Futility of the cash handout

the government must examine the difficulties of everyday livelihood even deeper.

Lee Sang-ryeolThe author is a senior editorial writer of the JoongAng Ilbo. A handful of bills validating special counsel probes, including one into the government’s handling of a Marine’s death, and universal cash handouts of 250,000 won ($180) pursued by the opposition Democratic Party (DP) have one decisive common denominator. They are strongly disapproved by the government. But the government can hardly resist the cash handouts after the DP’s landslide victory in the April 10 parliamentary elections.

As Gyeonggi governor and Democratic Party presidential candidate in 2021, Lee Jae-myung, center, announces a plan to give 250,000 won ($180) in relief to each of the 2.53 million residents in the top 12 percent income group in the province, who were excluded from the central government’s emergency relief during the pandemic. As current leader of the majority opposition, Lee proposes handouts of the same amount to all people. [YONHAP]

The government and the People Power Party (PPP) are opposing the DP’s plan to dole out cash to every citizen, citing the principle of separation of powers. In other words, the opposition’s scheme infringes on the government authority to draw up the budget. Law experts also agree on the possibility of a Constitutional breach. But that reasoning won’t persuade the public to turn down the offer. The question is whether the extra cash will serve the purpose of alleviating everyday livelihood and whether it is the best option.

Many working-class families are cornered. Loans by the self-employed surged by more than 50 percent from the pre-pandemic period. They have survived on debt so far. Real wage has actually declined because inflation rose faster than the growth in nominal wages. Files for bankruptcy in the first quarter have more than doubled from the same period in 2021. One million won in cash for a family of four indeed can be a big help for the working class. They would not welcome a government leisurely opposing the idea based on the separation of powers.

But the scheme has a deep flaw. A check of 250,000 to every citizen would not be efficient. To the rich, that money loses its efficacy, as cash support has less of an effect of generating consumption by the group. According to a study by the Korea Development Institute on the first round of pandemic relief handouts in 2020, the money boosted consumption by just 26 to 36 percent of the fiscal input. Therefore, the Moon Jae-in administration’s subsequent relief funds went to the vulnerable class selectively.

A cash handout of 250,000 won to every person requires a 13-trillion-won budget. Since government coffers lack that much money, the government must issue debts. Issuing debts of such magnitude accompanies trade-offs. Market yields will rise from the increase in government bonds, lifting loan rates for borrowers. Those living off debt may get some relief from the stimulus check, but that may not help their consumption if it goes to pay off their heavier debt. The sudden lush liquidity can also spike inflationary pressure. Therefore, the theory of cash stimuli boosting consumption and triggering a benign cycle in the economy may not work.

The DP could immediately score points with voters with the cash handouts. The party can entirely take credit for the program financed through a special bill or a supplementary budget, and gain further grounds to attack the government for neglecting public livelihoods. But in essence, the DP just capitalizes on government debt for a questionable program. The party may win immediate cheers from the working class, but it will lose confidence as a responsible party.

The government and the PPP must share the blame for the rise of populism. They failed to provide an alternative option to help the public. Instead, they only point to the surprising 1.3 percent increase in the GDP in the first quarter from the previous quarter to oppose a stimuli program by claiming that the economy is improving. That kind of complacency cost votes for the PPP. The first-quarter gain owes largely to exports — mostly an 83-percent jump in chip shipments. Output by large companies rose 7.9 percent from the same period a year ago, whereas output by small and mid-sized firms fell 2 percent. The retail sales index outside the capital area is also in the negative.

The chip upcycle helps mask the prevalent slump in other businesses. The income gap between large and smaller companies and between regular and irregular workers is ever-widening. This is no time to be complacent with quarterly data. The government must examine the difficulties of everyday livelihood even deeper. It must go all out to ameliorate the polarization and build the ladder of opportunities for those falling behind. That’s the only way the government can persuade the people to resist the temptation of populism.