Since I'm not an economist, I can't easily judge the content of the Krugman's arguments against anti-stimulus arguments. But what makes Krugman stand head and shoulders above the rest of his fellow pundits, is that he makes arguments.
Next, write off anyone who asserts that it’s always better to cut taxes than to increase government spending because taxpayers, not bureaucrats, are the best judges of how to spend their money.
Here’s how to think about this argument: it implies that we should shut down the air traffic control system. After all, that system is paid for with fees on air tickets — and surely it would be better to let the flying public keep its money rather than hand it over to government bureaucrats. If that would mean lots of midair collisions, hey, stuff happens.
The point is that nobody really believes that a dollar of tax cuts is always better than a dollar of public spending. Meanwhile, it’s clear that when it comes to economic stimulus, public spending provides much more bang for the buck than tax cuts — and therefore costs less per job created (see the previous fraudulent argument) — because a large fraction of any tax cut will simply be saved.
This suggests that public spending rather than tax cuts should be the core of any stimulus plan. But rather than accept that implication, conservatives take refuge in a nonsensical argument against public spending in general.
Now to be fair, we can criticize the argument in a couple of ways–first, air traffic control involves a task of coordination and it isn't clear that priming the economic pump does in the same way. It isn't just that centralized air traffic control is more efficient than a "free market" equivalent. So we might ask whether the analogy holds.
Second, we might ask whether the claim that "taxpayer are the best judges of how to spend their money" (see last paragraph here) implies that all public spending should be replaced with private spending. A more moderate position might be to argue that when it comes to something like economic stimulus this principle holds true. However, Krugman is arguing against some of the simplistic and fallacious dismissals of stimulus spending, and so aims to free the discussion for substantive arguments from economists and policy makers rather than from the ideological hacks.
By the way, what is the fallacy in the argument he is attacking? Is it a fallacy? Accident, perhaps? Seems to involve the universalization of a principle that probably holds true in many cases (better to let me choose whether to spend my money on a Squeezebox Duet rather than a Sonos System, than have the government choose for me. Maybe something like "When there's no compelling public need, it is preferable to allow citizens to choose how to spend their money than have government choose." What counts as a compelling need is a political question–in the case of the stimulus plan Krugman makes the case that the public need is stimulating the economy and government spending is just much more effective than private spending in doing that.
The "fallacy" seems to work by arguing:
1. We accept principle x.
2. Principle x entails we should not do y.
3. Therefore we should not do y.
However, principle x is either a) not accepted as stated or b) when qualified does not apply to case y.
1. It is wrong to kill.
2. If it is wrong to kill then we should not use lethal force to defend ourselves.
3. Therefore we should not use lethal force to defend ourselves.
But, either a) it is not wrong (always to kill) or b) it is only wrong to kill without justification.
The fallacy seems to arise when the principle is taken to be persuasive because on the surface it seems true.