The telecommunications regulator, Ofcom, has ruled that BSkyB must make two of its premier sports channels (Sky Sports 1 and Sky Sports 2) available to other distributors of television services at a reduced price. The regulator's concern is that BSkyB is abusing its monopoly position as a broadcaster of premier sports events.

In fact there is some competition. ESPN (another pay-TV operator) has the rights to certain premiership football matches, while other football competitions are broadcast by BBC, ITV and Channel 5. A reasonable amount of rugby is broadcast by BBC. Cricket's superb IPL competition is broadcast by ITV. The Hotbird satellite carries a huge amount of European sport free to air. But there is nonetheless widespread feeling that Sky does some cherry-picking. In this, Sky are supported by the sports bodies that themselves benefit from the broadcaster's financial clout.

Pricing in broadcasting is tricky. The general principle that welfare is maximised when price is set at marginal cost cannot be applied here - at least not without some modification. The marginal cost associated with a new subscriber is (virtually) nothing. If the subscription price were set at nothing, the broadcaster would receive no revenues and would not produce anything - unless, along the lines of a public service broadcaster, it were subsidised. So rules that are inevitably somewhat ad hoc have to take the place of general economic principles.

What, then, are the issues that need to be considered? The sports bodies gain from higher prices - up to a point. Much of the resultant surplus, ultimately, goes into athletes' pay. Likewise BSkyB benefits in terms of higher profits from the higher prices which, after all, it chooses to charge. Telecommunications firms that buy access to the premium sports channel in order to sell on to consumers would, however, benefit from lower charges, since this makes their package more attractive. Likewise, consumers would benefit from lower charges. Any consideration of the price that is best for society as a whole involves balancing these competing interests.

But the key is this: there are doubtless many consumers who would be willing to pay something for premium sport but who are not willing to pay current prices. If BSkyB could offer them discounted prices without alienating its current customer base, it would do so. The status quo is therefore inefficient because trades that ought to be made are not being made. This is what we call market failure, and such a situation is precisely what regulation is there to sort out.

An interesting article by Joseph Stiglitz argues against premature cutting of the budget deficit. Stiglitz suggests that 'prospects of a robust recovery are, at best, year or two away' and that at this stage 'reducing governemnt spending is a risk not worth taking'.

He notes that there is a difference between different types of expenditure, and that investment spending (on education, for instance) can lead to reductions in the budget deficit in future years. He also notes - and here is a crucial point - that the 'risks (associated with different policies on the budget deficit) are asymmetric: if these forecasts are wrong, and there is a more robust recovery, then, of course, expenditures can be cut back and/or taxes increased'.

Interestingly, Stiglitz makes specific comment on the UK: 'The UK's weaker performance is not the result of worse policies; indeed, compared to the US, its bank bailouts and labor market policies were, in many ways, far better.'

Barry Eichengreen and Kevin O'Rourke have been keeping tabs on the recession that started in 2008, comparing it with the Great Depression. Their early analyses suggested that the paths of the two events looked alarmingly similar. Their most recent update, available here, suggests that the global economy has pulled out of recession and that the pattern of economic activity now looks very different from that observed in the late 1920s and early 1930s.

Eichengreen and O'Rourke argue that 'policy deserves considerable credit' for the recovery. Moreover, they note that 'considerable excess capacity remains in a number of important economies. Exiting now from policies of stimulus in those countries would therefore be premature.'

The Association of Graduate Recruiters has published a new 'manifesto' for graduate recruitment. Its calls to action include the abolishment of the 50% target age participation rate for higher education, and a lifting of the cap on undergraduate tuition fees.

The manifesto has met with a mixed response, and has been criticised by both unions and government - not least because these groups see the economy as dependent on high skills, and so they support the 50% target.

A further recommendation in the manifesto is that tax breaks should be introduced for the employers of new graduates. The case is not well argued. Breaks given to employers conditional on the adoption of certain recruitment practices have often backfired, with employers shedding labour of other kinds in order to increase their hiring of the subsidised type of labour.

The headline in today's Times states that the 'shock deficit threatens UK recovery'.

On the same day, more than 60 economists have signed letters published in the Financial Times, arguing that moves to reduce the deficit should not be rushed since this would risk a return to recession.

