The economy

Press, Volume CX, Issue 32461, 23 November 1970, Page 14

The economy

Sir, —The figures for Government revenue and expenditure convince me that your correspondents on the economy nave been led astray. Most initial wage rises were in response to excess demand for labour (“overemployment”) in some sectors. These alone should have caused a redistribution of wages and profits (and a reduction in demand for labour) with no inherent inflationary effect. Inflation, caused, I suggest, by the combined effects of a balance-of-payments surplus (additional foreign demand pushing internal prices up) and a Budget deficit (Government spending not matched by taxes, etc., again causing excess demand for goods), has consistently wiped out successive wage rises. Mr Muldoon points his finger at gr wageearners, but if you want to know who is living beyond their means look at Saturday’s paper: Government

revenue $537.7m, expendir ture, $662.0m; excess expenditure of $124.3m or 23 per cent. This may not be the sole cause bf our present inflation, but it must be a large factor.—Yours, etc., D. R. LUPTON.

November 22, 1970.

Sir, —“A. B. Cederian” asserts that the cause of loss in value of money is because purchasing power exceeds the value of goods and services available. If this is correct we could expect queues and rationing of available goods, cash payment for everything, and certainly not an increase of $2,000,000 on the books of Christchurch debt-collecting agencies in the last year. However, if our financial system has an inherent fault which causes a deficiency of purchasing power in relation to prices, we could expect constant pressure for wage increases, widespread buying on hire purchase, and a large increase in unpaid accounts. Each of these will enable more goods to be consumed, but will also push up either the costs of production or retail prices, thus giving the spiral with which we are so familiar. Unlike “A. B. Cederian’s” explanation, mine at least has the merit of fitting the observable facts.—Yours, etc., EQUATION. November 20, 1970.