Yes, it comes down to bias. Whose bias do you want?

Broadcasting regulators: they’re creationists. They want to control everything. Well, OK then. Let’s try and follow this through. I give you an allotment gardener. As it happens, this gardener only likes to grow potatoes in his patch. In the neighbouring allotment, we find another gardener, and she likes to grow as many different plants as she can; from aloe to zinnia, it’s all in there. Which of our two gardeners is a creationist? Can’t say? I’d suggest, then, that calling broadcasting regulators creationists is a mis-analogy. Disbelief in natural selection – note, that’s natural selection – has almost nothing to do with preference among kinds. So maybe better to leave creationism out of it.

Mis-analogy number two: the monopoly:

There is a land grab going on – and it should be sternly resisted. The land grab is spearheaded by the BBC. The scope of its activities and ambitions is chilling. Funded by a hypothecated tax, the BBC feels empowered to offer something for everyone, even in areas well served by the market.

Murdoch junior’s insinuation is that the BBC is a rent-seeking organisation that is attempting to build itself into a position of market control. Now the BBC is in some sense a monopoly, in that it receives most of the public broadcast funding available in the UK, but James Murdoch conveniently ignores the fact that the BBC is also a state agency limited by charter, and has been so since its founding nearly ninety years ago. License fees don’t go up when the BBC decides the time is right, and they don’t go up by an amount it thinks it can get away with. Instead, government decides what the BBC can do (although it only sets broad parameters) and also decides what revenues it will receive. Regulation is already in place, to say the least.

What’s more, what ‘land’ is there for the BBC to grab? There’s a range of broadcast technologies and – as far as I can tell – none of them are mutually exclusive. My (non-specialist) understanding is that they work pretty much as follows:

(1) Terrestrial broadcast

Rights to terrestrial broadcast spectrum are regulated by the state; a portion is reserved for the BBC (and ITV and Channel 4) and the rest is auctioned. Since digital broadcasting allows more information to be broadcast in a smaller part of the spectrum, there’s actually more ‘land’ available now than there was before;

(2) Satellite broadcast

Here the bar to entry is not a shortage of spectrum but the cost of launching satellites, installing dishes, etc. and this is a hurdle that Sky, the company of which James Murdoch is non-executive chairman, has already jumped; the BBC has no ambitions to be a player in satellite broadcast, although Sky does carry BBC channels;

(3) Cable broadcast

In the UK, cable TV is constituted of a number of local geographic monopoly suppliers, none of which is the BBC; Sky does not provide cable TV service in the UK, although, as with the BBC, some of its channels are carried on cable;

(4) Internet broadcast

Here, the potential monopolists are BT and the cable TV companies, through their control of the infrastructure; however (in stark contrast to satellite and cable) the internet is arranged so that the means of access is transparent to the user, and anyone anywhere can have a web site, and that includes Sky and the BBC.

From this brief survey, I’d note two things. One is that there is plenty of space and opportunity alongside the state broadcaster. The second is that the organisations which control the various bits of infrastructure don’t necessarily control what is communicated using that infrastructure. Even though most would say this is a good thing, it’s possible that James Murdoch thinks it’s a bad thing; hence his suggestion that the BBC is “dumping” news (note also the “state-sponsored”, as in ‘state-sponsored terrorism’):

Dumping free, state-sponsored news on the market makes it incredibly difficult for journalism to flourish on the internet. Yet it is essential for the future of independent journalism that a fair price can be charged for news to people who value it.

But as the internet reveals, popularity isn’t always a function of resources. With news, many people want what they read, hear or see to be free from the crasser kinds of bias, which is perhaps why the BBC’s internet news site is as popular as it is. Now the BBC may have its own biases, but here’s the choice; do you want (a) the biases of several thousand middle class media professionals, left more or less alone to do what they think best in the context of their charter, or (b) the biases of a squadron of merchandisers? If you prefer (a), I’d argue that only a tax-funded organisation can deliver. If you like the BBC’s web offering and make use of it, this is what you are voting for. If you prefer (b), then presumably you’ll be content to consume a fair bit of advertising and product-driven editorial, which is exactly what James Murdoch has in mind:

The UK and EU regulatory system also tightly controls advertising: the amount per hour, the availability of product placement, the distinction between advertising and editorial and so forth.The latest EU-inspired rules on scheduling of advertising restrict the number of ad breaks permitted in news programming. Television news is already a tough enough business. These proposals could undermine commercial viability even further.

