Carpe Diem

Finnish Companies Outsource to India, Too

(CHENNAI)The global-giant handset-maker Nokia (NYSE:NOK) plans to make its Chennai manufacturing plant a major nerve center. Nokia said it plans to make its manufacturing plant in India, now the second-largest market for its handsets, a global hub for exports. Nokia already exports to 58 countries from the India plant, and it is looking at the Chennai as a global plant for global operations.

The world’s largest handset maker by volume also said India has already over taken the U.S. to emerge as the largest market for Nokia handsets after China.

India’s mobile market is one of the fastest growing in the world, fueled by low tariffs and rising middle-class incomes.

MP: Note that India has now surpassed the U.S. in cell phone sales, at least for #1 Nokia, and is second only to China globally. Just like the “baby boom generation” in the U.S. had a major impact as it matured and moved through the U.S. economy, the emerging “middle class boom” in India and China will have a major impact on the global economy as it grows and matures.

Quote: “The baby boomers are the rat that the snake swallowed. Through sheer numerical power, as it goes through the economy, the rat changes everything. If you have this big cohort, it changes all the institutions it goes through.”

Like the baby boomers in the U.S., the emerging middle classes in India and China will be the rats that change everything.

Carpe Diem

Cut Tax Rates, Increase Tax Revenues From High-Income Groups; Isn’t That a “Tax Hike for the Rich?”

The Shrinking Budget Deficit:

From today’s WSJ editorial:

The Congressional Budget Office reported yesterday that the famously fearsome budget deficit is plummeting almost as fast as Congress’s approval ratings (see top chart above, click to enlarge). The deficit this fiscal year is expected to be $158 billion, a meager 1.2% of GDP. Since the Bush tax cuts of 2003, the budget deficit has fallen by $217 billion mostly because of a continuing torrid pace of revenue growth.

More surprisingly, the richest 1%, 5% and 10% of the taxpayers are shouldering a larger percentage of the income tax burden at the federal level than the tax estimators said they would had the Bush tax cuts never materialized (see middle chart above).

With a few exceptions, tax rates in America have been steadily falling for the past 25 years starting with the Reagan tax cuts of 1981. When Ronald Reagan entered the Oval Office in 1981, the highest tax rates on income, capital gains and dividends were roughly twice as high as today. The top marginal income tax rate in 1981, for example, was 70% compared to 35% today. These tax rate reductions haven’t meant that the rich have escaped paying their “fair share” of taxes or that the burden has shifted to the middle class. The opposite has occurred. Over the past 25 years tax payments by the wealthy have continually risen almost in inverse proportion to the tax rates, as shown by the surprising results in the bottom chart above.

The supply-side revenue effects on the rich are remarkable: Tax rates on higher incomes have been halved, but the federal tax share of the top 1% has nearly doubled. And the budget deficit has fallen. That’s what happens when tax policy gets the incentives right.

Carpe Diem

More Affirmative Action: Fewer Black Attorneys and Fewer Black College Grads

From today’s WSJ, “Affirmative Action Backfires“: by Gail Heriot, professor of law at the University of San Diego and a member of the U.S. Commission on Civil Rights.

Three years ago, UCLA law professor Richard Sander published an explosive, fact-based study of the consequences of affirmative action in American law schools in the Stanford Law Review.

Easily the most startling conclusion of his research: Mr. Sander calculated that there are fewer black attorneys today than there would have been if law schools had practiced color-blind admissions — about 7.9% fewer by his reckoning. He identified the culprit as the practice of admitting minority students to schools for which they are inadequately prepared. In essence, they have been “matched” to the wrong school.

Mr. Sander’s original article noted that when elite law schools lower their academic standards in order to admit a more racially diverse class, schools one or two tiers down feel they must do the same. As a result, there is now a serious gap in academic credentials between minority and non-minority law students across the pecking order, with the average black student’s academic index more than two standard deviations below that of his average white classmate.

Not surprisingly, such a gap leads to problems. Students who attend schools where their academic credentials are substantially below those of their fellow students tend to perform poorly.

As a result, in elite law schools, 51.6% of black students had first-year grade point averages in the bottom 10% of their class as opposed to only 5.6% of white students. Nearly identical performance gaps existed at law schools at all levels. This much is uncontroversial.

Mr. Sander calculated that if law schools were to use color-blind admissions policies, fewer black law students would be admitted to law schools (3,182 students instead of 3,706), but since those who were admitted would be attending schools where they have a substantial likelihood of doing well, fewer would fail or drop out (403 vs. 670). In the end, more would pass the bar on their first try (1,859 vs. 1,567) and more would eventually pass the bar (2,150 vs. 1,981) than under the current system of race preferences. Obviously, these figures are just approximations, but they are troubling nonetheless.

