In his column for the New York Times, Paul Krugman writes that the U.S. should not “raises taxes and cut spending now.” Why? Because the economy is in bad shape:

Right now, we have a severely depressed economy – and that depressed economy is inflicting long-run damage. Every year that goes by with extremely high unemployment increases the chance that many of the long-term unemployed will never come back to the work force, and become a permanent underclass. Every year that there are five times as many people seeking work as there are job openings means that hundreds of thousands of Americans graduating from school are denied the chance to get started on their working lives. And with each passing month we drift closer to a Japanese-style deflationary trap.

Is this an admission that the stimulus bill is not having the impact on the economy we were told it would have? We are now well into 2010; stimulus-spending advocates had claimed that we would be back on our feet by now, or at least on our way to being so. It doesn’t feel like we are. Indeed, in Krugman’s words, our economy is ”severely depressed.”

And yet, Krugman argues: “Yes, we need to fix our long-run budget problems – but not by refusing to help our economy in its hour of need.” Which means more government spending. He concludes that “now is not the time for fiscal austerity.” Of course, it is hard to imagine that anyone would call our fiscal situation austere, even in the event that Team Obama were to freeze non-defense non-homeland-security spending, as it promised back in February. And yet this is a recurring theme in Krugman’s work these days. On Friday, he defined austerity as 52 senators’ votes “against extending aid to the unemployed despite the highest rate of long-term joblessness since the 1930s.”

He isn’t just upset with American senators. He doesn’t think that Germany is on the right path either.

German hawk: “We must cut deficits immediately, because we have to deal with the fiscal burden of an aging population.”
Ugly American: “But that doesn’t make sense. Even if you manage to save 80 billion euros — which you won’t, because the budget cuts will hurt your economy and reduce revenues — the interest payments on that much debt would be less than a tenth of a percent of your G.D.P. So the austerity you’re pursuing will threaten economic recovery while doing next to nothing to improve your long-run budget position.”
German hawk: “I won’t try to argue the arithmetic. You have to take into account the market reaction.”
Ugly American: “But how do you know how the market will react? And anyway, why should the market be moved by policies that have almost no impact on the long-run fiscal position?”
German hawk: “You just don’t understand our situation.”

In any case, not everyone agrees with Krugman. Economists Alberto Alesina and Roberto Perotti argue that spending isn’t the cure for Germany here.