[NOTEBOOK]It's Your Patriotic Duty to Spend Money"When economies are down, 'sound' consumption is needed." That slogan, posted on its building by the Bank of Korea, the nation's central bank, is an astonishing one.
To people who have been long accustomed to slogans along the lines of "Let's lead a thrifty and frugal life" whether the economic situation is good or bad, the new slogan is something to ponder. First of all, the central bank has always emphasized price stabilization, but it now is emphasizing the importance of consumption. Folks may cock their heads and say, "That's not right."
Judging by the old standards, the new slogan is provocative. In earlier times, the government urged thrift and forced banks to compete on the basis of how many savings accounts they could attract.
But the bank has to change with the times. The main role of a central bank is to read the economic trends and suggest the best way for our economy. It should not be an organization encouraging savings only, but a central headquarters that controls the speed of economic growth. Our central bank has not been at the center of economic policy, unlike the Federal Reserve Board in the United States. But because the Bank of Korea will assume a role in the future similar to that of the U.S. central bank, it should deliver its judgements and recommendations clearly to the people.
During earlier times, when material goods were scarce, production was the biggest need for economic development. But now consumption is key. In the case of the United States, consumer demand accounts for two-thirds of economic growth. Korea is in a similar position; in the first half, 60 percent of gross domestic production here was generated by consumption activities. Consumption is now a major economic engine, and it is only natural that it should be emphasized. When consumption slows, the economy slows.
Not everyone agrees. Some say that because of the terrorist attack and its aftermath, major economies including the United States are stumbling. Korea, which has mainly depended on exports for economic growth, is in trouble and should therefore save, not consume.
But indeed, more consumption is needed to pull the economy out of a slump. When the economy is going well － in other words, when people's pockets are full of money, that kind of slogan is not necessary; getting people to spend is no problem. As business conditions worsen, overtime work disappears, workers' fringe benefits shrink and stock prices go down. Pockets are lighter, and goods stay on the shelf. It is at that time when more consumption is needed to reverse the trend.
This consumption campaign is aimed at people who have money to spend but will not because of social pressure that holds consumption to be inappropriate or downright evil. The campaign is also aimed at those without money, telling them not to be envious, because the spenders are actually helping them.
But our society still does not approve of wealth. I think that is because ordinary people are suspicious of the ways the rich accumulated their wealth. But still, the rich do contribute to society by their spending. During a slump, their contribution is more important. A few days ago there was a report that despite the economic depression, the Ssangyong Chair-man, one of the most expensive sedans in Korea, is selling well. Though some people believe that such behavior just aggravates strains in our society, from an economic point of view, that behavior should be encouraged. If we seal the purse strings of the rich, the financial condition of Ssangyong Motor, which makes the Chairman, gets worse. When the Chairman sells well, Ssangyong Motor workers benefit. If sales decrease, the workers' purses are empty. Although those who ride in a Chairman are rich, those who make the car are mostly lower or middle class. Spending by the rich contributes to our society.
So there is a fallacy in the central bank's slogan. That is the expression "sound consumption." Consumption is consumption － there is no distinction that can be made between sound and unsound consumption. There are only differences in spending patterns between the rich and the rest of us, according to our situations.
The writer is the international economic news editor of the JoongAng Ilbo.
by Sim Shang-bok