To follow up on my earlier comment, there is more evidence that Microsoft is the winner when it comes to Android. This time it expands to Chrome OS.

Earlier in the week Microsoft announced that it signed a similar deal with Onkyo on Android patents. Microsoft is on a roll.

Online ad spending is on the way up, with Facebook leading the surge ( no surprise there). However, surprising figure in the mix is the growth share of Microsoft ( current and projected)

This is about as level headed Krugman is going to get. While he indulges in usual name calling his intellectual opponents, it is a lot more mellowed than it on his own blog. I have not watched to the Q&A session.

This article in WSJ came to my attention because of this remark by Prof. Robert Gordon:

Taken together many economists agree on how this recovery stacks up: “It is the worst, no question about it,” says Robert Gordon, a Northwestern University professor and a member of the National Bureau of Economic Research’s business cycle dating committee, which is widely considered the official arbiter of the beginning and end of recessions. His colleague, Stanford professor Robert Hall, who runs the committee, says it’s “absolutely right” that this is the worst recovery yet.

Macroeconomics by Robert Gordon happens to be the text book used for the Macroeconomics course I am taking this summer.

Update:

Texas creates 4 out of every 10 U.S jobs. Numbers are real says LA times.

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Having spent all my childhood and education upto my undergrad in India, I have personally seen the tragedy of the mixed economy experiment in that country. In those days, it was taken as a given that the only way for India to progress was for it to take the diktat from an “elite” group of planners who “knew” what was better for every one else. It is always refreshing to know that there were dissenters who decried the social injustice and economic misery wreaked on the nation by the “do gooders”.

link here:

Many prominent representatives of that orthodoxy regularly visited India in the 1950s and 60s. The visitors included Gunnar Myrdal, Joan Robinson, Nicholas Kaldor, Thomas Balogh, Ian Little, Oscar Lange, Paul Streeten, and others. Most of these representatives of the prevailing orthodoxy endorsed the Second Five Year Plan in public pronouncements in India and in prestigious and influential publications in the West, such as the Economic Journal or the Review of the British National Institute for Economic Research

I had read elsewhere that daddy Galbraith was advising the Indian planners while they wreaked havoc on the populace, but this list above  reads like a who’s who of Keynesian economics.

Couple of days ago, on my Facebook wall, I said the following in response to a friend when he posted a link to Google’s + announcement:

‎Ruben, it is very interesting. I read that elsewhere this morning. Facebook is too entrenched to be dislodged easily, but a little more competition is always helpful. I am pretty sure skype is coming to facebook.

if it feels like something people really like, facebook can respond very quickly.

That was precient, here is why:

Earlier this week while visiting Seattle, Facebook CEO Mark Zuckerberg tipped off Seattle press that the company would be launching an “awesome” new product next week that has been built by Facebook’s Seattle team.

The product has been built on Skype and will include a desktop component. It’s not clear to me whether that means it will just work if a user has Skype already installed on the computer, or if additional software will need to be downloaded even if the user already uses Skype. But it’s clear that there’s very deep integration between the products, and from the user’s perspective, the product will be an in browser experience.

I think I should apply for a psychic license. What do you say?

Apple Led Group to Buy Nortel Patents:

Apple Inc. (AAPL) joined with rivals Microsoft Corp. (MSFT) and Research in Motion Ltd. (RIM) to outbid Google Inc. (GOOG) for a patent portfolio from Nortel Networks Corp. and gain rights to technologies for mobile phones and tablet computers.

The group, which also includes Sony Corp. (6758), Ericsson AB and EMC Corp., agreed to pay $4.5 billion in cash for the assets, Ontario-based Nortel said in a statement. The companies aim to complete the sale this quarter pending approval from U.S. and Canadian courts, it said.

So who is the loser in this War?

The winning offer came after several rounds of bidding and was five times the $900 million Google had offered before the auction for Nortel’s remaining intellectual property.

What was Google’s response?

“This outcome is disappointing for anyone who believes that open innovation benefits users and promotes creativity and competition,” Mountain View, California-based Google said in an e-mail. “We will keep working to reduce the current flood of patent litigation that hurts both innovators and consumers.”

Although I am very sympathetic to this view, I see double standards here from Google. Are they really open about innovation in areas that really matters to them as a company? Will they open source their search algorithm?

Prof. Bob Higgs has a very interesting article that tries to unravel the puzzle of “Hyperinflation” or the lack thereof. Here is the most interesting part of the article.

The preceding combination of events poses a great challenge to economic analysts. How can we explain that the fantastically enormous explosion of bank reserves has not given rise to bank lending that would greatly expand the money stock and thereby drive up prices in general?

The most obvious answer, of course, is that the banks are simply sitting on the reserves, rather than lending them to customers. And why are they doing so? The usual answer is that since late 2008, the Fed has paid the banks a rate of interest on their reserves at the Fed. This interest rate has recently been in the range 0-0.25 percent. Although this is not nothing, it verges very closely on nothing. And if one notes that the purchasing power of money has fallen at least a bit, it is clear that the banks are realizing a negative real rate of return on their holdings of excess reserves at the Fed.

