Polemics & Exchanges

On Bursting Bubbles

Greg Kaza (“Economic Liberty and American Manufacturing,” Views, January) is to be congratulated for seizing hold of two important realities: that the late 1990’s saw a financial bubble of historic proportions, the origins and implications of which are poorly understood; and that incomes for the median- and lower-wage earner, when adjusted for inflation, have seen little progress over the last three decades. 

Wage stagnation is something that, frankly, puzzles academic economists.  At the risk of appearing obsessed, I suspect that the impact of the extraordinary immigration over the last 30 years, unmentioned by Kaza, will ultimately prove greater than is currently believed.  (At the moment, academic economists generally accept only that it has affected the incomes of the unskilled, albeit substantially.)  The extraordinary strength of the American dollar, not mentioned directly by Kaza, has also made American exports more expensive and foreign imports cheaper.  It is hardly surprising that the auto industry has suffered—and, more generally, manufacturing wages with it.

But why has the U.S. dollar been so strong?  Markets do overshoot, sometimes for years.  But I have a horrible feeling that Kaza is right to point to the LTCM bailout—coupled, since his article appeared,...

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