CONFIDENCE OR CAUTION?

Evening Post, Volume CXXIV, Issue 62, 10 September 1937, Page 8

CONFIDENCE OR CAUTION?

As touching the work of the session the Speech from the Throne yesterday gave no new information. The main questions to be dealt with were mentioned, but no particulars were given. There was, however, an interesting indication in the Speech of the spirit in which the Government will approach its new proposals. Referring to the "substantial material progress" of the Dominion, the Speech claimed that the buoyancy of internal trade was "largely due, in the opinion of my advisers, to the increased purchasing power in the hands of the consuming public brought about by my Government's legislation to raise standards of living."

All sections of the community have enjoyed a much greater degree of prosperity, it was stated, and my Ministers are confident that these happy conditions will be maintained and improved. We cannot blame the Government for taking to itself a large share of the credit for better conditions, though it would have been advisable to mention other contributory factors. Nor do we quarrel with the note of confidence concerning the future; but we would be more willing to share the confidence if the Speech had indicated, even in a small measure, that it was seasoned with caution. As it is, the impression is given that, the Government views the new-found prosperity as mainly its own creation, and that it considers it necessary to devise no measures to conserve that prosperity—just to keep going in the same course with "increased purchasing power" as the Sesame that will open all doors of difficulty and disclose new and inexhaustible stores of treasure. •

At the risk of being placed by Mr. Savage in the "croaker" class, we suggest that there are yet many difficulties to be overcome. We do not predict, as Mr. Savage recently charged his critics with saying, that depres-sion-is just round the corner; but there are corners ahead, and the prudent policy would be to ease the pace until we can see what is round them. There is reason for this in the. factors which have contributed to the present improvement, and also in the reserve with which the new access of prosperity is being regarded by experienced statesmen and economists elsewhere. The improvement, it should be noted, was well on the • way in 1935-36 before the present Government's measures had begun to take effect, and it cannot, therefore, be wholly ascribed to those measures. Indeed the careful student of economic affairs would make further investigation before saying definitely whether Government measures were the cause and prosperity the effect, or that prosperity made the Government measures for higher wages and bigger pensions possible of introduction without disastrous results.

Our prosperity is in part a reflection of the improvement in Britain, but British statesmen are not saying confidently that thei'e is no longer need for caution. ' Speaking shortly after taking office as Prime Minister in July Mr. Neville Chamberlain said it must not be thought that the Government was not considering even then what measures it should take by way of public works or otherwise when the output of the factories began to be relaxed.

But nothing in the way of public works that this or any other Governi ment' could do could provide more than a mere fraction of the effect which would be produced by a comparatively small variation in the general trade of the country, and, therefore, the best way in which we can provide against a slump is to encourage and assist our traders to develop new markets, and by research and by the re-equipment of their factories to reduce their costs.

Is this the prescription that is being applied in New Zealand? We think not. There are, we admit, promises to assist manufacturers and traders, and we do not doubt that the Government would like to fulfil those promises. But it insists upon fulfilling them in its own way —a way which is rapidly increasing costs and making industrial expansion more difficult.

The Government believes in fact that everything is to be achieved by application of the high wage theory. Certainly increased purchasing power is most helpful, but the cost arid source of the increase must be taken into Recount. The theory is one which cannot be worked without qualifications. In the August issue of the "World Review" Mr. Alec Waugh points the moral of this by contrasting the American boom of 1927 with the boom that he sees now developing. Of 1927 he describes how it was then being explained that modern American civilisation had .unearthed the Philosopher's Stone.

It was not just a question of business booming, of stock market prices rocketing day' after day to new high levels. It was more than that. A formula had been discovered, a formula for permanent prosperity. High wages was the key. Increase purchasing power, increase output: buy more, produce more. Raise the workman's wages so that he can buy, on the instalment plan, better radios and bigger cars. It was a system of perpetual motion. Bankers, industrialists, politicians declared its infallibility. Within twenty months there were bread lines in "Times" Square.

The American formula of 1927 is the formula now being commended for New Zealand's adoption. America has discovered its flaws. Now a new boom is being experienced, but, Mr. Waugh writes, "There is no fond faith in formulas. No one believes that the boom is permanent. . . .

There is a general feeling of 'We've got a lucky break: . let's make the; most of it.' Money is spent freely before it is taken away in taxes and currency devaluations." We hope that New Zealand will not follow

American examples, either in credulous acceptance of an unproved theory, or cynical resolve to make the most of the boom while it lasts. But we can profit by the American experience. There is yet time if confidence and prudence go hand in hand to hold fast to that which we have and steadily but surely lay firm foundations for an enduring prosperity.