Moreover, they are doing so notwithstanding that they appear to have the option of lending at 3.25 percent to their best corporate customers and at higher rates to their less creditworthy customers. Why are they forgoing the opportunity to earn huge sums by switching out of excess reserves at the Fed into commercial loans and investments? The answer would seem to be that that are so frightened of the risk associated even with loans to their best customers that they are loath to lend. After some volatility up and down and then up again between the summer of 2008 and early 2010, total loans and investments of all commercial banks have settled for more than a year at a level only about 2 percent greater than their level at the beginning of 2008. This increase of about $200 billion amounts to only a small fraction, about 13 percent, of the increase in their excess-reserve balance at the Fed during the same period.

I think this analysis completely misses the point. Let’s take a look at the bank capital requirements for various types of loans.

Cash and equivalents weight = 0
Government securities weight = 0
Interbank loans weight = 0.20
Mortgage loans weight = 0.5
Ordinary loans: weight = 1.0
Standby letters of credit weight = 1.0

You will see that Cash and equivalents have a capital requirement of zero, whereas for ordinary loans and letters of credit requirement is 100%.

So for a Bank of Bailout that issues corporate loan at the rate of 3.25% to Too Big to Fail Inc.  has to keep 100% of that loan as reserve capital. If BoB loans out $100,000 to TBF Inc, therefore earns $3250 in interest that year, ROE = 3250/100,000 = 3.25%. This is assuming, cost of capital is 0%, which I think is a reasonable assumption because they can borrow at 0% from the fed.

Now what happens if BoB lends this $100,000 borrowed from the Fed at 0% and lends it to another bank at 1 year LIBOR rate of 0.73%. Bank is required to keep 20% in reserves, or $20,000. What would be the ROE in this case? 730/20,000 = 3.65%. A better return than lending to ABC corporation.

What if the bank lends this $100,000 right back to the Fed? It earns $250 from the lending and it still has the $100,000 dollars that it would have had to keep in equity(reserves) if it had lent it to TBF Inc. Equity for this type of loan is 0%, therefore ROE is infinite. This is why Banks have no incentive to lend to TBF Inc.

Our tribal forefathers blamed devastation wreaked by nature on the wrath of God. They found it necessary to do “something” to mollify the angry forces – which often meant sacrificing birds, animals, or even human beings to those Gods. Keynesian economics is the modern day equivalent of such bloodletting in the name of doing something.

Keynesians assert that digging ditches, breaking windows, and fighting wars create prosperity.

Android is turning out to be an extremely lucrative proposition, ironically, not for Google but for Microsoft.

I have not dived into the Google’s last 10-Q filing, but I would surprised if they are making any serious money from Android business. The OS itself is distributed free of cost to the handset maker. The way Google could potentially make money is through App sales and advertising. Google could expand mobile advertising without expending tremendous resources on a mobile OS platform that is distributed free of cost. Moreover, Android is not necessarily locked into Google’s marketplace. Recently Amazon had launched a competing Android apps store.

But how does Microsoft make money from Android?

Android apparently violates several mobile patents held by Microsoft. Since Android is open sourced and distributed for free, Microsoft has chosen to pursue the handset makers in litigation battles. The first major handset maker to succumb to pressure from Microsoft was HTC. Now it seems, others will follow soon – starting with General Dynamics Itronix.

Microsoft Corp. and General Dynamics Itronix have signed a patent agreement that provides broad coverage under Microsoft’s patent portfolio for General Dynamics Itronix devices running the Android platform. Although the contents of the agreement have not been disclosed, the parties indicate that Microsoft will receive royalties from General Dynamics Itronix under the agreement.

“We are pleased to have reached this agreement with General Dynamics Itronix, which is an example of how industry leaders address intellectual property,” said Horacio Gutierrez, corporate vice president and deputy general counsel of Intellectual Property and Licensing at Microsoft.

According to some reports, HTC pays $5 for every handset sold to Microsoft. Not sure how much General Dynamics Itronix will pay.

Update June 29, 2011:

Well, Android is throwing more money at Microsoft. Here is the latest:

Microsoft Corp. and Velocity Micro, Inc., have signed a patent agreement that provides broad coverage under Microsoft’s patent portfolio for Velocity Micro Inc. Android-based devices, including Velocity Micro, Inc.’s Cruz™ Tablet. Although the contents of the agreement have not been disclosed, the parties indicate that Microsoft will receive royalties from Velocity Micro, Inc., under the agreement.

 

Reviewers who got early access to mango update for Windows Phone 7 have great things to say about its features, usability, emotional appeal etc. Here is Katherine Boehret of the WSJ on Mango:

The operating system is a mix of elegance and whimsy that’s a treat to use. Mango is sprinkled with delightful animations on nearly every screen. These include icons that swing out like tiny doors when selected, and little dots that race across the top of the screen when something is loading onto the phone. The result is a playful yet functional interface.

I planned to write a blog on some possible improvements that could be done to the WP7 user experience. Hopefully I will find time soon. In the mean time, here is Joe Belfiore demonstrating some of the features of Mango.

Update:

From CNet – Five thing we love about mango.

Update 2:

From Engadget -

Make no mistake, Microsoft isn’t playing coy in the smartphone market any longer. The folks in Redmond are making a significant jump forward in the mobile arena, announcing that the upcoming version of Windows Phone, codenamed “Mango,” will be heading to a device near you in time for the holidays. As its competitors have raised the bar of expectations to a much higher level, Microsoft followed suit by adding at least 500 features to its mobile investment, which the company hopes will plug all of the gaping holes the first two versions left open.