This is interesting as an art piece, but I think it is easy to intuit from the presentation that the authors are not being very careful thinkers.

The truth is that the question of austerity is a fairly complex one. The reason it seems so cut and dried is that the modal promoter of austerity has no training in macroeconomics and is making arguments that are clearly not supported by theory. That said, to portray Krugman as definitely correct on the matter of austerity is very misleading.

There are basically two camps of people opposing Krugman, "mainstream Austrians" and market monetarists. Mainstream Austrians isn't really a category, but this is people who make arguments based on analogies with household budgets, and worry about hyperinflation from out of control spending. Most of them have economic theories that are not well-supported empirically. These people say austerity is better and will lead to stronger growth, possibly after a painful period of economic adjustment. Often these are head economists at small banks or other pundits that get a lot of airtime for their opinions. They probably don't actually identify as Austrians 95% of the time, but in this particular instance they are following Austrian thinking.

The other major camp is market monetarists, whom Krugman is very dismissive of, despite the fact that their arguments are compelling and their empirical support is probably as strong as pro-spending Keynesians. In his arguments with market monetarists Krugman has been almost dishonestly evasive, initially claiming that the American austerity would be the ultimate test of market monetarist thinking, but then posting no follow-up eating crow after the test showed strong macroeconomic growth "in spite of" the austerity.

The fundamental issue of austerity under market monetarist thinking is that of monetary offset. The central bank has an inflation target, and they are targeting it no matter the fiscal policy of the country as enacted by legislators. If the legislature authorizes dramatically higher spending, monetary authorities increase interest rates to slow down the economy and bring inflation back in line with their 2% target. If the legislature instead goes after austerity policies, the monetary authorities lower interest rates to increase economic activity and again hit that 2% inflation target. In America, when our austerity came into effect, our central bank started a round of additional quantitative easing, which is functionally similar to lowering the interest rate when it is at zero, and this lead to us having continued growth despite the slowdown in government spending.

One of the things about monetary offset is that it only applies to countries that have independent monetary policy, i.e. they have their own independent central bank issuing their own currency. Market monetarists and Keynesians agree that austerity is a terrible policy for countries in the Eurozone, because they do not have independent monetary policy to make up for their decreased spending. The problem is that Keynesians also apply that thinking to countries that have independent monetary policy like the UK, Switzerland and the US. The fact that Krugman does not address this explicitly is one of the best demonstrations of his unwillingness to intellectually engage with his market monetarist opponents. It's much easier to bash on the people making the worst arguments on the other side, rather than those making the best arguments, and he is obviously very political in his thinking, and thus very tribal in his politics. Krugman is a very careful writer, however, so he rarely says anything that's outright wrong, he just chooses not to address the best arguments against his viewpoints, or says more by implication than by direct statement.

For more on market monetarism, one can read the blog of Scott Sumner at http://www.themoneyillusion.com/ or as one of the blggers at http://econlog.econlib.org and in particular one can read recent posts at [1], [2] and [3] on this topic:

1: http://econlog.econlib.org/archives/2015/06/the_other_thing....

2: http://econlog.econlib.org/archives/2015/06/russ_roberts_vs_...

3: http://www.themoneyillusion.com/?p=29692