OFF WITH THE BRAKES
Whenever one of the familiar storm signals is interpreted to indicate that the British economy is running into dangerous rather than merely rough weather, the cry `Halt!' goes out. The reaction, long since become instinctive, is to stop, to deflate, whenever one or another sort of inflation is thought to be proceeding too quickly, to `cool down' when economic activity is thought to be 'over-heated', to mollify and to mediate and to conciliate when clashes between groups representing different and often conflicting interests become too angry for comfort. No post-war administration has managed without Stop-Go. Although balance of payments has been the most familiar pretext for imposing a stop, the present situation—of growing unemploy- ment, major company bankruptcies, official union strikes, and a pervasive feeling in the country that all is not well, all nevertheless combined with a healthy balance of pay- ments and a strong pound in the foreign exchange markets—is also very widely interpreted as signifying that the time has come, if not for an official and compulsory stop, at least for an unofficial and voluntary slowing down or cooling down. The cry being heard from almost all political sides is for an incomes policy of a `voluntary' kind, in which, at an urgent and formal re- quest of the Government, the unions will accept on behalf of their members a self- denying ordinance and all will be peaceful and quiet once more. The fear of inflation remains powerful, for many believe it . to bring in its wake potentially revolu- tionary political consequences. And infla- tion is also morally disliked by many men of good will who regard it in its effects as an unjust and undiscriminating tax anti- social in the way it bears upon the weak, as a device by which the state welshes on the servicing and redemption of its debts.
The orthodox governmental answer, of which we have had continuing intermittent experience since the war, has been to accept that inflation is evil and trot out a package of fiscal allsorts to reduce the demand of private citizens, to compel or exhort mod- eration or even a 'freeze' in wage settle- ments, and to proclaim an intention to do something about governmental expendi- ture. Since it is apparently much easier for any government to reduce the spending power of private citizens than that of great departments of state, and since deflation is unpopular with the wage-earning and profit-making classes and therefore never lasts for very long, the brunt is borne by private citizens and reductions of govern- mental expenditure seldom get beyond the proclamation of good intentions.
Wage-earners and profit-makers, who between them actually produce that wealth, are not likely indefinitely to agree; and although wage-earners and profit-makers will rightly and energetically dispute be- tween themselves how the wealth they have created should be divided, they will find common cause that the government should leave them as much as possible of that wealth for them to dispose of as they choose and that taxation should take away as little as possible for the government to redistribute among the rest of the com- munity. Party politics, whatever else they may be about from time to time, are always about how much of the nation's productive wealth, how much of the gross national product, shall be commandeered by the government of the day, and what it should do with what it gets.
Any serious political party—serious, that is, about wanting to get or to keep power—wishes to see a growing GNP because it makes easier the putting into practice of whatever policies it recom- mends. The right and the left want growth not necessarily as such but for political reasons. The more a government of the left has to redistribute to those it regards as in need, or the more a govern- ment of the right can reduce taxation, the happier such a government will be. A leftish government will know that there is a limit beyond which people will not be taxed. A rightish goVernment will likewise realise and acknowledge that a very considerable amount of redistribu- tion of wealth is politically inescapable and socially desirable. Wage-earners and profit-makers will accept that they must be taxed to help the needy and to defend the country, but there will come a time (not necessarily the same but often much the same time) when one or the other group will say 'we will be taxed thus far, but no further'. When such a time arrives, a rightish government is more likely to be in tune with the mood of the country than a leftish one. We are now in such a time. The demand is for more money, or for less taxation, or for both. For the present government to resist such a demand and return to the old methods of deflation would be a very spectacular political defeat. '
The unions who are demanding more money and the industrialists who are demanding less taxation are, essentially, on the same side when they address such demands not to each other but to the Chancellor of the Exchequer, now intent upon putting the final touches to his Budget. It is to be hoped that Mr Barber listens more to them and less to orthodox economists and city men and tim, is politicians. Those on both sides of manu- facturing industry want growth. They want to earn more, to make more, to expand more, They want fiscal policies which encourage and reward them. They do not want another cold douche. Acknowledging the storm signals, they prefer the better and, in the long run, safer course of riding out the storm than the convenient and familiar• course of running for cover. They take heart from the words of Professors Harry Johnson and Frank Paish in the Sunday Times: JOHNSON: I believe the country is basic- ally in pretty good shape. Five years ago I was really depressed because of the economic nonsense that was being talked by Government and other people, and particularly the effort to maintain an Cover-valued exchange rate by policies which were not forceful enough or pursued far enough to succeed.
PATSH: Basically the position is very much better than it has been for a long time. In 1964 we had a number of problems. We had an extreme excess demand; we had an over-valued currency; we had a very heavy adverse balance of payments; we had a government which, owing to its very small majority, was not capable of doing anything except pretend things were better than they were. The position then seemed extremely gloomy, and on the whole I think we've come out of it better than we had reasonably a right to expect.
The pound now is high. Money flows into London. It is risk money. It enables this country to take risks. Now that, thanks to devaluation, we have no im- mediate balance-of-payments problems, let us, instead of searching around for other problems with which to justify another stop in the Stop-Go cycle, take a chance, break out of the vicious circle, and go, go. Take off your brakes, Mr Chancellor, do not step harder on them.
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