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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The view from Google Earth is magnificent - but there's a problem

Google Earth is spectacular - but it can give a misleading impression of the planet and the threats we face from climate change. 

 

Google Earth wants you to “get lost” in its updated interactive map. Collaborations with new media partners mean you can now climb Mount Everest, swim with sharks or visit Afghanistan with Zari the purple muppet. No, really:


Source: Google Earth

Yet as Trump slashes support for the science behind satellite imaging, is Google’s emphasis on spectacle leading us down the wrong path?

Google Earth's new look all starts well enough. Opening the new site on your browser takes you to an image of a blue earth floating through the blackness of space. Back in the 1970s, similar images taken from the Apollo space missions helped kickstart the modern environmental movement. As the astronomer Sir Fred Hoyle put it: “Once a photograph of the Earth, taken from the outside, is available, a new idea as powerful as any in history will be let loose.”


Source: GETTY and Google Earth

And it gets better. Enter a destination in the search bar and you are greeted with the option to link directly out to the Wikipedia page: nerds of the world, rejoice! 

A guided tour from NASAearth is also on hand for anyone whose nerdery is in need of a prompt: “Geostationary satellites in geosynchronous orbits. Greenhouse gases and global warming. Glaciers... going, going, gone,” says the Bob Dylan-esque entry on its "ABCs from Space".

You can then choose to orbit your landmark of choice in 3D. And let’s face it - who doesn’t want to glide around the top of Mont Blanc, pretending to be an eagle? It’s almost as good as the BBC’s actual eagle-cam

But then it hits you. This is no soaring eagle, buffeted by wind currents and having to constantly adjust its flightpath in the face of real-world obstacles. This is a world surveyed at a safe and sanitising distance. Tourism for the Trump age – focused on providing “a consumption experience”. Certainly it is the opposite of “getting lost”.

In fact if anything has been lost or downplayed, it is the principles of scientific enquiry. The program is littered with human choices. Local versions of Google Maps, for instance, have shown different national borders depending on where in the world you log in. And while new, open-data imagery from America's Landsat 8 program is helping bring many regions up to date, other high-resolution imagery comes from commercial providers, such as Digital Globe. And as this Google 'help' page implies, there are issues of time-lag to face. 

You can’t even be sure what you’re looking at still exists. In 2015, Bolivia’s second largest lake vanished - a combination of climate change, El Nino, and irrigation withdrawal caused 2,700 square kilometres of water to evaporate into a dry salt pan. (It has not recovered, and seems unlikely to do so.) Yet on the new version of Google Earth the lake is still a healthy green:


Source: GoogleEarth

The much lauded film clips from the BBC’s Planet Earth II are similarly short on context. As I've argued before, David Attenborough's latest TV series did little to explain the stories behind the spectacle – there was no mention, for instance, of the arctic anthrax outbreak which caused thousands of reindeer to be culled, nor the role of climate change in worsening locust swarms. 

Finally, the new update actually shows you less of the world than it did before. Gone is the “Historical Imagery” tool that allowed you to see how a place had changed through time. Now, the Citadel of Aleppo in Syria is only visible as a bombed-out ruin. A surreal street-view reveals two women cheerily taking a selfie – with debris all around and their legs spliced out of shot:


Source: GoogleEarth

So why do these omissions matter? Because they take users further away from the evidence-based approach of earth science. It turns out that satellite images on their own are of limited use when it comes to quantifying change. Instead researchers must turn the raw pixels into numbers, which can then variously represent everything from forests to cities, glaciers and farms.

As Dr France Gerard at the UK’s Centre for Hydrology and Ecology explains, this process enables us to live in a better managed environment – be that by measuring air pollution or the impact of fertiliser on soil. The centre's landcover map, for instance, has been mapping British land use since 1990. Similar methods allow Sam Lavender’s company to provide Ugandans with a Drought and Flood Mitigation service, as part of the UK Space Agency’s International Partnership Programme.

Sadly, the need for public engagement has never been more urgent. Brexit and austerity have cast doubt over important projects in the UK. While in Donald Trump’s America, funds for earth monitoring are set to be slashed. Two missions already under the knife are PACE, a spacecraft set to track global ocean health, and CLARREO, which would have produced highly accurate climate records. Trump has also called for the earth-viewing instruments on the DSCOVR satellite to be turned off. Phil Larson, a former space advisor to President Obama, describes this decision as “baffling”.

So what can be done to reverse this trend? Experts I spoke to believe that collaboration is key. With government programs being squeezed, the earth monitoring industry may come to rely increasingly on the trend towards smaller, commercial satellites. These are great for increasing the quantity of data available but their accuracy needs to be constantly checked against the data from the larger and more reliable state-launched equipment.

There’s also still more data out there to share. As Bronwyn Agrios from Astro Digital points out, many countries have been gathering region-specific data – which could, in future, be made open source. “The neat thing about space is that there’s no border,” she concludes.

To help this process, Google Earth could do far more to raise public awareness of the science behind its special effects. Yet at least in one way it is already on the right path: its own new range of collaborations is impressively large. As well as the BBC, you can take interactive tours with The Ocean Agency, the Wildscreen Arkive, and the Jane Goodall Institute – all of whom put conservation up front. The Goodall journey to Tanzania’s Gombe National Park even describes the use of satellite imagery to measure conservation success.

 

More links with other citizen science projects around the world could turn the program into something truly ground-breaking. If it can incorporate these, then desktop-tourism may yet save the planet from Trump. 

India Bourke is an environment writer and editorial assistant at the New Statesman.

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