Economist predicts dictatorship if inflation stays

Press, 24 April 1980, Page 3

Economist predicts dictatorship if inflation stays

PA Auckland New Zealand would probably find itself with a Nazi or South American-style dictatorship in 10 years, the chief economist of the Bank of New Zealand (Mr L. C. Bayliss) said yesterday. That was what could happen if the 18.4 per cent inflation rate continued, because of the damage it caused society. “History is replete with examples of when societies cannot get on top of inflation and end up with a dictatorship,” Mr Bayliss said. High inflation changed the distribution of incomes so that the strong kept abdve water while the weak sank.

“This sets up very ' acute social tensions within society, such as unemployment, which eventually leads to the change,” he said. “Since 1969 there has been Higher inflation in New Zealand and a lot more tension, bitterness, and social [division is around now than there was then,” said Mr 'Bayliss.

In an address to the Auck-I land Chamber of Commerce* on Tuesday evening, Mr Bayliss predicted an inflation rate of 19 per cent in the June, 1980, quarter dropping to between 16 per cent, and 17 per cent in the March, 1981 quarter. He said [that in taking a longer view; it was very difficult to make an optimistic judgment about inflation. I New Zealand's economic 'performance had been bad in 1 most areas such as relative price performance, growth, | productivity, and the balance of payments. “This reflects poor economic management generally in major policy areas like monetary, fiscal, exchange rate, wages, resource alloca'tion, and public . expenditure,” said Mr Bayliss. ! There was no indication .that New Zealand’s relative economic performance would [improve. There were no justifiable grounds to say that there had been a change in structure or Government policy that would bring I about improvement

| The view that the New Zealand economy would come right in five to six years because of energy developments and investment, in spite of the British experience, was a further reason for no big shift in the Government’s [economic policy. “The talk of an oil bonanza in the United KingIdom from North Sea oil proved to be complete and 'utter nonsense,” said Mr Bayliss. | “In spite .of the fact that oil prices went up and the (United Kingdom moved from [an importer to an exporter of oil there are still one million unemployed and a 16.5 per cent inflation rate.” 1 Mr Bayliss said public opinion was resigned to high i inflation and people were .protecting group positions. ! “There is resignation and hopelessness to news of 18.4 I per cent inflation and that’s [one of the reasons why we (don’t improve. Only when politicians get the antiinflation message from the population will they start to take anti-inflation measures.” Inflation would decline only under the right economic conditions, and there were no instant solutions to the problem. The way to attack inflation was with monetary, fiscal and exchange rate policies which created an environment free from inflationary Goverment financing, provided greater competition and allowed growth. Mr Bayliss, an advocate of devaluing the New Zealand dollar, said Australia was a (good example of keeping inflation under control.

“They have a realistic exchange rate — unlike ours, [which is over-valued — and they have tighter control of the money supply,” he said. | Australia’s Budget was [almost in balance and a lot of import control had been removed because of the forward exchange rate of the; Australian dollar.