President Trump continued his grumbling about Amazon this morning, echoing common but misguided views about the states being hurt by the rise of retail sales over the Internet. NPR has said, “The big problem is a loss of sales tax revenues as online sales climb.” And a coalition of states recently complained that online sales are imposing an “ever-increasing toll on the states’ fiscal health.”

But government data does not show any substantial “toll.” The chart shows total state-local revenues from income and sales taxes as a percentage of gross domestic product (GDP). E‑commerce sales have grown to nine percent of retail sales, but sales tax revenues have nonetheless roughly kept pace with economic growth.

Since 1990, sales tax revenues (including excise taxes) have dipped only slightly from 3.1 percent to 3.0 percent of GDP.

Meanwhile, state-local income tax revenues have fluctuated with the economy, but have trended upward. They have risen from 1.8 percent of GDP in 1990 to 2.1 percent today.

Overall, state-local tax revenues (including property and other taxes) have edged up since 1990 from 8.7 percent of GDP to 8.8 percent.

It is not a lack of revenue that is taking “a toll on the states’ fiscal health,” but, rather, ever-increasing spending on Medicaid and worker pensions, as the Wall Street Journal discusses today.

The Washington Post reports that “House Republicans are considering a vote on a ‘balanced-budget amendment’” (BBA) to the constitution, having just backed a $1.3 trillion omnibus spending bill which will worsen the deficit considerably.

With deficits now projected to rise as high as 5.3 percent of GDP by 2019, this move amounts to the worst kind of “fiscal virtue signaling” on behalf of the GOP leadership. The vote appears designed to tell voters that the GOP favors fiscal restraint, safe in the knowledge the amendment is near-certain to fail, given the hurdles in the Senate alone and despite all recent evidence to the contrary.

There will therefore be a lot of rightful mocking and dismissiveness from the commentariat on this move. But two points from the conclusions on my recent paper on fiscal rules should be borne in mind.

First, lots of people will use this hook to come out and say a BBA is bad economics, particularly given that overwhelmingly mainstream economists oppose a requirement at the federal level for the books to balance every year.

But countries around the world have developed much more sophisticated fiscal rules which in effect balance budgets over the economic cycle. Switzerland’s is even part of its constitution, and it appears to work pretty well. Fiscal rules really can really help to shape responsible budget outcomes, provided they smooth spending by capping it around trend revenues (rather than requiring balance every year), and avoid scope for overoptimistic assumptions or creative accounting by politicians.

Second and crucially, though, fiscal discipline – even to get to the stage of introducing and abiding by rules – requires political and public buy-in. At the moment, the equilibrium in Washington is instead for higher spending and more borrowing, and a continual reluctance to countenance reform of entitlement programs which drive the dreadful long-term debt projections.

Republicans had the opportunity, after the tax cuts, to explain to voters that if they liked their tax cuts, and wanted to keep their tax cuts, then fiscal restraint over a number of years was necessary. Now, even getting to a stage where a BBA could kick in would likely take years given the high deficit, and the political difficulties of cutting spending.

No doubt there are some Republicans who still care and worry about balancing the books. But with this proposed vote, the GOP instead is preaching like St Augustine: “Lord give me fiscal discipline, but not yet.” The best way of locking in fiscal responsibility is to practice it.

Read my full paper on fiscal rules and the experience of other countries here.

Congress has passed an omnibus appropriations bill that jacks up spending across the board. Projections from the Committee for a Responsible Federal Budget show that the federal river of red ink is fast becoming a flood.

The chart shows CRFB’s “alternative” projection, which is the likely budget path if policymakers do not make major reforms. Deficits are expected to rise relentlessly, topping $1 trillion next year and hitting $2.4 trillion by 2028. That means spending $2.4 trillion more than available revenue that year.

The next president will come into office in early 2021, and the nation will be facing the most dangerous budget situation in peacetime history. If policies are not changed between now and then, he or she will be looking at 10-year deficits of $20 trillion or more. If you think Washington is a dysfunctional mess now with members at each other’s throats, I am guessing that today is a picnic compared to federal policymaking down the road.

