I keep trying to tell people this: the surge in government borrowing has been more than offset by a plunge in private borrowing, and we’re less dependent on foreign financing than we have been for a long time.
There you have it: We should not worry about the rapid increase in government debt as the total rate of borrowing in the country is about what it was before the recession began. This statement tells volumes about the differences between the Keynesian and Austrian ways of examining the acquisition of debt.
In the Keynesian view, the only thing that matters is spending. Capital and other assets are pretty much homogeneous in their economic effects, and the benefit we derive from capital expenditures is from the spending itself, not what capital represents. Thus, Keynesians would hold that in a time of high unemployment, if government borrows a load of money in order to build a bridge or road to Nowhere, that is perfectly acceptable because it causes government to spend, which "creates jobs," and puts money into the hands of people who then spend it.
Austrians, however, see assets and capital as being heterogeneous, and it matters how they fit into an economy's structure of production. Furthermore, contrary to Keynesian thought, opportunity cost does not take a vacation during a recession; contra Krugman, there is no "Prosperity Economics" that differs with "Depression Economics."
Businesses borrow for two reasons. The first is through a line of credit which they use in order to avoid cash-flow problems. These are short-term loans which are paid back quickly when cash from sales comes into the business. The second is for longer-term capital investment.
When businesses borrow for expansion or capital replacement, they do so with the expectation that such actions ultimately will result in future sales that result from the goods being made with the new or replaced capital. They don't borrow in order to spend for the sake of spending. Instead, they are engaging in purposeful, future-oriented behavior.
Contrast this with the current wave of government borrowing. First, most of the "stimulus" money is for projects that really have little value for capital expenditure purposes. (The building -- in the name of "stimulus" -- of a multi-billion-dollar high-speed passenger railroad that will lose huge amounts of money with each passenger is not exactly wise capital spending.)
Second, government today is borrowing to pay its current operations costs, yet there is no anticipation that the spending today will result in new sources of revenue in the future. This is nothing more than spendthrifts maxing out their credit cards with no regard for how they will pay back the debt.
Krugman wants us to believe that if the government borrows, spends, and debases money, thus causing inflation, these actions will give the economy some "traction" which will encourage it to move on its own, as though it were a perpetual motion machine. However, this is an extremely superficial way of approach economics, and its application always has been and always will be a failure.