There are really two distinct issues at play here, which the media usually conflate: one is whether we need a second stimulus package, and the other is how successful the first stimulus package has been. On pure economic grounds, Krugman is almost certainly right: the Obama administration's $787 billion stimulus package is too small to close the output gap. The unemployment rate now sits at 9.5%, which is well above the administration's projected unemployment rate without the original stimulus package (graph via Calculated Risk):
The high unemployment rate doesn't prove that the stimulus package has already "failed" in any sense. Stimulus spending takes time, and hardly any of the stimulus money has been spent yet. According to Recovery.gov, only $56.3 billion of the $787 billion stimulus package has been paid out to date:
Moreover, we don't know how much of the $56.3 billion that has been "paid out" has actually been spent yet. To be effective, fiscal stimulus needs to spend money—that is, get money circulating through the economy—as quickly as possible. The majority of that $56.3 billion went to states in the form of grants—for example, HHS has paid out $22 billion in grants to states for Medicaid, and the Department of Education has paid out $6.2 billion in grants under the State Fiscal Stabilization Fund. We don't know how much of that money the states have actually spent yet, although given the dire condition of state budgets, it's reasonable to assume that the states have spent most of the grant money they've received so far.
We knew it would take a while for the stimulus package to have an effect when it was passed though, so legislators can hardly claim to have been tricked. Government spending takes time—project rules have to be designed, requests for proposals (RFPs) have to be issued etc., etc. If any legislator claims that he wouldn't have voted for the stimulus bill had he known it would take as long as it has to spend the stimulus money, then he's probably not qualified to work in government in the first place.
Now to the issue of a second stimulus.
It's not necessarily true that since the first stimulus package hasn't "failed," we should wait and see how effective it is before we start talking about a second stimulus. The truth is, the first stimulus package was always too small. Even if the administration's economic projections back in January had turned out to be accurate, the first stimulus would still have been too small given the scale of the recession, and monetary policy would still have been ineffective because interest rates have reached the zero bound. So there was always going to be a solid economic case for a second stimulus.
This is where Krugman and I part ways. Krugman thinks the administration made a political mistake in not asking for a bigger stimulus package the first time around, making it needlessly more difficult for the administration to come back to Congress for a second stimulus. Krugman is a first-rate economist, but he's not especially savvy politically, and this is one of those times when his political/legislative inexperience shows.
The reality is that the administration isn't going to come back to Congress for a second stimulus package, and for good reason: A second stimulus is politically impossible. Absent another massive shock to the economy (e.g., Citi or BofA failing), there's a zero percent chance that a second stimulus will make it through the Senate. It's simply not going to happen. Even with another shock to the economy, the chances of a second stimulus passing are incredibly low. I'll be shocked if a second stimulus bill ever even comes to a vote in the Senate.
This is just the way Capitol Hill works. The two years I spent working on the Hill were miserable, but they were also invaluable, because they tempered my expectations about what politics and public policy are capable of accomplishing. It's not as simple as "Dem House majority + 60 Senate Dems + Dem president = liberal free-for-all!" All politics is local, as the late Tip O'Neill famously put it. Voting to increase an already-enormous budget deficit (by a substantial amount, as any stimulus package would have to be in the hundreds of billions) is an incredibly tough vote for any potentially-vulnerable member of Congress to take. After the first stimulus bill, omnibus appropriations, and the health care bill—not to mention the deeply unpopular "Wall Street bailout" (TARP) in September—the administration knows that it can't ask vulnerable Democrats to take another incredibly tough vote. Democrats probably have the numbers in the House to push a second stimulus bill through, but it would get blown out of the water in the Senate.
To be fair, Krugman did say that he's "well aware of how difficult it will be to get such a plan enacted." But there's an enormous difference between "difficult but politically feasible" and "politically impossible." A second stimulus is firmly in the "politically impossible" category. A stimulus bill is a tough vote for any vulnerable politician—just look at how difficult it was to get the first stimulus bill passed—and there are only so many politically harmful votes that vulerable politicians can realistically give you. The modern U.S. political and legislative system just can't accommodate two large stimulus bills in one year.
This isn't a new revelation. A second stimulus was always going to be politically impossible, and the administration knew it. (Rahm Emanuel has a little bit of experience with tough pieces of legislation, remember.) The fact that the administration asked for a stimulus package in January that was too small according to its own economic forecasts demonstrates that the administration was well aware of political constraints.
They knew the first stimulus bill was their only shot, and they asked for as much as they thought was politically feasible. Frankly, I'm surprised they were able to get $787 billion. When they initially floated an $800 billion stimulus to the press, my first thought was: "Huge mistake." I thought anything over $775 billion would be rounded up to $1 trillion by their opponents and the media, and that the idea of a $1 trillion stimulus bill would kill any chance it had of getting through the Senate. To its credit, however, the media (ex-Fox News) didn't settle on the "almost $1 trillion stimulus" description, and the administration somehow got a $787 billion stimulus bill passed. If the administration was ever naïve enough to push for a second stimulus, the media would focus almost exclusively on the budget deficit and the federal debt level—when they're not debating whether the first stimulus was a colossal failure, that is.
So while there's a strong economic case for a second stimulus, it's beyond pipe dream.
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