Hi tkc,
Yes. It takes a bit of time to get used to the argument. But you'll see Ben Bernanke has just followed Krugman's advice to try to appear to be irresponsible by committing to an extended period of low interest rates. What happened? The markets went up. In a normal inflationary economy, this would be a crazy thing to do. But this isn't an inflationary economy.
Essentially, the laws of the economic universe seem to work differently when interest rates approach zero (ie in a deflationary environment). Zero rates of interest are what he calls the zero bound. People's behaviour changes when money loses its value. They will tend to hold onto it. So you end up with a liquidity trap.
To get people to spend, you have to get them to think the value of money is unsound, so they'd better use it rather than sit on it.
Here's a piece he wrote a few years ago.
http://krugman.blogs.nytimes.com/2008/11/15/macro-policy-in-a-liquidity-trap-wonkish/
It seems to me we live in a universe in which conditions and scale matter! Yet people always look for eternal laws that operate at every scale and in every circumstance.
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