let Democrats count coup on rich people as a reward for winning the last election.  It's like telling your kids that on their birthday, you will take them to do absolutely anything they like, and Democrats chose to display their disdain for rich people as their one act of celebration.    A few other observations:

• I had expected that they would gen up a bunch of fake savings and accounting tricks to pretend there were spending cuts in proportion to tax increases, but apparently they did not feel the need to bother.  Essentially only trivial spending cuts were included.
• At what point can we officially declare that the reduction in doctor reimbursement rates that supposedly paid for much of Obamacare is a great lie and will never happen?  Congress once again extended the "doc fix" another year, eliminating the single largest source of savings that was to fund Obamacare.  Congress has been playing this same game  -- using elimination of the doc fix to supposedly fund programs and then quietly renewing the doc fix later -- for over a decade
• The restoration of the FICA tax is probably a good thing.  Though I think the reality is something else, people still think of these as premiums that pay for future benefits, so in the spirit of good pricing, the premiums should reflect the true costs.  And FICA premiums have always been set about at the right level (it is only the fact that past Congresses spent all the money supposedly banked for future generations that Social Security has a financial problem).  In fact, we should raise Medicare premiums as well.
• Apparently, though I have not seen the list, this last minute deal was chock full of corporate cronyism, with a raft of special interst tax preferences thrown into the mix.

And so ends, I suppose, the 12-year saga of the Bush tax cuts, with tax cuts for the rich revoked and the rest made permanent.   The establishment media decided early on that it was going to run with the story line that these cuts were "for the rich."  The irony, that will never get any play, is that now, at the end, it is all too clear that this was far from the case.  Reversing the tax cuts to the rich only reversed a small percentage of the original tax cuts.  In fact, if the Bush tax cuts had been mainly for the rich, then the Democrats would not have even bothered addressing the fiscal cliff.

Blogging has been light during the holidays, but here are some predictions I made back in 2007 I feel pretty good about (note these were made a year before Obama was elected)

What I will say is that folks who have enthusiastically supported the war should understand that the war is going to have the following consequences:

1. In 2009 we will have a Democratic Congress and President for the first time since 1994.
2. The next President will use the deficits from the $1.3 trillion in Iraq war spending to justify a lot of new taxes
3. These new taxes, once the war spending is over, will not be used for deficit reduction but for new programs that, once established, will be nearly impossible to eliminate
4. No matter what the next president promises to the electorate, they are not going to reverse precedents for presidential power and secrecy that GWB has established.  Politicians never give up power voluntarily.  [if the next president is Hillary, she is likely to push the envelope even further].  Republicans are not going to like these things as much when someone of the other party is using them.

1.  The prediction was 100% correct, and in fact even went further as the donkeys gained a filibuster-proof majority in the Senate, at least for a year.  Though the war likely had little to do with the outcome, which was driven more by the economy

2.  Dead-on.  Five years later Obama still blames the deficit on Bush.  This is no longer true -- Obama has contributed far, far more than Bush to the deficit -- but the Republicans' fiscal irresponsibility during their tenure have robbed them of any credibility in criticizing Obama

3.  Mostly true (and usually a safe bet with government).   Tax increases were deferred for four years due to an economy I had not foreseen would be so bad, but they are coming.  At the time, it seemed logical to blame a lot of the deficit issues on war spending.  Today, though, 1.3 trillion is barely 8% of the debt and is almost trivial to more recent money wasting activities.

4.  Absolutely true.  In spades.  The only thing I missed was I thought Obama might be less likely to go overboard with the whole executive authority and secrecy thing than Hillary, but boy was I wrong.  Obama has absolutely embraced the imperial presidency in a way that might have made Dick Cheney blush.  Accelerated drone war, constant ducking of FOIA and transparency, increased use of treason laws to prosecute whistle blowers, claiming of power to assassinate Americans on the President's say-so, accelerated warrant-less wiretapping, using executive orders to end-run Congress, etc. etc.  And I never guessed how much the media which so frequently criticized  Bush for any expansions in these areas would roll over and accept such activity from a President of their party.

Yesterday I mentioned the Doublespeak definition of insurance as used in the health care field, when a public policy person can say with a straight face that a particular health care policy is "bad" because it only covers catastrophes.  Finem Respice had a good article several years ago on the history of insurance and current efforts to affect redistribution through mispricing risk.  The article is written about housing but could easily have been about health care as well.

No one has put a number on this, but my gut feel is that the largest new source of funding for health care in the plan is not new taxes (though they are large) nor price controls on doctors (though these are onerous) nor deficit spending (though this is likely to be substantial) but an implicit premium subsidy from young to old.  Since insurers are extremely limited in how much they can raise the price to risky groups, healthier and younger people will have to pay absurdly high premiums for what they get to subsidize the policies of the old and sick.   In a normal market young people would just refuse to buy such policies -- thus the individual mandate.  They must be forced to buy them, because their purchase of these overpriced, and to them, likely useless policies will fund most of the system.

Barack Obama argues that the last election gave him a mandate to raise taxes on the rich.  Put another way, he is arguing that 52% of the people voted to raise taxes on 2%.  Did they?