In summary, look who’s talking. Given half the chance, the Murdochs would make it so that all news is Murdoch news, and bastard crap at that. We can at least take some comfort in the implicit compliment to BBC news reporting. If everyone is following the BBC in preference to the Murdoch product, the BBC must have something going for it.

Update: Murdoch senior’s News Corporation (via its subsidiary News International) has been accusing of the BBC of empire-building for several years now. Here’s a 2006 article which talks about “unfair advantage” and the lack of a “balanced media ecology”. So clearly this is something they’re going to keep chipping away at. But if they’re talking about the internet, I don’t see any grounds for complaint. As I said, anyone can set up a web site. If it’s good, people will visit.

Also, I should have attached Exhibit A: News Corporation’s Fox News.

What Is The Real Level Of Unemployment In Germany And Japan?

With Japan having general elections today and Germany facing them next month, I though now might be as good a time as any to have a look at a topic which could turn out to be very important in the months to come: the real underlying rate of unemployment in both these countries.

While the present focus of most press attention is on the fact that GDP in Germany and Japan nudged upwards between April and June (over Q1), we should never forget that this increase follows substantial falls in output. Japan’s real GDP fell at a record pace in Q4 2008 and Q1 2009 (annualized declines of 13.5% and 14.2%, respectively), and German GDP fell by a quarterly 3.5 percent in Q1 and an annual 6.7% – making for the fourth consecutive quarter of negative growth. In both cases the fall in output was accompanied by only a much more moderate decline in employment.

Part of the explanation for this recent return of both economies to growth lies in the fact that both countries have very substantial stimulus and employment protection programmes in place, and these to some extent mask the extent of the output slump. At the same time both countries have been in run up periods to national elections, while both of them have rapidly ageing populations, rising health and welfare costs and steadily deteriorating gross debt to GDP positions. It is therefore highly likely that the positive stimulus programmes will wane somewhat after October as both governments are forced to move from very expansionary fiscal positions, to more or less “belt tightening” ones, and the big issue which lies in front is estimating just how far the respective labour markets can deteriorate in the two countries as a result. Fortunately analysts at Nomura (for Japan) and Societe Generale (for Germany) have recently produced what are very timely studies which help us get a better appreciation of the true underlying situation. Continue reading

What’s more fun than staying away from carnival writing about the German elections?

It’s a tall order…but surely writing about German elections with statistics must beat it?

But there’s a German election coming up, although, as Der Spiegel points out, you might not have noticed, as both major parties are secretly quite pleased with the current situation. Polling data is here. Angela Merkel has spent the period since her triumph of 2005 governing well to the left of her party and being a quietly effective foreign-policy chancellor, just as we predicted; the Social Democrats have been struggling, as a result, to retain an independent profile, but (from their point of view) at least they’re in government, and paradoxically the main gainers from the economic crisis have been the FDP, the spokesmen for classical liberalism.

Their leader – still Guido Westerwelle after all these years – is behaving a little strangely in public, saying very frequently that he doesn’t believe there is any chance of the so-called traffic light coalition with the Social Democrats and Greens, but not saying that he rules it out. If the polls stay as they are, this would be the only chance of the Left taking power; but, of course, this is a huge assumption, especially in the light of their surge during the 2005 campaign. With the CDU on 37%, it’s essentially assumed that they are running up against demographic limits – a typically AFOE point, but a good one.

The all-time record conservative share of the vote is 39.7%, achieved in 1957, but more to the point, even another point-and-a-half would be more than one standard deviation from the long-run average, that is to say about a 3 in 10 chance. Theoretically, there is a 5% chance of getting to 42%, but if Konrad Adenauer couldn’t get over 40% in booming 1957 it’s probably even more unlikely that Merkel will in 2009. In fact, one thing that this little statistical exercise shows is that German party vote shares are very stable indeed – the SPD’s share of the vote has greater variance, but not that much.

So there is not much space for the rightwing vote to grow; and the Left Party is apparently stuck just under 10%. The strong Liberal showing – 15% in the current polls – suggests that the right could hope to form a new coalition without the Social Democrats, which would hold 50% of the vote. At the moment the only way the Social Democrats could checkmate this would be to get the Liberals and Greens into a coalition – the Left Party and the Greens wouldn’t be enough. This all assumes that nothing else changes, however; if the Left-Left-Green option was possible, all the coalition calculations would be altered, as the Liberals would face a serious risk of being left out in the cold. So what would it take to make it happen?

