Paul Krugman is sounding the alarm on Europe and to a certain extent, I agree with him. Economic collapses tend to bring out the worst in people, and invariably, they will turn to the worst politicians who appeal to resentment, envy and hatred.
Invoking the rise of the political lunatics that took power in the 1930s, Krugman writes that "democratic values are under siege," and says that worse things are down the road. Furthermore, when "austerity" measures involve actually empowering the State to grab more in taxes in the name of "balancing budgets," I agree that "austerity" is a bad thing, but, ironically, the only thing Krugman seems to like about austerity measures is raising taxes.
I also agree with him that we are in a depression, but we fully disagree on how we got here and what must be done to get out. Krugman believes that governments should take more power, inflate the currency, borrow heavily (thus, creating new financial bubbles in sovereign debt that cannot ever be repaid with future tax revenues), confiscate more income from wealthy people, and engage in Crony Capitalist measures like funding "alternative energy."
In a nutshell, everything that Krugman demands the European and U.S. governments do will worsen this depression. Everything. From his scheme of having central banks purchase sovereign debt in the primary markets (which are no markets at all) to government bailing out failing firms and giving huge subsidies to "green" industries, Krugman is calling for putting malinvestments on steroids, in the belief that flooding the economies of the world with even more paper money will save us.
This is not something that will lead to recovery; instead, it is not just "hair of the dog," but rather a call to consume the entire dog itself. And, invoking the "babysitting cooperative" as "proof" that he is right might work at the NY Times and with fellow Keynesians, but it makes no sense in the real world.
Europe seems to be on the brink and so is the USA. And if Krugman really does believe that the "solution" involves more sovereign debt, more subsidies, and more malinvestments, then I would like to sell him some real estate in Princeton.