Krugman starting to wake up...I hope

I've given alot of grief to Paul Krugman, our liberal nobel prize winning economist. He did a good job predicting the downturn in the economy, but I've railed against his Keynsian theories that promote massive economic stimulus from the government. His latest article suggests he's starting to understand the problems that lie at the core of Keynsian policy in our current environment. Have a looksee...

After the Stimulus
http://krugman.blogs.nytimes.com/2008/11/17/after-the-stimulus/

For the coming year, and probably well beyond, the economy will be on life support — sustained by massive fiscal stimulus. (Either that, or we’ll be in a very deep slump.) But eventually the economy will have to come off life support. What will take the place of the stimulus?
I don’t really know the answer.

I really don't know the answer. That's a telling statement. It's also the primary reason that this stimulus WILL not work. The reason he doesn't know the answer is that he KNOWS that the economic model that the economy is currently based on is broken and kaput. All a stimulus does is try and reignite the old model. It doesn't promote the proper allocation of funds to NEW economic models. This is the CORE PROBLEM when stimulus is provided to an economy that is FUNDAMENTALLY failing. Stimulus can work under some scenarios, but generally they don't involve DEBT stimulus and they generally are applied to economic models that are viable, but have sustained an unexpected shock causing interruptions in the flow of GOOD CAPITAL to GOOD MODELS. This current stimulus is 0 for 2 on both those fronts. Instead of the stimulus coming from built up surplus during the good times, it is coming from foreign financed DEBT. And further, the stimulus is going directly to companies that are mired in flawed sectors based on unsustainable business models (financial, housing, auto, governments).

Krugman is stuck in the trap that all "blinders wearing" Keynsians get stuck in. Eventually you can no longer prop up a failed economic model with more stimulus. The law of diminishing returns kicks in. You gain less and less for every dollar spent and eventually you get no benefit. At the same time, that money has failed to be allocated to new and better economic models that would provide the ACTUAL growth needed to move this country forward under a sustainable model. The real question is will the Keynsians actually UNDERSTAND this and make the necessary adjustments to their logic or will they continue to move forward with ill-advised stimulus injections HOPING that better days lay ahead. Hope is a HORRIBLE way to run a business. It's a great way to destroy an economy however.