The deficit (that is, borrowing over the year) is large, but the debt (the sum of deficits accumulated over the years) is not. For sure the deficit needs to be tackled sometime soon, otherwise the debt will grow, and ultimately servicing that debt would become a problem. But, in comparison with many other countries, the UK has started out from a good place.

Ponder for a moment why the deficit has grown. National income has declined by over 6% during this recession. During normal times, it grows by an average of about 2.5% per year, so national income is now around 10% lower than it would be had we experienced trend rates of growth over the last couple of years. As national income falls, tax revenues to government automatically fall. This fall has been of the order of £45-50 billion. At the same time, government spending on benefits automatically rise as the recession takes hold. Add to this a variety of special measures that have been taken, and which are time limited - the cut in VAT, the preponing of major construction projects and so on. This all suggests that a substantial proportion of the budget deficit is due to the recession (automatic stabilisation policy) and to deliberate attempts to minimise the impact of that recession (discretionary stabilisation policy). The deficit is there, in large measure, precisely to bring about UK recovery - not to threaten it.

This means that the Times headline is 'through the looking glass' economics.

For sure, books need to balance over the long term. The best thing to do to bring that balance about is to support the recovery. Once the recovery is properly under way, public sector cuts will be needed, and those cuts will hurt. The patient needs to be strong enough to take the medicine. Supporting the recovery calls for careful treatment, not knee-jerk reaction.

The CPI inflation rate rose to 3.5% in January. Since this is above the 3% threshold, the Governor of the Bank of England must write a letter of explanation to the Chancellor of the Exchequer. He should not find this task too daunting. The rate of VAT rose back to 17.5% in January following its temporary reduction to 15%. As a result, for the next 12 months, the headline inflation figure will be artificially high.

Far from inflation and overheating, the threat that the UK economy continues to face comes from a recovery that is, as yet, still very weak. The danger of a return to recession is a real threat, and the temporary blip in inflation should not serve to disguise that fact.

A letter in today's Sunday Times, written by a group of eminent economists, argues for early implementation of government spending cuts. I was a signatory to an earlier letter in the Financial Times that argued the opposite. What should we believe?

There is, for sure, a substantial government budget deficit - currently around £140 billion over a year. A significant part, somewhat more than a half, of this is due to the operation of so-called automatic stabilisers - the tendency for tax revenues to fall, and government spending to rise, during a recession. More is due to the deliberate rescheduling of government spending on projects - bringing them forward so that the economy can benefit from an early injection of spending. This being so, the public finances can be expected, in some measure, to 'rise with the tide' as the economy recovers.

Nonetheless, there will be a need for substantial cuts - nobody disputes that the structural budget deficit is indeed large. Timing is of the essence. While the economy remains fragile, cuts will be premature. Yet confidence in the public sector's ability to manage its debt depends critically on a credible plan being put in place. What is needed quickly is the promise of such a plan; the cuts themselves should wait a while until the recovery is more secure. If we can achieve growth of 1.5% this year, then there will be scope.

Sir Michael Marmot's review on health inequalities in the UK has just been published. The inequalities that are highlighted are startling, and in themselves call for action.

One of the review's proposals refers to the minimum wage. The review cites work by which argues that a full-time worker on the minimum wage enjoys earnings that are insufficient to meet public expectations of an 'acceptable minimum standard of living'. It then argues for 'the coordination of social support, tax systems and minimum wage levels necessary to enable full implementation of minimum income for healthy living standards'.

This raises several issues. First, the link between the minimum wage and household incomes is tenuous. Workers who receive the minimum wage are not necessarily the chief income earners of a household. Even if they are, they may be in minimum wage employment for short spells in between longer spells of more remunerative work. Many workers who receive minimum wages work part-time. In many cases, young people work in jobs paying the minimum wage, either on a part-time basis or while they are searching for better jobs elsewhere. Put simply, the minimum wage is a blunt instrument in targeting poverty.

Where the chief income earner in a household is being paid minimum wages, for sure the income of the household is low. But the support of households in this position is not limited to the minimum wage - benefits, based on household income, kick in. These benefits are far better at targeting poverty.

