Read this one written only 2 months later, after the Obama plan came out, (but before it was passed) and more data was available on the depth of the recession:

http://www.nytimes.com/2009/01/09/opinion/09krugman.html?_r=1

At this point he is quoting the CBO as predicting that unemployment would rise above 9% without a stimulus. A month later he predicts that unemployment could go into double digits if the crisis spreads quickly around the globe:

http://www.huffingtonpost.com/2009/02/17/paul-krugman-stimulus-too_n_167721.html

Yet the number everybody remembers and quotes is 8%.

I agree we should take a meat axe to current DoD spending.

http://krugman.blogs.nytimes.com/2008/11/10/stimulus-math-wonkish/

This contains the 600 billion, which was Krugman’s idea of “fiscal policy [that] should take risks in the direction of boldness.”

He’s a smart guy, but even Princeton professors can be very wrong when trying to precict the macroeconomic future.

Right, plus the debt was clearly temporary. WWII was over, so we were able to shut off the spending to a large degree. Now, the problems stem mainly from entitlements that stretch out forever and are politcally veru difficult to reform.
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How were “the needs of world consumption’ paid for if there was no remaining infrastructure in Europe and Japan?

Answer: We paid for it ourselves or lent them the money or forgave their debt. How could we afford to do that? We were “the only country left standing with the infrastructure and industrial capacity”, infrastructure that was built with deficit spending during WW II. Infrastructure lasts if it isn’t bombed.

The debt wasn’t temporary. In dollar terms the debt was higher in 1956 than it was in 1946. But the Debt/GDP ratio dropped because GDP rose and inflation ate away at the value of the debt. We didn’t shut off spending. We built the interstate system, we sent the GI’s to college, we went to war in Korea. We also collected very high taxes from the wealthy, (who somehow still managed to “create jobs” the whole time).

It is true that the current problem stems mostly from entitlements and, may I add, military spending. We can deal with that over time if both sides will negotiate and compromise honestly. But projections of entitlement debt are no reason to cut all infrastructure spending.

We have much more to fear from deflation than inflation and if the economy dips again we could easily step over that line.

So far, he’s been right on the money. The stimulus kept the economy from going into a full-fledged depression, but it wasn’t big enough to restart the growth cycle. It’s 1990’s Japan all over again.