Carpe Diem

Greenspan’s First Interview Tonight on 60 Minutes

(CBS) – Former Federal Reserve Chairman Alan Greenspan admits he “didn’t really get it” that the subprime lending trend was significant enough to hurt the economy until very late 2005, but still defends his lowering of interest rates from 2001 until 2004 that critics say caused the crisis in the first place.

Greenspan, who led the U.S. Federal Reserve Bank through 18 years and 4 presidents, speaks to 60 Minutes correspondent Lesley Stahl in his first major interview tonight (Sunday), at 7 p.m. EST.

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Outsourcing/”Nearshoring” Updates

1. Caribbean Call Centers Booming: “In a global search for low-cost customer service, AOL considered call centers in India and other hotspots – then settled on the tiny island of St. Lucia.

In choosing the Caribbean island, AOL – a unit of Time Warner Inc. – joined other U.S. companies that have made the region a new global hub for call centers.

Plunging communication costs, workers who relate easily to American customers and the region’s famed hospitality are attracting American corporations, boosting the work force in the “nearshore” service industry in the Caribbean.


Note: Typical wage in Jamaica, one of the leaders of Caribbean “nearshoring,” with about 14,000 employees in the sector: $2.75 to $3.20 an hour.

2. Outsourcing Britain’s elderly to India: “First jobs were outsourced from Britain to India. Next it was healthcare, with hundreds of Britons travelling to leading hospitals in Indian cities for surgical operations and other medical procedures. Now another aspect of healthcare may be outsourced to India — that of looking after some of Britain’s elderly or disabled.
The reason is the same — costs are much lower in India.”


(Thanks to Sanil Kori)

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Wages and Rupee Rising in India, Prices Up in China

1. NEW DELHI - Rising salaries for Indian software professionals will add to margin pressures at technology outsourcing companies in India, according to a survey released on Tuesday that showed wages rose an average of 18.7% this year.

The average annual salary for a software worker in India has risen to Rs620,000 ($15,500). The rise is slightly above the 18.3% salary increases recorded last year.

While salaries are still low compared with those of developed countries, margins at India’s information technology companies are also being squeezed by the appreciation of the rupee against the dollar. India’s biggest IT outsourcing firms generate most of their revenue from software exports to the US.

2. BEIJING – CONSUMERS in China’s cities have had it good for an unusually long time. During most of the past few years of double-digit economic growth, inflation—at least according to official figures—has been barely detectable. But data published this week show the biggest monthly rise in consumer prices for over ten years.

The latest figures were higher than many had expected. The National Bureau of Statistics said that consumer prices rose 6.5% in August compared with a year earlier, up from 5.6% in July.

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Biomedicine Revolution, Motivated By Profits

Last night on 20/20, Michael Moore praised government-controlled health care systems in Canada and Europe. He then called for “the elimination of all private profit-making companies in the health care industry” and suggests turning over all health-care spending in the U.S. to the government to provide “free” health care to everyone.

Before turning over the entire profit-making pharmaceutical industry to the government,
consider this fact:

“Looking at a broad range of pharmaceuticals, scholars at Tufts University examined all 284 new medicines approved in the U.S. in the 1990s. They found that 93% originated from the pharmaceutical industry, with 7% split between government and academic or nonprofit sources.”

In other words, it was the profit-making private sector that developed 264 out of 284 new medicines in the 1990s, and many are saving lives today. Without the profit motive, most of those drugs probably wouldn’t exist today.

And what can we expect in the future from the profit-making pharmaceutical industry?

Looking to the future, one can see the tremendous potential for the flow of pharmaceutical innovation to expand and accelerate. In terms of the science, we are now in the early stages of a revolution in biomedicine, an explosion of new knowledge that will translate into a whole host of new and better medicines. Yet, the business of finding these new medicines is risky and costly. No one is guaranteed to achieve the financial returns that encourage investment in pharmaceutical R&D. However, two important principles guarantee that such a return is possible: a market-based system of pricing, and intellectual property protection.

I don’t think Michael Moore understands the “
invisible hand.”
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99.9% of All Species Have Already Gone Extinct

From The Economist: “More species are under threat than ever before according to the World Conservation Union (see chart above). Its “Red List” gives warning that 16,306 species are now under threat of extinction, nearly 200 more than in 2005. This number has risen steadily since the first report in 1996.”

Before you get too concerned, consider this: “Since life first appeared on Earth some 3.8 billion years ago, it has been estimated that more than 99.9% of all species have gone extinct. Billions of species have gone extinct throughout geologic history. Many of these went extinct during mass extinction events, the most famous and well documented of which took place some sixty-four million years ago at the end of the Mesozoic Era. This mass extinction event marked the end of the reign of dinosaurs.”

And consider this from The Economist: “Nobody knows how many species occupy the planet. Most experts think 10 million is roughly correct, though they have only formally noted 1.4 million.”

Suppose that half of the 16,000 threatened species went extinct, a highly, highly unlikely event. That would be less than a 1/10 of 1% extinction rate, meaning that more than 99.9% of all existing species would surve.

Question 1: Wouldn’t a 0% extinction rate (100% survival rate) be undesirable because it would be too costly?

Question 2: Isn’t is true that the optimal number of extinct species is probably NOT zero, assuming that it is costly to save some species; just like the optimal amount of pollution is NOT zero, the optimal amount of traffics deaths is NOT zero, etc.?

I would say Yes to both. Like all other decisions, we need to weigh the costs and the benefits.

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Michael Moore vs. John Stossel

Watch a 5-minute preview of 20/20′s special tonight, a 5-minute debate between Michael Moore and John Stossel about Cuba’s health care system.

Note: When Moore compares life expectancy and infant mortality in Cuba to the U.S., he uses statistics provided by the Cuban government, and not subject to independent verification. It reminds me of the story about how the Soviet Union used to export wheat, but after the farms were collectived they reported 50 straight years of bad weather to explain why they stopped exporting….

(Thanks to Drew Suder.)

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John Stossel On Health Care: 20/20 and WSJ

On 20/20 tomorrow (Friday, Sept 14) night at 10 p.m. EST, John Stossel presents: “Whose Body Is It, Anyway?! Sick in America.” American Health Care in Critical Condition: The Case for Putting Individuals, Not Employers or Government, in Control of Health Care.

In today’s Wall Street Journal John Stossell writes: “Michael Moore thinks that profit is the enemy and government is the answer. The opposite is true. Profit is what has created the amazing scientific innovations that the U.S. offers to the world. If government takes over, innovation slows, health care is rationed, and spending is controlled by politicians more influenced by the sob story of the moment than by medical science.”

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It’s True: The Fed Has Already Cut Fed Funds to 5%

Greg Mankiw reports today on the Fed’s s “secret rate cut” to 5%, via Robert Barro. The graph above reflects the “effective daily Fed Funds rate” from the Federal Reserve and confirms what Barro is saying.

As Mankiw points out, the Fed was able to hit its target rate of 5.25% in every month since the Fed Funds target was increased from 5% to 5.25% on June 29, 2006. But in August, the average daily Fed Funds rate fell to 5.02% and so far this month the average is 4.99%. In fact, the effective Fed Funds rate has been below 5% on 8 out of the last 11 days, and has been below 4.9% on 3 out of the last 4 days.