See also here and here.

Congress has passed a giant omnibus spending bill with large increases for every federal budget area, as shown in the table below from the Committee for a Responsible Federal Budget. Defense spending is spiked 14 percent, and there are even larger increases in energy/​water, state/​foreign affairs, and transportation/​housing.

The usual story of federal budgeting is that “the president proposes, and Congress disposes.” The president issues his annual budget, and then lawmakers put most of the proposals in the trash unless the president really fights for them.

But under Trump, the pattern is shaping up differently; it is “the president proposes, and the president disposes.” Trump has proposed two relatively frugal budgets on the nondefense side. He included substantial cuts to many departments. But if he signs the omnibus, he will be spinning 180 degrees and throwing his own spending reforms in the trash. He would be signaling to conservative voters: “My reform proposals are bogus. I have no intention of cutting any of those big-government programs you hate such as the public housing, welfare, business subsidies, and the environmental bureaucracy.”

If Trump signs the omnibus, it will put cabinet secretaries in a weird position. Trump’s budget proposes major cuts to departments such as Education and HUD, and secretaries have been going up to Capitol Hill to defend the reforms in front of the appropriations committees. If Trump goes along with the GOP leadership and hikes spending, it would cut his cabinet secretaries off at the knees. Yesterday, the administration was saying Trump will sign it, but this morning Trump is saying he might not because of concerns over the immigration provisions.

The Washington Post describes, for example, how GOP leaders—and Trump if he signs it—are throwing conservative Education Secretary Betsy DeVos under the bus. On Tuesday, DeVos was in front of House appropriators defending the administration’s proposed $3.6 billion cut to the Education Department, saying, “President Trump is committed to reducing the federal footprint in education, and that is reflected in this budget.” But the omnibus goes in the reverse direction and hikes the department’s spending $3.9 billion. In thinking about a possible veto, Trump should be considering a lot more than just the immigration provisions. 

Congressional leaders have agreed to a 2,232-page omnibus spending package that allocates federal discretionary spending for 2018. Defense and nondefense spending levels are jacked up, budget caps are blown through, and the deficit is soaring.

You could say that the (nominally spendthrift) Democrats took the (nominally frugal) Republicans to the cleaners. But the real problem is that the great majority of members in both parties love federal spending. They think it unambiguously helps people; they are oblivious to constitutional federalism; they are willing to load more debt onto young people; and they have no idea about the negative consequences of government spending, such as the crowding out of private-sector activities.

It is amazing how many liberal priorities are included in the omnibus, despite the Republicans having the White House and majorities in both chambers. The Democrats highlighted some of their big-spending wins here:

• Nondefense discretionary spending up $63 billion in 2018.
• More for Head Start.
• More for the child care and development block grant.
• More for K‑12 subsidies.
• More for college subsidies.
• More for renewable energy subsidies.
• More for Amtrak subsidies.
• More for urban rail subsidies.
• More for community development subsidies.
• More for the EPA.
• More for public housing subsidies.

Aside from these increases in traditionally liberal programs, there were spending increases on many other programs that are also not properly federal activities, such as state-local policing and state infrastructure. If we are ever going to tackle massive federal deficits, we have to start cutting federal subsidies for state-local activities. But those subsidies keep rising.

More evidence on the bipartisan spending disease came Tuesday as HUD Secretary Ben Carson defended the administration’s budget to the appropriations committee. Carson did a fine job. He had many facts at his disposal, he generally defended the administration’s proposed cuts, and he deflected seemingly unfair accusations about his office expenses.

What struck me was that in the hearing’s Q&A, not a single Republican member spoke out in favor of the administration’s proposed HUD budget cuts. This is a department chock full of 1960s-style liberal interventionist programs, such as public housing and community development. If Republican members were conservatives, they would have lauded the proposed HUD cuts, but they did not.

It is sad reality that we get much more resistance to spending on Capitol Hill when Republicans are in the minority.

The Trump administration is proposing to privatize two airports owned by the federal government in Virginia, Dulles and Reagan National. William Murray discussed some of the advantages in the Washington Post, and noted that Australia provides a good model for such reforms.

