Don’t be the fool in the shower room

The Yoon administration must stop fighting the past and move forward to pursue
pragmatism.

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Kim Dong-hoThe author is the business news editor of the JoongAng Ilbo. What has the Yoon Suk Yeol administration achieved economically over the past two years? Until now, the conservative government has implemented fiscal austerity and export promotion policies, addressing the failed income-led growth policies of the Moon Jae-in administration. The rapid increase in the minimum wage has stopped, and the pace of national debt growth has slowed after swelling by more than 400 trillion won ($297.3 billion) under the liberal government. Though the economy has not improved significantly, the self-employed have stopped complaining of their struggles with the high minimum wage. As fiscal austerity took effect, warnings from international research institutes of Korea’s fiscal deterioration became less frequent.

President Yoon kicked off labor, education and pension reforms to little avail. Aside from enhancing the account transparency of labor unions, no fundamental change has come to labor. There is no practical policy improving the work environment for women and older adults or creating new jobs. In education, besides the microscopic measure of excluding “killer questions” from the College Scholastic Ability Test, results of the government’s efforts to ease students’ dependence on private education and normalize public education have been negligible. The government’s pension reform plan, while never an easy task to craft, is still unreliable.

Some policies have taken the wrong direction entirely. Examples include the desynchronization of apartments’ official and real prices and the reduction of the government’s budget for research and development (R&D). There were many problems with the Moon administration’s bold move to narrow the apartment price gap. Considering the size of the Korean economy and the reality of low growth, imposing taxes based on the official prices of apartments has many side effects. The liberal administration tried to raise official apartment prices from 50-60 percent to 90 percent of their market prices. It led to an increase in the property tax, sparking a housing price hike. This shock doubled apartment prices in Seoul during the Moon administration, pushing low-income people further into a corner

It may be reasonable that the Yoon administration decided to scrap a realistic reflection of the market in determining official housing prices. But reason alone does not make things work. Scrapping realistic official prices could be a policy failure. The Moon administration’s decision to punitively tax homeowners without considering reality certainly made people struggle and distorted the economy. But the system is desirable for its effect of controlling the growth of housing prices. The government could have left room for an upward adjustment in case housing prices were to soar.

The Yoon administration also cut the R&D budget, purportedly to right the past administration’s wrongs. It would’ve been reasonable to tighten spending to manage the national debt that had surged during the Moon administration. But President Yoon failed to distinguish between what was important and what’s not. In a country that does not produce a single drop of oil, the only engine is labor. In order to enhance labor, R&D capacity must increase. By cutting the budget, Yoon tied his hands and feet. This is a self-contradiction at its worst. R&D budget cuts may have contributed to the governing party’s crushing defeat in the April 10 parliamentary election.

Immediately after the 1997 Asian financial crisis, the Korean economy was able to recover quickly thanks to the Kim Dae-jung administration’s huge investment in information technology development. Some entrepreneurs spent the money in a wrongful way, feeling that their early claim to it made it theirs to use as they wish. A bubble of that magnitude is inevitable.

American economist Milton Friedman was a libertarian but warned people not to be “the fool in the shower.” He warned that if economic policy goes from hot to cold too quickly, it can fall apart. The direction must change slowly. The pros and cons of economic policies need to be considered together. The Yoon administration must stop fighting the past and move forward to pursue pragmatism. The same applies to the party that controls the National Assembly.