At the moment, the LLG coalition adds up to 46%, the “bourgeois” (i.e. CDU/FDP) option to 50%; so they need four percentage points to cross this strategic threshold. In fact, in so far as they are fighting a zero sum game, they might need fewer. The SPD’s share of vote in the current polls is on 23% – a shockingly low figure. In fact, based on the SPD’s historical vote shares, this would in itself be approaching a 1 in 100 event. Even taking account of the Left Party breakaway, the party polled just under the historical average last time out; and the 95% probability level corresponds to a vote share of 27.3%, which would put them back in the game. Actually, there doesn’t appear to be much covariance at all between the Left Party and SPD shares; this fits the explanation that the Left is still mostly the ex-PDS.

So I’m going to forecast that, even if the SPD looks down and out now, there’s an excellent chance of them being in with a chance on the night.

A flat tax bites the dust

So after a summer of suspense and rumour, Latvia got its 2nd disbursement of $279 million on the IMF loan.  As is customary in these situations, one must read between the lines but it appears that the IMF and the European Commission have agreed to let things play out as they are on the exchange rate, and thus despite IMF doubts about the peg-transition-to-euro strategy, it stays in place.

Continue reading

More Comedy From The Spanish Banking System

Going through the Variant Perception report on the parlous state of Spain’s banking system, I couldn’t help stopping and thinking hard about this point from the Spanish newspaper Expansion.

The valuation of the guarantees of the mortgage book of the cajas and banks and of its real estate gains importance. The thirteen companies tied to financial entities represented 47% of all real estate appraisals in 2007. The valuation of these real estate assets has taken on new importance for banks in the context of the current economic recession. The valuation of the mortgage guarantees and of the real estate assets they are taking on through the courts and debt for equity swaps is key to calibrate the solvency of the financial system. This situation has placed the focus once again on the links between banks and the real estate appraisers that goes beyond in many cases a mere commercial relationship.

And then scratching my head, and scratching my head. Continue reading

Has Spanish Unemployment Really Been Falling Recently?

In this post I would just like to ask a very simple question. What is the real rate of growth of unemployment in Spain? Are things improving, getting worse, or simply staying the same? Now, before you jump to too many conclusions on this it is important to remember that in the world of economic analysis there are lies, damn lies, and then there are press releases.

So if you read in the headlines in your paper recently that the number of jobless in Spain fell by 20,794 in July after a 55,250 decline in June (cutting the total number of unemployment benefit claimants to 3.54 million), you might like – bearing in mind what I have just said – to ask yourself what else could lie behind such statistics?

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Are Spain’s Banks Really As Good As They Look?

Well, Variant Perception’s Jonathan Tepper certainly doesn’t think so, and since his latest report on the Spanish banking sector cites me extensively and explicitly, I guess I don’t either.

Spain had the mother of all housing bubbles. To put things in perspective, Spain now has as many unsold homes as the US, even though the US is about six times bigger. Spain is roughly 10% of the EU GDP, yet it accounted for 30% of all new homes built since 2000 in the EU. Most of the new homes were financed with capital from abroad, so Spain’s housing crisis is closely tied in with a financing crisis.

The impact on the banking sector will be severe. Consider this: the value of outstanding loans to Spanish developers has gone from just €33.5 billion in 2000 to €318 billion in 2008, a rise of 850% in 8 years. If you add in construction sector debts, the overall value of outstanding loans to developers and construction companies rises to €470 billion. That’s almost 50% of Spanish GDP. Most of these loans will go bad.

Spanish banks, in our view, are now facing a very bleak outlook. Spain’s unemployment rate reached over 17%; there are now four million unemployed Spaniards and over one million families with not a single person employed in the family.

We argue and will document anecdotally in this report that:

• The real estate crash in Spain is worse than is widely believed, much as the subprime problem was much worse than people believed
• Spanish banks are hiding their losses and rolling over debt to zombie companies, much as Japan did in the last decade
• Investors are deluding themselves if they believe that Spanish banks are among the strongest in the world. (This is a new theme. See Forbes’s latest “Spanish Banks In Top Form” for an example of the new fawning articles on Spanish banks.)