Policymakers can also look to Europe, which has embraced airport privatization since Margaret Thatcher privatized London’s Heathrow in 1987. Today half of Europe’s commercial airports are private, including the main airports in Antwerp, Birmingham, Brussels, Budapest, Copenhagen, Edinburgh, Glasgow, Lisbon, Liverpool, Naples, Rome, Vienna, and Zurich.

Some of the advantages can be:

• Self-financing without government subsidies.
• Higher productivity, more innovation, reduced delays, and better service.
• More competition between airlines and for gate space, to the benefit of passengers.
• Airport expansion as aviation demand rises with fewer political/​bureaucratic/​funding roadblocks.

Airports Council International says there is “no denying the tangible benefits” of market-based reforms in Europe’s airport industry, including “significant volumes of investment in necessary infrastructure, higher service quality levels, and a commercial acumen which allows airport operators to diversify revenue streams and minimize the costs that users have to pay.”

Privatizing D.C.’s airports would be back to the future. The main airport serving D.C. during the 1930s was the private Washington-Hoover Airport in Virginia. The main airports serving many U.S. cities at the time were private, including the airports in Los Angeles, Philadelphia, and Miami.

What happened to America’s private-sector commercial airports? In city after city, they were pushed aside by government airports, which benefited from a range of subsidies.

Today, Dulles and National are operated by the same government authority. For what reason? Economists of all political stripes believe that monopoly is inferior to competition with respect to efficiency, innovation, and customer service. So, at minimum, the Trump administration should push to split the two D.C. airports into separate entities and induce them to compete against each other.

Better yet, Dulles and National should be privatized separately, either by share offerings or sales to airport operating companies.

More on airport privatization here. More on the general benefits of privatization here.

In a new study, economist Mickey Levy included a chart illustrating the inaccuracies of Federal Reserve economic forecasts. Levy is with Berenberg Capital Markets and a member of the Shadow Open Market Committee.

The chart shows the Fed’s year-ahead projections for real GDP (gray bars) and actual GDP (red bars). The projections are often way off, which is remarkable since the Fed has hundreds of skilled economists and access to unparalleled statistical and anecdotal economic data. The Fed generally overestimated growth until 2016, but for 2017 it underestimated.

Levy’s study concludes:

“The clear pattern of the Fed’s forecasting errors reflects the Fed’s tendency through 2016 to over-estimate the stimulative impact of extending its unprecedented monetary ease well after the recovery was self-sustaining, and tendency to under-estimate the economic impacts of the government’s fiscal and regulatory policies and other nonmonetary factors.” By the latter items, Levy means “the government’s tax and regulatory policies that increased business operating costs, raised uncertainties and dampened business confidence.”

More recently, “There has been a marked change in regulatory and tax policies that have changed the economic landscape, and the Fed’s perspective on the economy seems to be lagging behind. The Fed’s forecasts understated the dampening impacts of tax policy and growing web of burdensome regulations through 2016, and those policy thrusts have now reversed. The pickup in economic growth—both business investment and consumption—beginning in 2017 has been supported by the shift toward deregulation and the associated sharp rise in confidence.”

I have noted that CBO economic projections are also pretty bad. The agency missed the onset of the last recession, and over a recent 15-year period its projections of real growth for the following year were 1.7 percentage points off, on average. That indicates huge errors given that the average growth rate during the period was 2.1 percent. (Discussed here.)

If the government cannot predict the future, it won’t be able to successfully micromanage the future through interventionist monetary and fiscal policies. That is especially true because government is such an inflexible institution and has trouble changing course. I discuss these themes in this study on government failure.

What then should policymakers do? Economist Adam Smith advised them to adopt the “simple system of natural liberty.” By removing government interventions “the sovereign is completely discharged from a duty, in the attempting to perform which he must always be exposed to innumerable delusions, and for the proper performance of which no human wisdom or knowledge could ever be sufficient; the duty of superintending the industry of private people, and of directing it towards the employments most suitable to the interest of the society.”

Levy penned a recent study for Cato Journal here.