The Press THURSDAY, NOVEMBER 30, 1967. America’s “Hour Of Challenge”

Press, Volume CVII, Issue 31540, 30 November 1967, Page 14

The Press THURSDAY, NOVEMBER 30, 1967. America’s “Hour Of Challenge”

Late in October the chances that the United States Congress would pass the Administration’s tax surcharge bill were rated about even. Now that sterling has been devalued, speculative pressure has shifted from the pound, and some of the “hot” money may be switched from the United States to the United Kingdom. President Johnson is understandably more concerned than he was last month to strengthen the balance of payments by fiscal measures. He is reported to have told his Cabinet that the need for responsible fiscal action on both taxes and expenditure, which had been “ clear and “ compelling ” for many months, had now become “ absolutely imperative ”. Informed opinion, within Congress and outside it, has been concerned for some time about mounting inflationary pressures. Prices in the United States are rising at an annual rate of about 4 per cent, with little prospect of their being checked even by higher taxes and tighter money. In the judgment of one Wall Street authority, moderate tax increases, spending cuts, and monetary restraints now would make 1968 a very good year. Without them, he added, it might be disastrous.

That is the Administration’s view. The President, however, has had little success in persuading Congress to tackle the nation’s economic problems in a spirit of co-operation rather than of criticism. In the Senate there has been almost an open breach over tariff policy. The protectionists are in full cry. It was stated that if all the bills they were sponsoring were passed about two-fifths of American imports would be drastically cut, with the likelihood of retaliatory action abroad playing even greater havoc with exports. The intransigence of the House of Representatives has been even more embarrassing. The Administration accepts the need for cuts in spending, both domestic and external; but it was not prepared for the ferocity of the economy drive it met in the House of Representatives. If the Senate had concurred, Mr Johnson would have been compelled not only to cut foreign aid, but also to abandon his social programmes, already lagging because of soaring war costs.

When he answered questioners at his news conference on November 1, Mr Johnson clearly showed his anxiety that Congress should act with the Administration to check inflation and keep down interest rates. He refused to be drawn on the prospect of getting his tax bill through this session. “ But , he said, “ we very much want it. We think it very “ necessary in the national interest. We think it will “ cost the American people much less by taking the “ tax route that we have suggested than by taking the “ inaction route that is now being followed The gravity of Mr Johnson’s latest warning, that the nation was facing “ a new hour of economic “ challenge ”, may convince Congress of the need for swift and constructive action. A correspondent of the “ Economist ”, writing from Washington at the end of October, suggested that the resistance of Congress to a tax increase would give less cause for concern if it reflected a reasoned difference in foresight. “ But ”, he wrote, “ this obduracy on the tax question, coupled with the “wave of restrictive trade policies that looks like “ taking hold of America, reflects an unattractive “ mood that has stiffened dangerously in the last “month or so. . . If Congress does pass the tax “ increase, it will be for the wrong reason: it will “be to cut down the big deficit in the Federal " Government’s budget rather than to administer a “ Keynesian prescription to cool an overheated “ economy

Air Fares And Profits A correspondent, “ Taken for a Ride ”, aired the grievance of many New Zealanders who were caught by the devaluation of the New Zealand currency last week after they had booked passages on Air New Zealand flights. In a letter to the editor this correspondent asked how the airline justified raising its fares to the full extent of the country’s devaluation when the bulk of its costs were met in the same devalued currency. The Christchurch manager of Air New Zealand attempted to justify the increase by reference to the increase in Air New Zealand’s costs resulting from devaluation; he said there was “ no question of Air New Zealand’s profiteering from “ devaluation ”. The short answer to this, of course, is that if Air New Zealand does not profit from devaluation it is hard to see which companies will, and that if no trading concerns profit from devaluation New Zealand would have been better not to devalue.

Under the rules of the International Air Travel Association Air New Zealand was obliged to hold its fares at the pre-devaluation level in terms of overseas currencies. This must mean an increase in the company’s profits as the expenses it incurs in devalued New Zealand currency are reduced. The company would have been wiser to acknowledge that it stands to make windfall profits from devaluation. It would have been wiser still to have spent some of these profits—in advance—by honouring the passages already paid for—in advance. Fpr a Governmentowned corporation it has set two bad devaluation precedents.