Writing for the New York Times, Paul Krugman has a new column promoting more government spending and additional government regulation. That’s a dog-bites-man revelation and hardly noteworthy, of course, but in this case he takes a swipe at the Cato Institute.

The financial crisis of 2008 and its painful aftermath…were a huge slap in the face for free-market fundamentalists. …analysts at right-wing think tanks like…the Cato Institute…insisted that deregulated financial markets were doing just fine, and dismissed warnings about a housing bubble as liberal whining. Then the nonexistent bubble burst, and the financial system proved dangerously fragile; only huge government bailouts prevented a total collapse.

Upon reading this, my first reaction was a perverse form of admiration. After all, Krugman explicitly advocated for a housing bubble back in 2002, so it takes a lot of chutzpah to attack other people for the consequences of that bubble.

But let’s set that aside and examine the accusation that folks at Cato had a Pollyanna view of monetary and regulatory policy. In other words, did Cato think that “deregulated markets were doing just fine”?

Hardly. If Krugman had bothered to spend even five minutes perusing the Cato website, he would have found hundreds of items by scholars such as Steve Hanke, Gerald O’Driscoll, Bert Ely, and others about misguided government regulatory and monetary policy. He could have perused the remarks of speakers at Cato’s annual monetary conferences. He could have looked at issues of the Cato Journal. Or our biennial Handbooks on Policy.

The tiniest bit of due diligence would have revealed that Cato was not a fan of Federal Reserve policy and we did not think that financial markets were deregulated. Indeed, Cato scholars last decade were relentlessly critical of monetary policy, Fannie Mae, Freddie Mac, Community Reinvestment Act, and other forms of government intervention.

Heck, I imagine that Krugman would have accused Cato of relentless and foolish pessimism had he reviewed our work  in 2006 or 2007.

I will confess that Cato people didn’t predict when the bubble would peak and when it would burst. If we had that type of knowledge, we’d all be billionaires. But since Krugman is still generating income by writing columns and doing appearances, I think it’s safe to assume that he didn’t have any special ability to time the market either.

Krugman also implies that Cato is guilty of historical revisionism.

…many on the right have chosen to rewrite history. Back then, they thought things were great, and their only complaint was that the government was getting in the way of even more mortgage lending; now they claim that government policies, somehow dictated by liberals even though the G.O.P. controlled both Congress and the White House, were promoting excessive borrowing and causing all the problems.

I’ve already pointed out that Cato was critical of government intervention before and during the bubble, so we obviously did not want government tilting the playing field in favor of home mortgages.

It’s also worth nothing that Cato has been dogmatically in favor of tax reform that would eliminate preferences for owner-occupied housing. That was our position 20 years ago. That was our position 10 years ago. And it’s our position today.

I also can’t help but comment on Krugman’s assertion that GOP control of government last decade somehow was inconsistent with statist government policy. One obvious example would be the 2004 Bush Administration regulations that dramatically boosted the affordable lending requirements for Fannie Mae and Freddie Mac, which surely played a role in driving the orgy of subprime lending.

And that’s just the tip of the iceberg. The burden of government spending almost doubled during the Bush years, the federal government accumulated more power, and the regulatory state expanded. No wonder economic freedom contracted under Bush after expanding under Clinton.

But I’m digressing. Let’s return to Krugman’s screed. He doesn’t single out Cato, but presumably he has us in mind when he criticizes those who reject Keynesian stimulus theory.

…right-wing economic analysts insisted that deficit spending would destroy jobs, because government borrowing would divert funds that would otherwise have gone into business investment, and also insisted that this borrowing would send interest rates soaring. The right thing, they claimed, was to balance the budget, even in a depressed economy.

Actually, I hope he’s not thinking about us. We argue for a smaller burden of government spending, not a balanced budget. And we haven’t made any assertions about higher interest rates. We instead point out that excessive government spending undermines growth by undermining incentives for productive behavior and misallocating labor and capital.

But we are critics of Keynesianism for reasons I explain in this video. And if you look at current economic performance, it’s certainly difficult to make the argument that Obama’s so-called stimulus was a success.

But Krugman will argue that the government should have squandered even more money. Heck, he even asserted that the 9-11 attacks were a form of stimulus and has argued that it would be pro-growth if we faced the threat of an alien invasion.

In closing, I will agree with Krugman that there’s too much “zombie” economics in Washington. But I’ll let readers decide who’s guilty of mindlessly staggering in the wrong direction.

