THE NATION'S WEALTH
Simple questions
By an Economist
When Mr Barber puts his Budget on the Dispatch Box next month, the chances are that he will become the twelfth successive Chancellor of the Exchequer since the end of the war not to solve Britain's economic pro- blem. The economy has been constantly interfered with by chancellors—liberated, controlled, inflated, deflated, or reflated—but the results have invariably been disastrous. Quot cancellari, tot calatnitates sums up the political mismanagement of the economy during the last quarter-century.
Can Mr Barber do any better? Clearly if he wishes to avoid the fate of his pre- decessors, he will have to do something quite different. And to do something different means thinking differently and talk- ing differently. Discussion about economic policy, dominated by the post-Keynesians, has been about the wrong things, and has been conducted in the wrong language. Mr Barber's first task is to change the preoc- cupations and perspectives of his policy ad- visers. And this can best be done by asking some quite simple questions.
The most dangerous preoccupation to be swept away is the idea that unless the economy is continually stimulated by government it will fail to grow. The cry for reflation is once again gaining support, en- couraged by both the cm and the •roc. Now the questions for Mr Barber to ask his officials are these. Is there the slightest chance—what with rapidly rising earnings and further big wage demands, a still slack monetary policy, my political commitment to cut taxes, and the resistance of my political colleagues to reduce government spending—that we shall ever run into defla- tion? Moreover, the Chancellor might con- tinue, is there not some chance that the economy—in spite of what the neo- Keynesians think—might even grow spon- taneously, if I allow it to? Indeed (this one for sixty-four new pence) if a greater pro- portion of the country's resources were to be diverted from the state and left to the discre- tion of businessmen, investors and consu- mers, would there be more or less growth?
Short of sending off to Delphi for the answers, he will have to face the predictable reaction of those around him—Tut, Chancellor, you've forgotten the balance of payments' and 'What about the level of unemployment?' To which the Chancellor should counter with still more questions. Why, he should say, do we always talk in aggregates, in the large concepts—the level of demand, the balance of payments. the level of unemployment? Are not these all made up of component parts, and as we are in the soothsaying business, ought we not to study the entrails and not the bird?
For instance, how is it that if unemploy- ment is nearly 700,000, many companies are still short of workers, household helps and gardeners are unavailable, secretaries hardly less so, and in the newspapers, ad- vertisements for situations vacant beat those for situations wanted by a ratio of about 100 to 1? Where is all this unemployment to be finind, and what proportion of those reported out of work are in fact fit for work, willing to tnove to find it, and haven't had any work for, say, more than one month?
The answers, when they come rolling in, will quite clearly show that such unemploy- ment as exists is never likely to be touched by any general reflation of the economy, or manipulation of the level of demand.
And just to keep your team on the jump, Mr Barber, when it comes to the balance of payments—Britain's beloved old man of the sea—you might ask which payments do, and • which payments don't balance? We haven't helped ourselves at all by treating the balance of payments as if it were one great lump, instead of the sum of every in and out on our international ledger, from troops to tourism, foreign aid to fancy cheeses. Ask where the trouble specifically stems from. If, as is popularly said, it is our failure to export enough, ask how it comes about that the balance of payments has been spectacularly favourable for over a year without any significant diversiorf of resources from home demand into exports. Is 13ritain's new in- vestment abroad (sometimes thought to be the source of difficulty) larger or smaller than the annual income from our existing in- vestments abroad? Is the private sector as a whole in balance in its transactions with the rest of the world or not? And if it is, then can it be the government which doesn't balance its overseas payments? If so, how can ,that be cured by playing about with the pressure of demand on the private sector?
Well, they're good questions, Mr Barber, and I hope you get some good answers. But don't even bother to try to look for the answers in the official Balance of Payments Pink Book. You'll never find them there.
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