Carpe Diem

Economics of Outsourcing: MN Goes Global

BANGALORE, INDIAMinnesota Gov. Tim Pawlenty’s trade trip took a welcome turn today, as the governor learned that Indian firm Essar Global has officially closed on its acquisition of Minnesota Steel Industries and will proceed with plans to build a $1.6 billion taconite-to-steel mill on the Iron Range.

News of the historic deal filtered to the trade mission staffers as they toured the massive campus of the software firm Wipro here, in an area known as Electronic City.

Wipro is “considering increasing the number of jobs in Minnesota and perhaps putting a production development or a training center in Minnesota. So we are going to continue to have dialogue with them about that,” Pawlenty said. Wipro currently has 1,600 workers in Minnesota, generating about $100 million in annual revenues from work done in the state.

Wipro does sizeable business with several of the companies represented on the trade mission, including 3M, IBM, and Best Buy, as well as Northwest Airlines and Target Corp, Banerjee told the trade delegates.

Bottom Line: Trade works both ways. Outsourcing from the U.S. TO India provides Indian companies with the dollars and resources to invest IN the U.S., like this deal.

This will be one of the largest investments in the state. If you look at a $1.6 billion investment in Northern Minnesota, this is certainly one of the largest investments in a very long time,” Pawlenty said.

It’s very likely that without outsourcing TO India over the last decade, this investment of $1.6 billion in MN would have never happened. Lou Dobbs, listen up.

(HT: JJ Howe)

Carpe Diem

DEA Failed, But Weak $ Raises Price of Cocaine?

REUTERS (May 8, 2007)Billions of dollars in aid to Colombia have failed to drive up the price of cocaine on American streets, according to the head of the top U.S. anti-narcotics agency.

Officials in Washington have said crop spraying and military pressure on drug-smuggling guerrillas and paramilitaries would make cocaine more expensive in the United States following a U.S.-backed offensive launched in 2000.

But the Drug Enforcement Administration’s chief said that a higher price — a key indicator of success in the war on drugs — had failed to sustain itself for long.

According to this report by the Drug Enforcement Administration (DEA), wholesale cocaine prices increased 11% in the U.S. between January and June 2007 from from $20.85 to $23.04 per gram, and retail prices increased 15% from $145.42 to $166.90 per gram of pure cocaine during the same period.

The DEA concludes “Cocaine availability in the United States has fallen significantly, as indicated by an increase in the price per pure gram since December 2006.”

Before the DEA takes too much credit for “winning the War on Drugs,” and making cocaine less available, it might also consider that the significant decline in the value of the dollar vs. the Colobmian peso might be playing a role in rising dollar prices for cocaine. For example, the graph above indicates that the dollar fell by 27% from the fall of 2006 to the summer of 2007, and by 13% during the first half of 2007, the exact period that the DEA reported a 11-15% decrease in the dollar price of cocaine in the U.S.

Apparently the weak dollar might have done more to raise cocaine prices than the billions of dollars spent by the DEA.

And for an analysis of why rising cocaine prices might actually make the drug problem worse (increased violence, users switching from powder to crack cocaine, or from cocaine to cheaper meth, increased drug trafficking because of higher prices, etc.), not better,
read this.
Carpe Diem

The U.S. Middle-Class is Alive and Well

From “The Myth of Middle-Class Job Loss” in today’s WSJ:

The assertion that the American middle-class is disappearing along with manufacturing jobs is, put simply, based on an outdated view of how the economy operates, and is empirically wrong.

Here’s the bottom line: For three-quarters of the workforce (women and the top half of male earners), economic growth (since 1979) translated into earnings gains. But for male workers in the bottom half of the earnings distribution, the decline of unionized manufacturing employment has led to the drying up of some middle-class jobs for those with no post-secondary education.

For the clear majority of the workforce, then, the job market has become more welcoming, not less so.

Carpe Diem

MN Governor Goes Global, Columnist Doesn’t Get It

1. NEW DELHI - Minnesota Governor Tim Pawlenty (pictured above) made history today by signing India’s first sister-state agreement, tying Minnesota to the Indian state of Haryana, the most prosperous section of the country.

The Minnesota delegation is on the way to Bangalore and will meet with Minnesota companies already doing business in India, such as General Mills, ADC Telecommunications, IBM and 3M.

2. Meanwhile, back in Minnesota, popular StarTribune columnist Nick Coleman isn’t quite so global-minded about Minnesota’s participation in the global economy, and is actually fretting over 15 new Ford F-150 trucks that were “imported” to Minneapolis from Colorado by Flatiron Constructors, the company building the new I-35W bridge over the Mississippi River near downtown Minneapolis. And I’m not making it up, he actually uses the term “imported” in his column today “
I-35W Bridge is Local, But New Flatiron Trucks Are Imported.”