Well, they certainly did something like this in California.  Let's take a look at two propositions:

• Prop 30, which propose to raise taxes on on the rich to help close the deficit (there was a token 0.25% sales tax increase for cover, but everyone knew it to be a tax on the rich).
• Prop 39, which was a broad-based income tax increase which raised taxes on most everyone (or at least on the 50% or so who pay income taxes).

So, let's look at the results:

• Raise taxes on only the very rich:  PASS
• Raise taxes on everyone (including me):  FAIL

The California election was a crystal clear mandate:  People want more taxes as long as they are on somebody else.  By targeting the richest few percent, we can get a lot of money but make sure the people taxed don't have any hope of fighting the increase, even if they vote as a block.

So I think Obama clearly has a mandate to raise taxes on not-me.  The question is, do we think we have, or do we want, a government where this is possible?  Where majority votes can do anything they wish to minorities?

I should hope not.  I will remind you of a famous quote, from a different context, but entirely relevant:

First they came for the communists,
and I didn't speak out because I wasn't a communist.

Then they came for the socialists,
and I didn't speak out because I wasn't a socialist.

Then they came for the trade unionists,
and I didn't speak out because I wasn't a trade unionist.

Then they came for me,
and there was no one left to speak for me.*

 

* there seem to be many variations on this out there, you may have heard other similar versions.

I got a lot of email that Republicans aren't libertarians and to stop complaining that they are not.  OK.  But let's look at their campaign messaging in the context of their own values.

Republicans had a golden opportunity to use the results of a natural experiment over the last four years between red and blue states.  Obama constantly harped on the fact that 3.5 million new jobs had been created on his watch.  Rather than play dueling statistics or end points in this analysis, the Republicans should have taken advantage of existing red/blue data:

Yes.  And the vast majority of these jobs were created in states like Texas which have been successful precisely because they have labor and tax policies which you, Mr. Obama, oppose.  And they have been created in industries like Oil and Gas production that you, Mr. Obama, have done your best to hinder.  All the jobs you claim to have helped to create were actually facilitated by a philosophy of government you oppose, by regulatory policy you would overturn if you could, and in industries you would prefer did not exist.   States like Texas -- with organic growth driven by private capital -- stand in stark contrast to your investments of our taxpayer money in bankrupt companies like Solyndra.   If you had had your way, Mr. Obama, few of these jobs would have been created.  Yes, this country saw some job creation, but it occurred despite your efforts, not because of them.

Instead of this clear kind of message, we get a bunch of wonky stuff about tax deductions vs. tax rate changes.  Heck, even if you told me I had to run my campaign on the single plank of eliminating tax deductions, I could have done a better job.  I saw this part of the debate that Romney supposedly won.  His explanation was lame.  What about this instead:

This country over the past several decades has increasingly become plagued by cronyism.  Whether it be Wall Street bankers or public employees unions or casket sellers in Louisiana, everyone wants to try to convert influence with the government into taxpayer money for themselves.  We have to end this.  And a good place to start is with the tax code.  Every special deduction and tax credit in the tax code is a giveaway to some special interest.  At best it is a misguided attempt, like the money we wasted in Solyndra, of politicians to try to pick winners and losers, to say that one kind of spending is somehow better than another.  At worst, these deductions are a crony giveaway.  Sure, it's  eliminating these deductions will help reduce the deficit.  But even more importantly, eliminating them would be an opening shot in the war to take cronyism and corporatism out of Washington.

I know what you are thinking -- in this post title Coyote has engaged in some exaggeration to get our attention.  But I haven't!  Felix Salmon actually says this, in reaction to a group of CEO's who wrote an open letter to the feds seeking less deficit spending.

There are lots of serious threats out there to the economic well-being and security of the United States, and the national debt is simply not one of them.  Nor is it growing. The chart on the right, from Rex Nutting, shows what’s actually going on: total US debt to GDP was rising alarmingly until the crisis, but it has been falling impressively since then. In fact, this is the first time in over half a century that US debt to GDP has been going down rather than up.

So when the CEOs talk about “our growing debt”, what they mean is just the debt owed by the Federal government. And when the Federal government borrows money, that doesn’t even come close to making up for the fact that the CEOs themselves are not borrowing money.

Money is cheaper now than it has been in living memory: the markets are telling corporate America that they are more than willing to fund investments at unbelievably low rates. And yet the CEOs are saying no. That’s a serious threat to the economic well-being of the United States: it’s companies are refusing to invest for the future, even when the markets are begging them to.

Instead, the CEOs come out and start criticizing the Federal government for stepping in and filling the gap. If it wasn’t for the Federal deficit, the debt-to-GDP chart would be declining even more precipitously, and the economy would be a disaster. Deleveraging is a painful process, and the Federal government is — rightly — easing that pain right now. And this is the gratitude it gets in return!

I seldom do this, but let's take this apart paragraph by paragraph:

There are lots of serious threats out there to the economic well-being and security of the United States, and the national debt is simply not one of them.  Nor is it growing. The chart on the right, from Rex Nutting, shows what’s actually going on: total US debt to GDP was rising alarmingly until the crisis, but it has been falling impressively since then. In fact, this is the first time in over half a century that US debt to GDP has been going down rather than up. 