If we are right, Spain will soon have zombie banks like Japan and it will face a prolonged period of deflation. However, Spain will be much worse.

The report is getting extensive coverage in the UK and Spanish press:

Financial Times – Are Spanish banks hiding their losses?

Expansión – El informe más catastrófico: “España sufre la madre de todas las burbujas inmobiliarias y su banca será zombie”

Cinco Dias – Una casa de análisis predice que España se enfrentará a una tasa de paro superior al 25%

Cotizalia – ¿Están los bancos españoles escondiendo sus pérdidas?

For those of you whose first language is Catalan I’ve organised a translation on my Catalan blog here.

Is Germany’s Economy Really Powering Ahead?

Well, euphoria in Germany is certainly on the rebound, with a sudden surge in the ZEW investor confidence index and newspaper articles all over the place predicting the imminent renaissance of European economic growth, despite the fact that in 3 of the 5 big European economies – the UK, Italy and Spain – there is little in the way of evidence to back this view up.

The French economy is certainly holding up reasonably well, but the situation in Germany still remains deeply problematic due to the complete dependence of the economy on exports. Despite this we have a shower of articles (Below I present an extract from Frank Atkins writing in the Financial Times) explaining how “Europe’s Economic Recovery is Gaining Steam” and the “German economic recovery powers ahead”. I have already written up a an extensive summary of the actual state of play in the German economy, which is largely supported by a strong government stimulus programme, and a recovery in industrial output for export to levels which are more in line with the actual current level of demand than were the extremely low levels seen at the turn of the year (which were the product of demand being met from inventory run downs). Continue reading

Raising Taxes In Spain Is Not A Solution!

Victor Mallet had a piece on public works minister José Blanco’s Thursday speech in the FT yesterday. My feeling is that the Spain of Zapatero looks more and more like the Hungary of Gyurcsany with every passing day, and I say this more from the point of view of the twin deficit problem, and the impression the administration gives of things being totally out of control and no one knowing what to do, than anything else.

I am not at all party political, and my observation should in no way be read in that sense. The situation has only deteriorated since Solbes and Vergara were ousted, and the only mystery for me is why exactly they were replaced with a team who have no understanding of macro economics whatsoever. For the record, I predict the IMF will have a permanent delegation in Madrid before 2011 is out.

As the following chart – from Dominic Bryant at PNB Paribas – makes clear, while Spain’s households and corporates are busily deleveraging, government finances are deteriorating in a totally unsustainable fashion.

On the details of Blanco’s statement, I would simply make three points.

Firstly, it is far from clear that this is a serious proposal. There must be a battle royal going on inside the PSOE even as I write, and this proposal may well have more to do with internal party debates than anything more substantial. Economy Minister Elena Salgado has been notably silent, so one possibility is that Blanco made the speech simply to “test the ground”.

Basically, the current Spanish administration want to hear nothing of internal devaluation, and will try anything to avoid that going down road. The biggest issue they have is growing deflation, and falling revenue as prices drop. This has been a common picture across Eastern Europe, it is just that the states in the South of Europe are rather richer, so there was more flesh on the bone when the crisis broke. They have a salary increase for public servants pencilled in for next year, and this, of course, is a commitment which it will be impossible to honour in the present climate.

Secondly, the biggest unspoken issue we are seeing in one economy after another is the retreat of a lot of activity back into the informal sector. So called economic “greying”. Just look what is happening to revenue in Italy. Again, we have seen this happening throughout the East. The contractions in the Baltics are nowhere near 20% in my view (although they are, of course, very large), people simply are declaring less and less. This is a problem the IMF are struggling with day in and day out in Latvia. But this whole process makes things very difficult for government finances, as we are seeing. More tax increases on the very rich and professional middle classes will be entirely unproductive as they will only accelerate this process.

Lastly, increases in VAT. These are again very counterproductive, since they hit consumption directly, at a time when consumption is declining anyway. All such increases do is accelerate the contraction (IMHO the IMF is wrong to be advocating this in the East, but undoubtedly they feel they have little alternative if they wish to preserve some minimal semblance of social services, which they need to do to get the population to agree to their packages in the first place). I wouldn’t even mind betting that a VAT hike would be nearly revenue negative, for the consumption drop it would produce and the retreat into the informal economy it would accelerate.