Cutting services is the wrong way to cut inflation
Money is only a vehicle. It should be the servant, no the master, of the economy. Real valuesa are the goods and services produced by the labor and skills of people combined with the natural resources available to them. Labor and skills are plentiful; natural resources are limited. Thus the phrase that some desirable good or service is "more than the country can afford right now" may apply to those products which embody scare resources but should not apply to those services depending mainly on people.
Nevertheless, these very services are the target, world wide, of the cuts in expenditure which are supposed to curb inflation. In Britain, for instance, in order to save $275 million over the next two years, the BBC is to cut back on educational programs, eliminate a popular daytime serial, shut down the national radio network devoted to classical music, and disband five orchestras.
None of these activities consumes an appreciable amount of scarce resources. The people dismissed must be fed, clothed, and sheltered somehow, so what more constructive acitivity could they undertake? The money saved is merely a token; it has no value in itself unless it is diverted to something more beneficial to the general good.
The drive for austerity in the United States is aimed in the same direction.Cuts are to be made in those public services which serve the real needs of the more helpless, the children, the aged, and handicapped, the unemployed, and those services which cater to the mind and spirit: education, art, music, and the provision of amenities such as libraries, parks, and recreational facilities. These cuts dispense with people and their skills; they save little in the way of scarce natural resources.
The problem arises because these desirable government services to the community have to be paid for by taxes. The individual resents taxation, forgets what he receives in return, and does not realize that his capacity to earn an income is the result of interlocking community effort.
So the cry is to cut these communal services and reduce taxation. The individual wants to decide for himself how he shall spend his income. This expenditure, however, may be on more material goods, more extravagant use of energy, more unnecessary luxuries, much of which will increase consumption of those natural resources which are scarce and getting scarcer.
There is also a theory among the advocates of tax reduction that increased income for the better off and the corporations will be invested in new capital equipment. This is supposed to enable us to produce more material goods with less manpower, thus depleting the store of natural resources but dispensing with labor of which we have an excess.
However, saving may not result in investment. The incentive to invest is anticipation of an expansion of demand, but the effect of cutting government expenditure and reducting the incomes of a large section of the population is to reduce demand. With a falling market, who wants to expand?
Thus we must conclude that thinking in terms of money instead of real wealth results in proposing the wrong remedies for our dilemma. Reducing government expenditure in the social field and cutting taxation will diminish the quality of life for more people than it will benefit.