The Wanganui Chronicle MONDAY, OCTOBER 25, 1937. “INSULATING” A COUNTRY

Wanganui Chronicle, Volume 80, Issue 253, 25 October 1937, Page 6

The Wanganui Chronicle MONDAY, OCTOBER 25, 1937. “INSULATING” A COUNTRY

'T’HE public is conscious that this Dominion is riding for a fall, in that it is enlarging its Governmental expenditure to peak levels, which expenditure can only be carried under very favourable conditions. What will be the position, it is asked, when there is a recession in the export income? Members of the Labour Party realise that there will then be presented to the Government a problem of first magnitude. The Government itself is worried concerning its prospective plight: the Opposition is concerned lest it shall be called upon to clean up the wreckage caused by the over-spending of the present Government.

The appropriate course for the Government to follow is to store up reserves against the time when surpluses arc replaced by deficits. It must be remembered that this policy did much to alleviate the full force of the depression, for the Government was enabled to call up its reserves and so avoided imposing the full tax-burden which otherwise would have been necessary. This is a phase of the depression for which previous governments have not been given the credit to which they are entitled.

When asked how he will face the future, the Minister of Finance offers a phrase instead of an explanation, a stone instead of bread: he says that he will “insulate” the country from the effects of a world depression. The phrase is inadequate because it tells nothing. The probability is that Mr. Nash does not know what he would do in the envisaged circumstances.

To insulate the Dominion of New Zealand would be to break it off front its essential foundations. This Dominion is running an export economy. It is producing raw materials and foodstuffs which could not be used or consumed in their entirety by the population of the Dominion, nor by four times the present population. Those raw materials and foodstuffs are sold in the United Kingdom and world markets and the proceeds are used to pay the existing overseas interest bill, and the cost of the goods which New Zealand must import because they cannot be produced within the country. When the proceeds of the exported products falls there is less money available in London to pay for these external demands. Unfortunately the price-fall in exports comes sudden and soon, while the orders placed for goods to be imported are filled after the price-fall and have to be paid for. It follows then, that unless there is to be a general breaking of contracts in respect to importers’ orders—a course of action which would ruin New Zealand’s reputation as a fair dealing country—there will develop a shortage of London funds. If in such circumstances New Zealand is to be insulated then nothing can move in or out, in which case the Dominion’s credit in London would immediately be impaired even more than by the effect of the price-fall. Insulation is obviously not the term which Mr. Nash should use, for it would clearly be impossible for such an operation to be performed. V hat could be done, it may well be asked, with a season’s supply of meat and butter and cheese if the country were insulated and none of those products were to be exported? They could not be accommodated in cold storage because there is not sufficient refrigerated space available to contain such a large quantity of supplies. The exports would assuredly go forward to London, and the iincaneelled orders for imports would have to be paid for. In the circumstances it would be a matter of harbouring existing resources in the hope that the uplift in prices would occur before those resources were exhausted. That is precisely what was done in the List depression and what would have to be done in the next depression. To declare that this Dominion could be sheltered from the effects of a world recession in prices is simply to mislead those who are not aware of the situation.