Under current practices, only 45% of blacks who enter law school pass the bar on their first attempt as opposed to over 78% of whites. Even after multiple tries, only 57% of blacks succeed. The other 43% are often saddled with student debt, routinely running as high as $160,000, not counting undergraduate debt. How great an increase in the number of black attorneys is needed to justify these costs?

MP: One problem is that despite all of the potential problems from a “mismatch” between a law school’s academic standard and the academic abilities of minority students, law schools are under extreme pressure to enroll minorities to maintain accreditation and student-loan eligibility.

Some admissions officer may be frantic to enroll minority students in order to comply with the stringent new diversity standards of the American Bar Association Council on Legal Education and Admissions to the Bar. As the federal government’s accrediting agency for law schools, the ABA Council determines whether a law school will be eligible for the federal student-loan program. The law school that fails to satisfy its diversity requirements does so at its peril — as a number of law school deans can amply attest.

Decades of law students have relied upon the good faith of law school officials to tell them what they needed to know. For the 43% of black law students who never became lawyers, maybe that reliance was misplaced.

MP: Although the article above focuses on the “academic mismatch” problem at law school, the same analysis applies to university programs in general. The chart above (click to enlarge) shows data at the University of Michigan-Ann Arbor for undergraduate students, except for the last column on graduation rates, which is national data. The UM data (pre-Proposal 2) are from the Center for Equal Opportunity and clearly illustrate the mismatch problem:

A black student with a 3.2 high school GPA and 1210 SAT score has a 92% of admission to UM vs. only a 14% for a white student. However, 1) black students (45%) are almost 6 times as likely as white students (8%) to be on academic probation at UM, and 2) and almost 2/3 of black students (64%) fail to graduate nationally in 6 years, vs. 42% for white students.

Bottom Line: Eliminating affirmative action in higher education will elminate the “academic mismatch” problem, and increase minority students’ GPAs and graduation rates.

Read my article in “affirmative action grading” in the Detroit Free Press from last summer.

Carpe Diem

Homer’s Quotes Now Appear in Oxford Dictionary

“Kids are the best, Apu. You can teach them to hate the things you hate. And they practically raise themselves, what with the Internet and all.”

“Kids, you tried your best and you failed miserably. The lesson is never try.”

London, Aug 22: The famous Homer Simpson will now be giving words of wisdom in the Oxford Dictionary of Modern Quotations. So far, Homer is probably been best-known for one remarkably straight-to-the-point quote – “D’oh!,” but now, Matt Groening, the man behind world’s favourite cartoon series has 3 new entries in the latest volume of quotations from the experts at Oxford University (see 2 of the quotes above).

The yellow-headed hero has secured the honour of appearing alongside literary luminaries like Winston Churchill and Oscar Wilde.

(HT: Sanil Kori)

Carpe Diem

US (UK) Cancer Survival Highest (Lowest) in World

Despite Michael Moore’s glorification of British health care and the NHS in the movie “Sicko,” recent research shows that the cancer survival rates for men and women in the U.K. are the lowest in Europe, and significantly below the rates in the U.S. (see chart above, click to enlarge), which are the highest in the world.

From Britian’s Telegraph
: “Cancer survival rates in Britain are among the lowest in Europe, according to the most comprehensive analysis of the issue yet produced.

England is on a par with Poland despite the NHS spending three times more on health care.

Survival rates are based on the number of patients who are alive five years after diagnosis and researchers found that, for women, England was the fifth worst in a league of 22 countries. Scotland came bottom. Cancer experts blamed late diagnosis and long waiting lines.”

Carpe Diem

Health Care: From Canada’s #3 City to US’s #356

Chances of having identical quadruplets:
1 in 13 million.

Chances of having 4 neonatal intensive-care beds available in Canada’s 3rd largest city:
Not very good.

Chances of having 4 neonatal intensive-care beds available in America’s 356th largest city:

On Aug. 12, Karen Jepp gave birth to identical quadruplets in Great Falls, Mont. The mother of this one-in-13 million event isn’t a Montana resident, however. She’s a Canadian. She and her husband were sent from Calgary, Alberta (population 1 million-plus), to Great Falls (
pop. 57,000) to deliver the children because, the Calgary Herald reports, “no Canadian hospital had enough neonatal intensive-care beds for all four babies.”

From the
third-largest city in Canada to a smallish American city (ranked #356 in the U.S., in a state with fewer people than Calgary). This speaks well of Canadian health care? Jepp is the fifth Alberta mother who had to travel to the U.S. this year to give birth because of the neonatal shortages in Calgary.

