The Economics of Mr. Lloyd's Neurosis By NICHOLAS DAVENPORT Take
the case of the pay pause. Every rational person is agreed that restraint in demanding in- creases in pay is desirable in the national interest, because if the rise in pay exceeds the rise in output prices must go up and bring on the in- flationary spiral of prices chasing pay and pay chasing prices. But to get people to behave rationally it is necessary to make them believe that it is in their own interests to do so. In par- ticular, a pay pause to be effective has to be voluntarily accepted as fair and reasonable, for the Government has no power to enforce it on the unwilling. But what has Mr. Lloyd done to win approval of his pause? Nothing whatsoever. On the contrary, he has , gone out to court dis- approval. He started by giving a tremendous relief to the select class of surtax payers in his Budget. Now it was very necessary to give that relief, for the taxation of earned incomes over £5,000 was so savage that it did not pay the very ambitious and the highly efficient to remain am- bitious and efficient. It paid them to go to other countries or, if they stayed here, to spend much of their time devising ways and means of avoid- ing tax, The trade, especially the export trade, of the country suffered in consequence and it was high time that this threat to our commercial and industrial efficiency was removed. But in removing it Mr. Lloyd should have given an equal tax relief: to those who were not surtax payers, so that no feeling of injustice could be roused. But he did not. He raised the profits tax, but that was not a quid pro quo. By insist- ing on improving the standard of living of the surtax payers while decreasing, through higher prices, the standard of living of the workers, he deliberately aroused their resentment.
That was his first psychological mistake. The second was to concentrate the pay pause on the trade unions. It is true that both the Prime Minister and the Chancellor had pleaded for restraint in all incomes, but no positive action was taken to stop the annual salary increases which every administrative office normally makes. This cannot be dismissed as unimpor- tant. According to the official Blue Book, salaries in 1960 accounted for 231 per cent. of all per- sonal incomes: wages for about 40 per cent. An appeal was made to avoid dividend increases --generally but not entirely observed—but no appeal was made to stop rent increases, and the rentiers and usurers were left free to take full advantage of the sharp rise in interest rates. The workers could not avoid the feeling that they had been singled out for attack. They were so . enraged that a decent, rational, Oxford-educated man like George Woodcock has actually advised his fellow trade unionists to meet the pay pause with force. In his opinion, Mr. Lloyd is beyond arguing with. The idea that the TUC could serve on a planning council with such an apparently impossible man as the Chancellor and accept his notion of a guiding light for wages while the employers were left free to be their own guiding light for profits has become unthinkable. Mr. Lloyd's psychological blunders have com- pleted the alienation of the working class of Great Britain which has been threatening for some time. This is a very serious matter and it is difficult to see how the economy can in future be controlled. • Having got the worst out of the workers, Mr. Lloyd now proceeds to get the worst out of himself. He becomes stubborn and pig-headed. Because he thinks that the working class are sacrificing their country for the sake of their pay packets, he feels that they must be taught a lesson by suffering. This sadistic instinct, in the Freudian view, is an extroversion of his pri- mary masochism, which in turn is part of his death instinct. It is unfortunately in his power to inflict on the workers the suffering of unem- ployment by producing a savage deflationary Budget and still dearer money. This, of course, will arouse the resentment not only of the work- ing class but of the employing class. No doubt Mr. Lloyd's death instinct will not be satisfied until he and his party are thrown out of office by an enraged electorate.
When a neurosis is as grave as Mr. Lloyd's it will express itself in irrational action. It has already done so. If the wage-cost inflation of prices is a danger to our export trade it will become more dangerous if output is reduced and the wage-cost per unit is increased. So the irrational Mr. Lloyd reduces the national output by putting Bank rate up to 7 per cent. and raising all excise taxes by 10 per cent. in his `little' Budget of July. The increase in borrowing rates up to 9 per cent. or 10 per cent. was a threat to industrial investment which he wants to foster, was a further burden on the Budget and the balance of payments which he wants to lighten, was an added cost to social invest- ment in hospitals, schools, houses and roads which he wants to reduce and finally was an incitement to further wage claims (to offset higher rents and retail prices) which his pay pause was trying to avoid. So irrational is this monetary action that I can only compare it with an attempt to quieten patients in an asylum by whipping—with the warders whipping them- selves in the bargain.
I wish someone in the Government would read Life against Death before it is too late. The wage-cost problem is not a monetary problem but a psychological one.
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