Should Labour adopt the four per cent inflation policy?

Controversial ideas of the past are becoming consensus of the present.

A 1998 proposal by Paul Krugman that the western world should target inflation at four per cent rather than two per cent, has got the backing of the IMF (pdf). The intention would be to erode government debt, and to give policy makers a more flexible tool in the future, rather than resorting to quantitative easing (QE).

In our battle to combat inflation, we fought for it to be as close to zero as it can be without grinding growth out. Two per cent seemed to be that point. However, now that we’ve got that control, we don’t have to keep it so low.

In 2007, if inflation had been at four per cent instead of two per cent, then interest rates would have been seven per cent rather than five per cent, and the Bank of England would have had more room to cut when crisis struck. In other words, they wouldn’t have needed to go beyond zero to engage QE.

Some people might say that since we’ve finally beaten inflation, it’s not wise to bring it back? But it’s not inflation that causes problems, it’s unpredictable inflation that we fear. If we had a high rate of say 10 per cent, but steady, year in year out, then companies and people would be able to plan around it. But if we didn’t know whether inflation will be 5 per cent or 15 per cent, then how much should a bank charge for a loan? Can a company calculate the profit they’ll make, if they don’t know how much the money will be worth. So four per cent is fine, as long as it’s steady.

The other benefit of running a higher inflation rate is that we would erode our debt much faster. If the interest on a gilt is four per cent, then two per cent inflation would cancel it out. If your mortgage were two per cent, then four per cent inflation would leave you with a negative real interest rate of minus two per cent.

Krugman accepts that this would be rewarding debtors for their past excesses, but argues that “economics is not a morality play.” Is he right to dismiss morality so easily? Surely modern day politicians make their living from telling bankers they are not good citizens. Is it appropriate to dismiss investors with the refrain of caveat emptor, buyer beware?

It’s worth remembering that no investor complained when QE was buying up that same debt for higher than it’s real value. Besides, if investors had feared inflation, they could have bought index linked gilts. These track inflation and rise in value proportionately. They make up only about 10 per cent of gilts. So when it comes to the other 90 per cent, I contend that ethical arguments are insufficient to reject the policy.

The big question is whether policy could easily switch inflation from two to four. Much of the cause of inflation is expectation. In the '70s, inflation was high because trade unions made demands for wage rises on the expected future inflation rate. These rises then caused inflation to rise to the same level, and unions would demand a rise again. It was self-perpetuating.

Conversely, when Gordon Brown made the Bank of England independent, inflation markedly dropped off and stayed low. This wasn’t due to a policy of the bank, but due to the confidence inspired by it’s independence.

Should a policy of increased inflation be kept a secret? My experience of politics is that if you have something controversial to say, then be confident, say it forcefully, then stick around to face down your critics. The public aren’t experts on economics. They will make judgements on the confidence of the advocate and the reaction of pundits.

On the question of whether the markets will react badly to such a policy, I think that depends on the timing. Right now, with no demand in the economy, the market wouldn’t react badly because they have nowhere else to go. These days most savers keep their money on deposit with an interest rate lower than inflation. They are losing money in preference to the uncertainty elsewhere.

There are few safe havens in today’s investment world, partly due to the bad policy imposed by politicians such as David Cameron and Angela Merkel. When considering our economic policy for a future government, we must recognise that controversial ideas of the past are becoming consensus of the present, and deserve our serious consideration as policy for the future.

The Bank of England. Photograph: Getty Images

Dan McCurry  is a photographer in east London and a Labour activist. He is a former chair of the Bow Labour Party.

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With the BBC Food’s collection under threat, here's how to make the most of online recipes

Do a bit of digging, trust your instincts – and always read the comments.

I don’t think John Humphrys is much of a chef. Recently, as his Today co-presenter Mishal Husain was discussing the implications of the BBC’s decision to axe its Food website (since commuted to transportation to the Good Food platform, run by its commercial arm), sharp-eared listeners heard the Humph claim that fewer recipes on the web could only be a good thing. “It would make it easier!” he bellowed in the background. “We wouldn’t have to choose between so many!”

Husain also seemed puzzled as to why anyone would need more than one recipe for spaghetti bolognese – but, as any keen cook knows, you can never have too many different takes on a dish. Just as you wouldn’t want to get all your news from a single source, it would be a sad thing to eat the same bolognese for the rest of your life. Sometimes only a molto autentico version, as laid down by a fierce Italian donna, rich with tradition and chopped liver, will do – and sometimes, though you would never admit it in a national magazine, you crave the comfort of your mum’s spag bol with grated cheddar.

The world wouldn’t starve without BBC Food’s collection but, given that an online search for “spaghetti bolognese recipe” turns up about a million results, it would have been sad to have lost one of the internet’s more trustworthy sources of information. As someone who spends a large part of each week researching and testing recipes, I can assure you that genuinely reliable ones are rarer than decent chips after closing time. But although it is certainly the only place you’ll find the Most Haunted host Yvette Fielding’s kedgeree alongside Heston Blumenthal’s snail porridge, the BBC website is not the only one that is worth your time.

The good thing about newspaper, magazine and other commercial platforms is that most still have just enough budget to ensure that their recipes will have been made at least twice – once by the writer and once for the accompanying photographs – though sadly the days when everyone employed an independent recipe tester are long gone. Such sites also often have sufficient traffic to generate a useful volume of comments. I never make a recipe without scrolling down to see what other people have said about it. Get past the “Can’t wait to make this!” brigade; ignore the annoying people who swap baked beans for lentils and then complain, “This is nothing like dhal”; and there’s usually some sensible advice in there, too.

But what about when you leave the safety of the big boys and venture into the no man’s land of the personal blog? How do you separate the wheat from the chaff and find a recipe that actually works? You can often tell how much work a writer has put in by the level of detail they go into: if they have indicated how many people it serves, or where to find unusual ingredients, suggested possible tweaks and credited their original sources, they have probably made the dish more than once. The photography is another handy clue. You don’t have to be Annie Leibovitz to provide a good idea of what the finished dish ought to look like.

Do a bit of digging as part of your prep. If you like the look of the rest of the site, the author’s tastes will probably chime with your own. And always, always, wherever the recipe is from, read it all the way through, even before you order the shopping. There is nothing more annoying than getting halfway through and then realising that you need a hand blender to finish the dish, just as the first guest arrives.

Above all, trust your instincts. If the cooking time seems far too short, or the salt content ridiculously high, it probably is, so keep an eye on that oven, check that casserole, keep tasting that sauce. As someone who once published a magic mince pie recipe without any sugar, I’m living proof that, occasionally, even the very best of us make mistakes. 

Felicity Cloake is the New Statesman’s food columnist. Her latest book is The A-Z of Eating: a Flavour Map for Adventurous Cooks.

This article first appeared in the 26 May 2016 issue of the New Statesman, The Brexit odd squad