There is a debate (pdf) about whether Immigration has a linear effect upon Wages because of acceptable Substitute limits of labor, or imperfect Substitutability of immigrant labor with native labor actually enhances the position of native labor with higher Wage opportunity. Ottaviano and Peri contend natives can find higher Wage opportunity from the imperfect Labor substitution, while Borjas and Co. find any Gain to disappear under adequate Sampling. I would suggest that labor substitutability is an imperfect vehicle to promote Wages, when the only difference relies on transference of language skills and Skill levels are to be found and utilized in both native and immigrant origin economies. Immigrants will and do absorb native Wages as they usurp native Jobs, said expansion of labor elements innately suppressing natural Wage Gains. The discussion, though, may be of little long-term economic impact, as I believe that Immigration may be only a short-term Event series, with this Wave of immigration to recede within the next decade.
Paul Krugman puts forth a good expression of the financial crisis, but maybe he fails to advance the rationale behind the Crisis itself. I could turn biblical, and start mooing about the fat cows, followed by the lean cows, and still not give much understanding for my Readers. I will attempt a less metaphysical approach. We put in a half-dozen years where Tax policy, fiscal policy, and monetary policy were all directed to rapid growth expansion. Everyone responded as expected, and business spread. Widespread expansion was achieved, then Payday came. This caused a little consternation, as the Profits were not there to pay for that level of business expansion. Consumers were not spending sufficiently, because their own Income has not increased to the equivalent level necessary to pay for such consumption. Mortgage-holders were being told they would be paid, just as soon as Households make the requisite Income. The vast Profits from the growth boom had been invested, and suddenly the repayment structure was in doubt. The Profits which should never have been, were not going to be repaid by subsequent revenues which could not of been. The Runs on financial markets started, as what were Paper Profits began to disappear in mid-air. Now Everyone scrambles to repay what never truly existed, and never should have existed.
I find that Dean Baker basically agrees with myself over the financial crisis, though he might disagree with my assessment of the worthless nature of the Paper Profits engendered in the growth years of the Bush administration. One always has to wonder at an economy where the middleman fees are the fastest-growing segment of the economy. It is now the probable greatest impediment to economic growth in the economy through the attempted repayment of these fees, and policymakers need recognize that it is economically unsound to attempt protection of this Income, as well as being morally unsound, as Dean suggests. lgl