Raising the minimum wage can of course help some people in poorly remunerated jobs; that's what they're there for. But it also raises the price of labour for employers. Under some circumstances this is no bad thing - it can prevent exploitation of workers in a situation where the employer has a lot of market power. But substantially to raise the minimum wage during tough economic times would most likely have deleterious effects on employment. It is a policy that would hurt the very people that Marmot is seeking to protect.

So that's that then. The UK has emerged out of recession, with growth of 0.1% in the last quarter of last year. This is not a spectacular bounce back, and the receovery is set to be fragile for some time to come. The restoration of VAT to 17.5% at the start of this year may have led some people to prepone major purchases, so there could be a downward blip in demand during the current quarter. And while political considerations have delayed the announcement of savage public expenditure cuts (and - given that the patient is still in intensive care - that is probably just as well), such cuts will surely come.

While the unemployment rate fell last month, this was surprising. Over the longer term, expect the economy to have to grow by 2-2.5% per year before seeing a sustained decline in unemployment. In light of the pressure on public finances, it could well be another two years, at least, before this is achieved.

We're out of recession, but not out of the woods.

A letter appears in today's Financial Times from 12 economists, urging the Chancellor of the Exchequer not to rush to cut government spending. I am one of the signatories.

To be sure, the government's budget deficit has risen alarmingly over the last couple of years. It has needed to do so in order to mitigate the effects of recession. And it has, beyond doubt, reached levels that, at around 15% of Gross Domestic Product, are not sustainable in the long term. But we should not forget that the deficit is a flow measure - it represents the gap between government spending and tax revenues in just one year. If we live beyond our means year after year, then that is not good; but if we save in some years in order to spend in difficult times, then that is not bad. At the moment, things are difficult, and thanks to some fairly prudent housekeeping in years gone by (not as prudent as it might have been perhaps - but still prudent enough) the national debt - the relevant stock measure - remains fairly modest. To be precise, the national debt in the UK (according to the latest OECD estimates) amounts to around 75% of Gross Domestic Product - less than that in the Euro area, less than that in the United States, and considerably less than that in Japan.

The government will need to tackle the budget deficit at some stage, and it should not wait too long before doing so. But to be aggressive in doing so now would be premature. The data for the last quarter showed the UK still in recession. Other countries will be tightening their budgets and this will likely result in, at best, slow recovery of global demand. So any recovery in the UK will be fragile over the coming year. If spending cuts were to throw the economy back into reverse, tax revenues would fall further, thus exacerbating - not curing - the problem of a high budget deficit.

Perhaps the foot should come off the accelerator a little. But it's too early to slam it on the brake. Like good comedy, it's just a matter of... timing.

A couple of news snippets from America have thrown the markets into reverse. House sales slowed by 3.6% over the year to September, and a measure of consumer confidence has also slipped. This news closely follows other disappointing news about US retail sales - though the latter figures are distorted somewhat by the ending of the car scrappage scheme in September.

The news from across the pond serves as a warning that - while the worst of the recession may be over - the route back to sustained growth is likely to be long and difficult. We knew that already. A look at the long term trend suggests that the markets are not currently overvalued, and that the current blip should not represent the start of a more prolonged decline.

In a Guardian article over the weekend, David Blanchflower has argued that 'a few years of inflation, around 5% or so, would be a really good idea'. It is certainly the case that inflation could help reduce the national debt and so improve the public finances - simply because it would reduce the real value of that debt. That being the case, it is almost certainly part of the hidden agenda for all political parties as we run up to the next election.

However, inflation hits some people harder than others. In particular it hits those on fixed incomes (which are often low incomes) - people like pensioners. To advocate a deliberate stimulus of inflation will be regarded by many observers as bizzare, at least without introducing special protection for disadvantaged groups. This means indexation of pensions. How effective a policy of inflation would then be is uncertain. The long and short of it is that the current situation demands that people feel pain in the adjustment.

Prof Blanchflower has done us all a service in bringing what are surely hidden agendas out into the open. Whether he is right in judging inflation to be a 'really good idea' is moot. But it is certainly right that we should have the opportunity to discuss these things in the open.

The Confederation of British Industry has generated some controversy with its report higher education. It advocates increased tuition fees, temporary abandonment of the target that 50% of the cohort should benefit from higher education, more financial support from business, and increased support for the STEM (schience, technology, engineering and mathematics) subject areas. These are not straightforward proposals.

