Usually I’m pretty good at seeing how Krugman isn’t actually contradicting himself, but instead is engaging in mere Kontradiction–where he twists the dials on something that could plausibly go either way, in order to always come down on the side of more government activism on an issue. It’s not that his decision to turn the dial one way or the other is outrageous on any given issue, but rather that his calibration of the dials isn’t random, or guided by how he actually feels on the issue–it matters where it will lead him on that particular policy issue, for that particular blog post.

But with this one, even I am stumped. Let’s set the context: For years now, Krugman has been blasting the people who have argued that this recession is caused by a need to reallocate resources from one sector to another. Very recently, I wrote a full-blown response at Mises.org, trying to show Krugman that yes indeed, the construction sector was shrinking more than manufacturing and services. This was necessary, because Krugman had tried to show that the declines were across the board: According to Krugman, the problem was a general lack of Aggregate Demand; this had nothing to do with sectoral imbalances, the way Arnold Kling or the Austrians were claiming.

Okay, now let’s change the subject. Suppose we stop talking about the recession per se, and instead talk about optimum currency area and why the Very Serious People are idiots about the euro, and Krugman (as always) has been right all along. In this case, here’s how Krugman describes our current crisis:

The disadvantages of a single currency come from loss of flexibility. It’s not just that a currency area is limited to a one-size-fits-all monetary policy; even more important is the loss of a mechanism for adjustment. For it seemed to the creators of OCA, and continues to seem now, that changes in relative prices and wages are much more easily made via currency depreciation than by renegotiating individual contracts…. But why should such adjustments ever be necessary? The answer is “asymmetric shocks”. A boom or slump everywhere in a currency area poses no special problems. But suppose, to take a not at all hypothetical example, that a vast housing boom leads to full employment and rising wages in part, but only part, of a currency area, then goes bust. The legacy of those boomtime wage increases will be an uncompetitive tradable sector, and hence the need to get at least relative wages down again.

So how do we reconcile this? Is Krugman saying that the housing boom led to rising wages in concentrated pockets of Europe, but not in concentrated pockets of the United States?

Note well, when discussing the Austrian diagnosis of the United States, Krugman (to my knowledge) has never said, “Yes, the Austrians are right that relative wages need to fall in construction and housing in particular, and that workers need to flow out of states like Nevada and into other areas of the country that didn’t boom so much during the good years. However, their recommended solution is just too painful; I have a better way to fix the problem that they’ve correctly diagnosed.”

No, Krugman has repeatedly said, “The Austrians are crazy. The data don’t show any disproportionate impact from housing at all. Unemployment isn’t higher in the housing boom states, and wages aren’t changing at different rates in construction versus other industries.”

(Of course I’m paraphrasing in the above, but that is definitely what he’s been saying. Go to my article linked above, and follow the links if you don’t believe me.)

So, did Europe have a totally different experience during the housing boom during the mid-2000s than the US did? Or, did Krugman have no problem citing the obvious impact of the housing boom on relative wages and sectoral resource flows, when he was discussing optimum currency area, and there was no obvious stimulus spending at stake?