Krugman is right but also wrong

I've never been a fan of Paul Krugman. He is an extremely smart man and seems to get it on a lot of things. However, he has continued to be a champion of two things that are killing the American economy: The fraudulent free trade system and illegal immigration. For these reasons, I've never really taken anything he says seriously.
However, this morning, I skimmed some of my fave RSS feeds. One is Political Wire. On PW, Tagg linked to this opinion piece this morning from Krugman in the NYT: ["The Third Depression"].
I've been telling people for I don't know how long now, probably four years, that this latest recession is going to be a depression and we should all be prepared for the long haul (or we truly are in an economic depression now, since all the economic indicators are actually estimates and not really facts and we won't know for years to come ...). So, I agree with Krugman on this part. We're probably in a depression and we aren't going to get out of it anytime soon.
The problem with Krugman's analysis is that he gets the reasoning wrong:

And this third depression will be primarily a failure of policy. Around the world — most recently at last weekend’s deeply discouraging G-20 meeting — governments are obsessing about inflation when the real threat is deflation, preaching the need for belt-tightening when the real problem is inadequate spending.

This is where he gets it wrong. Government spending isn't the problem; revenue AND spending are the problem. There is not enough revenue and too much spending (and in many cases, spending on stupid things). One doesn't work without the other and vice versa.
The other part of this is that we aren't truly building up our local economies. This is where the free trade/illegal immigration part fits in. Not everyone in America is going to be a highly educated, productive economic engine (and even rocket scientists are out of work). The world needs ditch-diggers too, as Judge Smails said in "Caddyshack," after a caddy mentioned that he was saving for law school but didn't know if he would have enough money.
There will always be tens of millions of Americans who will need low skill, decent wage jobs to survive. There is no way around this but to be honest about it. They cannot compete with economic enslavement conditions throughout the world where workers will work for pennies on the dollar. At the same time, the influx of millions of workers from south of the border is depressing our wages due to lack of enforcement. Illegals come in and cut lawns, pick lettuce, clean offices, etc., for below the minimum wage, which takes away jobs from people that live here. People say, Well, Americans won't do those jobs. Well, yes they will. If you've ever been unemployed and were getting near the end of the one year of weekly checks, let me tell you, you will do just about anything to get by. The fact is that we have tens of millions of people out of work who will happily do just about anything right now. If there were no illegals, there would be millions and millions of jobs and satellite jobs based on those jobs. Few want to face them, but they are the facts.
Even Krugman admits this to be true although he caveats it by saying it's an economic benefit to have people from foreign lands here working for below minimum wage.
Krugman continues:

In the face of this grim picture, you might have expected policy makers to realize that they haven’t yet done enough to promote recovery. But no: over the last few months there has been a stunning resurgence of hard-money and balanced-budget orthodoxy.

As anyone who has ever tried to pay off a credit card knows, debt is an important thing to use for long-term purchases. But too much debt and debt spent on frivolous things can be catastrophic.
Governments, on almost every level, have too much debt, have built or financed stupid things, and have too many expenses to sustain themselves.
Just look at the Pentagon budget or read "Diary of an Economic Hitman" to understand what is going on in the world. Just look at the tax system which nails middle-class families while allowing people who earn millions shifting paper around to get away with murder.
The only way to get the economy rolling again is to pay down those debts, adjust pay scales to what the government job is truly worth and not what unions want (gosh, did I just say that?), and make sure there is money in people's pocket so that they can spend it (and this money can't be phony debt money but real money, earned, in the pocket, with no debt strings attached).
Right now, seventy percent of economic growth is based on retail spending or, to be more precise, money that people spend to buy things that they need (and sure, sometimes, want). The recovery is going to be based on that type of spending - not what government spends and wants.
The government debt balloon is also coming. Public employee pensions alone will bankrupt the future of our children never mind Social Security and the trillions in debt the government owes (and what did we get for that money again? The end of communism but now a ton of mini-Cold Wars all over the world spending even more on militarization than we ever had since WWII? Hmm ...).
Not unlike working hard to pay off your Sears card by living without and not buying anything from Sears until what you have already spent has been paid off, government needs to do the same thing. It needs to do the same thing while not pulling more money out of people's pocket too, which will drain more money out of the economy. That means reining in costs and lowering debt levels. Yes, that means pain, that means living with less, that means some people will make out better than others (it can't be any worse than it is right now, can it?), that means now spending hundreds on ciggies when you are collecting food stamps, and that means relying of family and friends and not being a burden on society by relying on government.
We're all supposed to be in this together. Let's truly think that way and fix the problem, and not continue to allow a handful of powerful people to continue to f*ck things up. Otherwise, we will surely sink alone, one at a time ...