Incidentally, all four daughters are alive and healthy — uncommon in multiple births. We shudder to think how they’d have fared in Canada or Great Britain, let alone Cuba.
Carpe Diem

China’s Bull Market

SHANGHAI (Reuters)China’s main stock index climbed for the first time above the 5,000-point level on Thursday, passing another milestone in a spectacular bull run that has more than quadrupled the index since the start of last year, and doubled this year (see chart above, click to enlarge).

The rise was greeted with euphoria by Chinese investors, millions of whom have flooded into the stock market for the first time this year in one of history’s fastest shifts of money into equities.

From the Wall Street Journal’s report:

China’s benchmark Shanghai Composite Index topped 5000 points for the first time Thursday, the latest sign of unwavering confidence in stocks by the investing public of the world’s most populous nation.

Within minutes of the start of trading in China, the Shanghai Composite Index was quoted at 5025, up 0.9%. The 5000 level marks a nearly quadrupling since the index bottomed at an eight-year low of 1011.50 in July 2005.

Only last November, the Shanghai index pulled above 2000 for the first time, followed by 3000 in March and 4000 in May.

Carpe Diem

Immigrant Entrepreneurs and Foreign-Born CEOs

Russian immigrant Sergey Brin, co-founder of Google:
From a recent Forbes article:

According to the National Venture Capital Association, immigrants make up only 11.7% of the U.S. population, but have started one in four of all U.S. public companies that have been venture-backed over the past 15 years, including Intel, Google, Yahoo!, Sun and eBay.

A similar study from Duke University showed immigrants were responsible for starting 25.3% of all new, high-technology businesses in the U.S. during the past 10 years. The greatest percentage of these entrepreneurs hailed from India (26%), followed by immigrants from the U.K., China and Taiwan.

Watch a slide show of Famous Immigrant Entrepreneurs from Forbes.

Daniel Gross at has two recent columns on immigrant CEOs of U.S. companies, like Alcoa, Pepsi, Coke, Dow Chemical, Intel, McDonald’s, Kellog, Eli Lily, and AIG.

From “Send Us Your Tired, Your Poor, Your Business Executives: Why are big American companies hiring foreign-born CEOs?”:

In many ways, this trend makes complete sense. Big American businesses—like Alcoa, Pepsi, Coke, and AIG—are already global businesses. Based on data from 238 members of the Standard & Poor’s 500 Index, S&P analyst Howard Silverblatt found that the typical member of the index generated 44.2% of its sales outside the United States in 2006. And the bigger the company—and the more it has saturated the U.S. market—the more important it is to have a CEO who is comfortable operating around the world.

From Senor CEO:

The trend also shows that the benefits of immigration to the U.S. economy derive not just from the way newcomers flood the low end of the workforce, but also from the way newcomers transition easily into, or work their way up to, the high end. American corporations—like American society at large—have demonstrated a far greater ability to assimilate newcomers than many other developed economies. (It would be difficult to find many non-native CEOs at blue-chip companies in France, Germany, or Japan.)

Carpe Diem

Low-Income Homeownership Boom Goes Bust

Question: Is homeownership a social blessing that should be encouraged with subsidies and public policy?

Answer: According to politicians and the voters who elect them, the answer has been “Yes.”

For example, we’ve had tax subsidies, lending subsidies and a concerted set of government policies to move low-income people out of rental units and into homeownership. The government’s goal was to lift the homeownership rate from 64.2% to 67.5% of households, and that goal was achieved. It all sounds good to help low-income groups achieve the “American dream of homeownerhsip,” but we are now in a “payback” period for misguided policies that encouraged low-income renters with low-quality credit to buy homes with low down payments and sub-prime loans, often with adjustable rates.

And have higher rates of homeownership actually benefited low-income groups? Apparently not as much as we once thought. From today’s Wall Street Journal article “Payback“:

Of low-income households from a nationally representative sample who became homeowners between 1977 and 1993, fully 36% returned to renting in two years, and 53% in five years. Suggesting their sojourn among the homeowning was not a happy one, few returned to homeownership in later years.

Even among those who held on to their homes for 10 years, the average price-appreciation gain was 30% — less than if their money had been invested in Treasury bills. This meager capital gain was about half that enjoyed by middle-income homeowners.

A typical low-income household might spend half the family income on mortgage costs, leaving less money for a rainy day or investing in education. Their less-marketable homes apparently also tended to tie them down, making them less likely to relocate for a job.

And the mortgage-interest deduction, won’t turn a house into a paying proposition for those with little income to shelter.

Bottom line: Homeownership likely has had an exceedingly poor payoff for millions of low-income purchasers, perhaps even blighting the prospects of what might otherwise be upwardly mobile families.