So when the CEOs talk about “our growing debt”, what they mean is just the debt owed by the Federal government.

Duh.  Of course they are talking about the government deficit and not total deficit.   But he is setting up the game he is going to play throughout the piece, switching back and forth between government debt and total debt like a magician moving a pea between two thimbles.  We can already see the game.  "Look folks debt is not a threat, it is going down", but it is going down only at this total public and private debt number.  The letter from the CEO's made the specific argument that rising government debt creates current and future issues (see: Europe).  Just because all debt may be going down does not mean that the rise of one subset of debt is not an issue.

Here are two analogies.  First, consider a neighborhood where most all the residents are paying down their credit card debt except for Fred, who is maxing out his credit cards and has just taken out a third mortgage.  The total debt for your whole neighborhood is going down, but that does not mean that Fred is not in serious trouble.

Or on a larger scale, take consumer debt.  Most categories of consumer debt are falling in the US.  But student debt is rising alarmingly.  Just because total consumer debt may be falling doesn't change the fact that rising student debt is a serious threat to the well-being of a subset of Americans.

And when the Federal government borrows money, that doesn’t even come close to making up for the fact that the CEOs themselves are not borrowing money

What??  Whoever said that the role of the Federal government is to offset changes in corporate borrowing?  In his first paragraph, he already called the rise in total debt "alarming", and I get the sense that both CEO's and consumers agree and so they have been trying to reduce their debts.  So why should the Feds be standing athwart the private unwinding of an "alarming" problem?    And how does he know CEO's and their corporations are part of this deleveraging?  I see no evidence presented.  Corporate debt is but a small part of total US debt.  Corporations may be a part of this, or not.

In fact, they are not.  Corporate borrowing in the securities market has increased almost every quarter since 2008, such that total corporate bond debt is about 10-15% higher than in 2008 (see third chart here).  And here is total debt to GDP broken down by component  (this is for non-financial sectors) source.

Government debt is basically offsetting the consumer deleveraging.  Since consumers have to eventually pay this government debt off, as they are taxpayers too, then the government is basically flipping consumers the bird, forcing them to take on debt they are trying to get rid of.  Hard working consumers think they are making progress paying off debt, but the joke is on them - the feds have taken the debt on for them, and the bill will be coming in future taxes for them and their kids.

He might argue, "this is Keynesianism."  But is it?  If corporations are actually deleveraging, we still don't know how.  Is it through diverting capital investment to debt repayment (as I think Salmon is assuming) or are they raising capital from other sources and rejiggering the right side of their balance sheets?  And even if this deleveraging is coming at the expense of corporate investment, I thought Keynesians virtually ignored investment or "I" in their calculations  (you remember, don't you, from macro: C+I+G+X-M?).  In fact, if I remember right, "I" is treated as an exogenous variable in the famous multiplier "proof".

Money is cheaper now than it has been in living memory: the markets are telling corporate America that they are more than willing to fund investments at unbelievably low rates. And yet the CEOs are saying no. That’s a serious threat to the economic well-being of the United States: it’s companies are refusing to invest for the future, even when the markets are begging them to.

This is the real howler -- that "markets" are sending a low-interest signal.  Markets are doing nothing of the sort.  The Federal Government, via the Fed, is sending this signal with near-zero overnight borrowing rates and $30-$40 billion a month in money printing that is used to buy up government debt from the market.  If any signal is being sent at all, it is that the Federal Government is main economic priority is continuing to prop up the balance sheet and profitability of major US banks.

Investment is also not solely driven by the price of funds.  There must be opportunities where businesses see returns that justify the spending.  Unlike the Federal government, which is A-OK blowing billions on companies like Solyndra, businesses don't invest for the sake of spending, they invest for returns.  A soft economy combined with enormous government driven uncertainties (e.g. what will be our costs to comply with Obamacare) are more likely to affect investment levels than changes in interest rates.

 Instead, the CEOs come out and start criticizing the Federal government for stepping in and filling the gap. If it wasn’t for the Federal deficit, the debt-to-GDP chart would be declining even more precipitously, and the economy would be a disaster. Deleveraging is a painful process, and the Federal government is — rightly — easing that pain right now. And this is the gratitude it gets in return!

This is where economic thinking has ended up in 2012:  To Salmon, it does not matter where the Federal government spends this money, so long as it is spent.  He never even tries to justify that the government is running up debt in a good cause, because what it spends money on does not matter to him.  For him, the worst possible thing for the economy is for people to spend their money paying down debt.  Spend it on more drone strikes or more Solyndras or more squirrel research -- it does not matter to Salmon as long as the money is used for anything other than to pay down debt.

Here is the bottom line:  Businesses and individuals are trying to reduce their debt.  And many hard-working people think they are being successful at this.  But the joke is on them.  The government is running up trillions in debt in their name, thwarting American's desire to de-leverage.  Mr. Salmon wants us to thank the government for this.  Hah.

All-in-all, this is an awful argument to try to justify Congressional and Presidential fecklessness vis a vis  the budget.