The problem with Krugman’s mental model is that it does not take into account the after-effects of the stimulus. That was the case then; as it is the case now.

“The basic point is that the recession of 2001 wasn’t a typical postwar slump, brought on when an inflation-fighting Fed raises interest rates and easily ended by a snapback in housing and consumer spending when the Fed brings rates back down again. This was a prewar-style recession, a morning after brought on by irrational exuberance. To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan NEEDS TO CREATE A HOUSING BUBBLE to replace the Nasdaq bubble.”