MP: Actually, Ford F-150 pickup trucks are built in Kansas City, Norfolk, Detroit and Louisville, and would have therefore been “imported” from Missouri, Virginia, Michigan or Kentucky to Colorado, before being “imported” to Minnesota from Colorado.
Carpe Diem

CSM: Halt the Gold Rush to Corn Fuel

The Christian Science Monitor joins the NYTimes, WSJ, IBD and Rollingstone Magazine and comes out today against corn ethanol, the “state religion”:

Corn. There’s nothing like eating it right off the cob at a picnic. It’s also great as flakes, fritters, or a muffin. And it’s feed for livestock. But there’s one thing corn should not be: A solution for global warming or a way to reduce America’s dependency on foreign oil. To take corn out of cereal bowls and put it into our gas tanks isn’t an answer to global warming.

Carpe Diem

India’s Global Reach; Its “Carpe Diem” Moment

From Fortune Magazine’s article “India’s Global Reach“:

Once sheltered from overseas competition by a government fearful of foreign domination, Indian companies now are building global empires with impressive speed, ramping up exports, striking cross-border corporate alliances, snapping up firms in the U.S., Europe, and emerging markets, and attracting billions in foreign portfolio capital to India.

India’s largest IT-services companies, which count on foreign customers for more than 90% of sales, remain at the vanguard of India’s outward expansion. In little more than a decade, firms like Wipro, Infosys Technologies, and Tata Consultancy Services have evolved from niche players handling basic debugging projects for foreign multinationals into giants in their own right, with operations in every major foreign market, tens of thousands of employees, and equity valuations in the tens of billions of dollars.

From the same issue of Fortune, an article “Google Goes To India“:

Google’s experiment in replicating its Silicon Valley workplace indulgences and luring back the Indian talent that helped fuel the dot-com boom in the U.S. is a deliberate strategy. This is not outsourcing in the usual sense of seeking cheaper labor. Rather, it’s a brain drain in reverse.

Google chose Bangalore in 2004 as the site of its first R&D center outside the U.S., says Sukhinder Singh Cassidy, who heads Google’s Asia operations from the company’s Mountain View, Calif., headquarters, in part “because so many Googlers who are Indian want to move back to India and participate in India’s growth.”

There may be no Chinese or Russians in these offices. But there is a wide range of diversity nonetheless. These Googlers aren’t just Indians. They’re Sikhs, Hindus, Muslims, Buddhists, Christians, and Jains. As the cream of India’s talent crop, they speak English, but they also speak Hindi, Tamil, Bengali, Telugu, and several more of India’s 22 officially recognized languages. “In the U.S., because you live in a fairly segregated society, you have to do something explicit to build diversity,” Ram says. “We don’t.”

MP: It’s “Carpe Diem” time in India.

Carpe Diem

The “Silver Tsunami” of Retiring Baby Boomers

WASHINGTON (Reuters)Retired school teacher Kathleen Casey-Kirschling on October 15 became the first ripple in a “silver tsunami” of retiring baby boomers applying for pension benefits that threatens to overwhelm U.S. government finances.

Casey-Kirschling was born one second after midnight on January 1, 1946, and will receive her first Social Security check in February 2008 as the first wave of baby boomers turns 62 next year and becomes eligible for early retirement benefits.

Social Security Commissioner Michael Astrue said the agency is bracing for some 80 million Americans to apply for retirement benefits over the next two decades.

The unsustainable pyramid/Ponzi scheme is starting to crumble…
Carpe Diem

A Lesson in Lower Healthcare Costs from the UK?

Here’s something the U.S. can learn from the U.K. about lowering healthcare costs, improving efficiency and increasing access:

Allow pharmacists to dispense certain drugs without a prescription from a physician? The Food and Drug Administration is inviting comment on just such a proposal. The idea is to add a new class of “behind the counter” drugs that consumers could buy after consultation with a pharmacist.

Other countries, including Britain, already use this system to dispense drugs that do not require sophisticated diagnosis and prescription.

Continue reading here.

Carpe Diem

Inconvenient Truth: Global Warming Saves Lives

Global warming was blamed for 35,000 deaths in Europe’s August 2003 heat wave. Cold, however, has caused 25,000 deaths a year recently in England and Wales–47,000 in each winter from 1998 to 2000. In Europe, cold kills more than seven times as many as heat does. Worldwide, moderate warming will, on balance, save more lives than it will cost–by a 9-to-1 ratio in China and India. So, if substantially cutting carbon dioxide reverses warming, that will mean a large net loss of life globally.

~From George Will’s Column “An Inconvenient Price

George Will applies some common sense, solid economic thinking, and cost-benefit analysis to global warming, and concludes that efforts to battle global warming by reducing human greenhouse gas emissions, such as those endorsed by Al Gore, could probably be accomplished, but at what price? Probably at a very costly and inconvenient price far greater than any benefits.

Will concludes “If nations concert to impose antiwarming measures commensurate with the hyperbole about the danger, the damage to global economic growth could cause in this century more preventable death and suffering than was caused in the last century by Hitler, Stalin, Mao and Pol Pot combined. Nobel Peace Prize, indeed.”