Increasing tuition fees certainly sounds like an appealing way of maintaining funding for the universities at a time when the public finances are going to be squeezed. But the way in which students are funded in the UK make this option less simple to implement than might appear at first glance. Students receive a loan from the Student Loans Company, out of which they pay their tuition fees. These loans are funded by government. To be sure, the government can package these loans up and sell them to the private sector as parcels of debt - financial institutions are happy to pay upfront for an asset that will yield them returns in the future. But these parcels have to be sold at a discount. This discount reflects the fact that not all of what is loaned to students ends up being repaid - students on low incomes do not make repayments, and there is a write-off of the debt after 25 years. So, even though an increase in tuition fees might lead to a reduction in the amount of money that government needs to give directly to the universities, it would also lead to an increase in the amount of government expenditure needed to fund the student loan system. The extent to which tuition fees could be raised therefore entails a rather delicate balancing act. The Institute for Fiscal Studies has done interesting work on this. Some increase in tuition fees would certainly be possible. But the extent to which this could be done without entailing additional government expenditure is more limited than some commentators would appear to think.

The 50% target has always been contentious - not least because the figure itself appears to have been plucked out of thin air. It might reasonably be argued that, rather than have a target, young people should be allowed to make their own decisions about whether or not higher education represents, for them, a good investment. This year, many thousands of qualified school leavers have not succeeded in finding places in higher education. Abandonment of the target now would appear to be perverse.

It is not new for there to be calls for businesses to provide financial support to higher education. Many people agree that they should, but this does not, of course, mean that they will. Workers are not, in general, bound to their employers - we do not live in a slavery society. This means that workers are mobile across firms, which in turn means that firms are reluctant to pay for workers’ general education – they have no guarantee that the worker will stay with the firm long enough to give the company a return on its investment in that education.

The STEM subjects have been prioritised by government in recent years. There are, however, other subjects – notably business and law - that equally offer students a high rate of return.

While the CBI proposals are to be welcomed in that they will encourage debate, one would hope that the debate that is to follow will recognise some of the nuances that the proposals themselves fail to appreciate.

The National Institute for Economic Research estimates that the UK economy grew in the three months to the end of August this year. Official data will not be released until later in the year, and will cover the three months to September.

Meanwhile the FTSE index has risen above 5000 and appears - for now at least - to be staying there, giving further cause for optimism.

If these indicators are to be trusted, it would suggest that the recession has been quite short - five quarters - but also quite sharp. The rapid return to growth has surely been helped by the aggressive policy response of governments around the world. But that response in itself - desirable though it has been - has compromised the ability of economies to recover rapidly. The gulf that has emerged between public spending and tax revenues in this recession means that fiscal tightening over the next few years is inevitable. That tightening will constrain the growth of the economy in exactly the same way as the recent expansion of the budget deficit has stimulated it. The recession may be over, but the aftermath will be with us for several years to come.

The OECD has published the latest in its series of reports, Education at a Glance. This highlights the substantial rate of return to higher education in all OECD countries, and strongly argues the case for further investment in students' education, particularly as a means of ensuring that countries emerge out of recession with a labour force that is as strongly equipped as possible. This echoes the case made several months ago by David Bell and David Blanchflower.

Governments have been aggressive in their policy response to the current recession, and the impact of this will be felt for years to come in the form of a squeeze on public finances. But education has considerable appeal at times like these: we invest in young people's skills rather than let them depreciate through lack of use; we avoid the scarring effects of unemployment which can blight whole careers; we ensure that aggregate demand is stimulated, but also - crucial in the long run - aggregate supply is boosted, as the productive capacity of the economy is enhanced through education.

Shaping a Fairer Future is an update from the Women and Work Commission about progress in securing gender equality in the UK. The crude gender pay gap has risen slightly since 2007, to 23 per cent - while this is an unsatisfactory measure in that it makes no allowance for differences in experience or other characteristics, the direction of change remains a source of concern.

The report points to gender stereotyping at early ages and failures to secure a satisfactory work-life balance as two major areas where change is needed. It notes some areas of progress since the Commission's earlier report three years ago, but at the same time laments the fact that recommendations made at that time have not been followed up.

