The Dominion. TUESDAY, MARCH 30, 1937. NEW ZEALAND’S “NEW DEAL”

Dominion, Volume 30, Issue 156, 30 March 1937, Page 8

The Dominion. TUESDAY, MARCH 30, 1937. NEW ZEALAND’S “NEW DEAL”

It is a pity the London Economist's article on the “New Dea!” in New Zealand was not published a week e^ rlier ’ s ° summary might have been available to Mr. Savag • t ' vova™ Home. It would have helped the Prune Minister to have had from such an authoritative source a statement of the case: whic : he will have to meet when be gets to England. 1 which is Free Trade and Liberal in its politics, and therefore p disposed to look kindly upon legislative of time one of the Empire’s best-informed and most reliable cn.ics oi financial and commercial policy. Its survey of the programme to date, therefore, can be accepted as caitying special weg financial, side, and more or less as representing the friendlier view m th Except°that 0 “a measure of State Socialism” is much too mild a description of the Government method with industry, the Economist shows a P good understanding of the main trends of Labour policy in New Zealand, especially those of them likely to affect our status as a vendor and a debtor in London. It is not good for our crec.t, o example, that Governments should yield readily to the temptation to spend public money extravagantly Not only Labour Governments are assailed by that temptation; and, unfortunately, not only Labour has fallen to it. That is all the more reason for emphasising the special need for care now, when sections o the Government party in Parliament, and apparently one or two Cabinet Ministers, have a notion that money can be produced out of a con jurer’s hat. There were two foreign elements in the vote which put Labour in office; one was public dissatisfaction with the record ot the former Government—the unpopularity that comes of having to do unpopular things; the other, the curiously vague and confusing y vocal movement for some sort of currency reform. Many hundreds of people, especially in the rural constituencies m the middle of the North Island, voted for Labour candidates under the impression that Labour could and would provide a magic monetary panacea for all the world’s ills. Not having done this—because, no party can the Government may be in danger of losing a considerable volume o electoral support, and the members of Parliament personally affected may be driven to ally themselves with the “extremists of whom the Economist writes, to press for extended use of ‘costless credit. So far, this “costless credit” is being used to finance the Dany Industry Account (the pool from which guaranteed prices aie paid) and the Government’s housing scheme. In each case, the Reserve Bank makes advances-to the full extent of the requirements, m the Dairy Industry Account, and up to a maximum of £3,000,W0 for the Housing Account. And the intention appears to be, although it has never been stated as definitely as one would wish, to repay the advances, but without interest. That is to say, if by the end of the mortgage term the Government housing undertakings have paid back to the Reserve Bank the original £3,000,000 advancec, they will be counted a success. So far as this use of interest-free credi is reflationary only, it will cause no very serious upset in the national finances. We deflated in the depression, and some measure of compensatory inflation is necessary in order to keep our curiency and credit resources sufficient for the increasing volume of business tiunover. In the ordinary course the trading banks would supply this, the Government has 'transferred part of the responsibility to the Reserve Bank. .. ... However, the danger of excess, which attaches to- all public spending, is tremendously increased when the spending is of costless credit. Governments are wont to spend their way to populaiity, although hitherto the knowledge that the taxpayer and posterity would have to pay has acted to some extent as a brake upon then Pjodigality. For the use of “costless credit’ also, once it is earned beyond the point of necessary reflation, the taxpayer has to. pay. But it is perilously easy not to think so, when responsible Ministers say their particular form of financial accommodation costs the country “nothing.” Once the volume of currency and credit gets beyond the legitimate needs of trade, the effect is to depreciate the value of the money supply generally, and so levy an invisible tax on all assets. There may be no great danger of this in the case of housing, because there is a limit beyond which even an extravagant Government will not go in providing houses for its people, there is great danger that the Government will be urged to carry “costless credit to dangerous lengths in the matter of guaranteed prices; and similar pressure is likely to be exercised in an endeavour to maintain the present scale of social services when next the country is called upon to weather a period of low export prices. Labour's new deal, says the Economist, will depend in the long run upon exports. The whole economic life of New Zealand, depends upon exports, which is why. any and every politico-economic device designed to help set up an ideal State here at home, without takingheed of overseas conditions and overseas markets, must fail.