Yesterday, Senator Mike Enzi (R-Wyo.) and 19 cosponsors introduced a bill to promote the collection of taxes on Internet sales. I can’t recall seeing a bill so universally condemned in the libertarian, free-market, anti-tax, and pro-innovation communities. The National Taxpayers Union issued a press release, a “myths & facts” one-pager, and wrote it up on their blog for good measure. Here’s the Heartland Institute’s press release. The Competitive Enterprise Institute calls it a raw deal. R Street seems to hate this bill with a burning passion. Our sweethearts at NetChoice went with a Valentine’s theme.

[Update: The Center for Freedom and Prosperity also does not like this bill.]

[Update 2: Americans for Tax Reform does not like Internet sales taxes.]

I think differently from these groups. Oh no, I don’t think it’s a good idea to let state and local tax authorities impose complex taxes on businesses around the country just because they sell online. Doing so would cause Internet sales taxes to soar because tax authorities would be able to impose taxes on people who can’t vote them out of office.

But I think it’s important not to forget the consequences for privacy if Congress were to approve interstate tax collection like this.

Dig down into the bill and you start to see what it takes for states and localities to tax products sent into their states by remote sellers.

For purposes of [collecting taxes], the location to which a remote sale is sourced refers to the location where the item sold is received by the purchaser, based on the location indicated by instructions for delivery that the purchaser furnishes to the seller. When no delivery location is specified, the remote sale is sourced to the customer’s address that is either known to the seller or, if not known, obtained by the seller during the consummation of the transaction, including the address of the customer’s payment instrument if no other address is available.

That means that sellers all over the country would have to turn the addresses of the people they sell to over to state tax authorities. You could design a system to minimize the privacy problems here, but not eliminate them—especially when the time comes for the officials in one state to audit the sales in another.

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The Washington Post’s David Fahrenthold recently took a look at the $38 billion in spending cuts that Republicans and Democrats agreed to in 2011 in order to avoid a government shutdown. Fahrenthold estimates that $17 billion of those “cuts” were little more than budgetary gimmicks. For instance, $6 billion in authorized spending for the previous year’s decennial census were merely wiped off the books and counted as a “cut.” 

Fahrenthold’s piece is a good reminder of how unserious politicians from both parties are about cutting spending. But I want to make two additional points. 

First, real or not, let’s not forget that the $38 billion in “cuts” were a drop in the bucket that year compared to total spending, the deficit, and even interest on the debt: 

Second, unless entire agencies or programs are terminated, spending cuts will probably end up only being temporary. Following the 2011 agreement, I demonstrated this by noting that many of the programs that were cut were also cut in a 1995 deal: 

Agricultural Research Service, Animal & Plant Health Inspection Service, Rural Development programs, Women, Infants & Children, Foreign Agricultural Service, National Institute of Standards & Technology, National Oceanic & Atmospheric Administration, Economic Development Administration, National Telecommunications & Information Administration, Small Business Administration, State Department foreign aid, Fund for African Development, International Development assistance, Economic Support Fund, Peacekeeping Operations, Trade Development Agency, Army Corps of Engineers, Bureau of Land Management, Fish and Wildlife Service, National Park Service, Bureau of Reclamation, National Forest System, Appalachian Regional Commission, Department of Energy administration, Fossil Energy Research & Development, energy conservation programs, National Endowment for the Arts, National Endowment for the Humanities, National Gallery of Art, Community Service Employment for Older Americans, National Institutes of Health, Centers for Disease Control, Low Income Home Energy Assistance, Administration on Aging, Youthbuild, Adult Education, programs for K-12 and higher education, Corporation for Public Broadcasting, Federal Aviation Administration, Federal Highway Administration, rail subsidies, Federal Transit Administration, Financial Management Service, Veterans Affairs construction projects, Housing Counseling Assistance, public housing programs, Community Development Financial Institutions Funds, Corporation for National & Community Service, Legal Services Corporation, Environmental Protection Agency, National Aeronautics & Space Administration, and the National Science Foundation. 

They were all cut in 1995 under a rescissions package engineered by then-Speaker Newt Gingrich and cut last week in the budget agreement reached by Republican and Democratic leaders. 

The lesson here is that there’s a big difference between spending cuts and terminating entire agencies and their programs. Like the mythological Hydra, the stump has to be burned after the head is cut off or else it’ll grow back.