While much of the new report is to be commended, some of its recommendations appear underdeveloped. For example, recommendation 34 urges the Department for Children Schools and Families to consider 'what more can be done to increase the wages of childcare workers, many of whom receive low/minimum wage, while ensuring that childcare costs remain affordable'. This is very worthy, but wages are of course determined primarily by the forces of demand and supply - as indeed are childcare costs. If this recommendation is a veiled call for subsidies, perhaps, in the current economic climate, the Commission should apply a rather brutal reality check.

Gross Domestic Product (GDP) continues to fall keeping the economy in recession. The latest figures show that GDP fell by 0.8% in the second quarter of 2009 - suggesting that the optimistic monthly estimates for April and May that had been produced by NIESR (and discussed earlier on this blog) were biased up. This is the fifth quarter of the recession. While the decline in output in the second quarter is certainly more modest than in the first quarter of this year, it still looks as though it will be the end of this year before the recession ends. And it will be many (18-24, possibly more) months later before unemployment starts to ease.

On the not-so-dismal side, retail sales have bounced back over the last month or so, and the housing market continues to show some signs of recovery with increased sales (albeit at depressed prices).

We may be past the trough, but there is still some way to go before we can say that output is rising and the recovery is properly under way.

The Chancellor of the Exchequer has announced plans to reform the regulation of the banking system in the wake of the financial crisis. The plans involve:

(i) capital asset requirements for banks, in the form of minimum required ratios that will vary according to the riskiness of activity
(ii) an enhanced regulatory role for the Financial Services Authority (FSA), and special focus on the activities of key banks
(iii) curbing the tendency for banks to take excessive risks, by devising a code that will regulate banks' remuneration practices
(iv) improved systems of corporate governance

As far as they go, the plans are good. One might quibble about whether certain functions are better carried out by the FSA or the Bank of England - but that is a secondary quibble. A more major concern, however, is that these reforms fail to tackle the problem that was at the very heart of the crisis - that of hidden information. Capital assets ratios can be enforced if the regulator knows all about a bank's transactions; risk-taking can be curbed if the regulator knows all about the risks that are being taken. But if there is latent information, the fundamental problems remain.

The economic theory of principal and agent shows that it is possible to design incentive schemes that ensure that agents (in this case, banks) behave in a way that is compatible with the interests of the principal (in this case, the regulator) even when the agents have information that is not revealed to the principal. Smart reform of the banking system should focus more on the design of such incentives, and be less trusting about the extent to which banks will be prepared to reveal all.

In a nutshell, the proposals are a good start, but they betray a naivete that, in the wake of the events of the last two years, is a little surprising. The plans should go further.

The National Institute for Economic and Social Research (NIESR) has released its latest estimates of monthly GDP for the UK. These suggest that GDP has grown in each of the last two months, and that the trough of the recession was in March of this year.

NIESR has a good track record, and its estimates deserve to be taken seriously. This being the case, the news is very encouraging. Indeed, it would mean that the recession has been unusually short, in spite of the severity of the downturn in the last quarter of 2008 and first quarter of 2009.

My expectation has been that we would start to see a recovery in the last quarter of this year or the first quarter of next. It would be nice to be proved wrong if it were to mean that recovery comes sooner than I expected. But there is still room for caution. Recessions do usually last longer than three or four quarters. And in any event, the recovery in output growth typically leads recovery in the labour market by up to two years. So, unfortunately, unemployment is still set to rise for a while to come.

Barry Eichengreen and Kevin O'Rourke have recently provided comparisons of the current state of the global economy and that which prevailed in 1929. Their early comparisons generated some alarm in that the pattern of the Great Depression seemed to be replicated in the current data. The most recent update suggests that there is now room for cautious optimism. Over the last couple of months, the decline in world economic output has slowed, suggesting the possibility that we may be near a turning point. Stock markets have also recovered somewhat over that period.

There is further reason for this optimism. The policy response has been much more aggressive this time around. Using a 7 country average, Eichengreen and O'Rourke show that interest rates are now close to zero, while in the 1929 crisis they remained at around 4 per cent.

While the overall outlook is starting to improve, there are some countries where the immediate prospects still look very bleak. Output is still falling rapidly in Italy and France, for example. It is still some weeks before we shall see the official UK data for the second quarter of 2009 - we shall all await those with interest.