[EDITORIALS]‘Pump priming’ needed nowThere is controversy over whether, in order to stimulate the economy, it is better to increase national expenditures or give people tax deductions. But though the governing and opposition parties have presented different solutions to the task of defusing the recession, it is encouraging to see that the politicians have come to see the urgency of reviving the economy.
The government has not made its position public, but it does seem that it has recognized the need to accept going into the red financially in order to revive the economy. Lee Hun-jai, deputy prime minister for finance and economy, said some time ago, “From a mid-term perspective, we must maintain a healthy financial state, but in the short term, we must manage it flexibly, responding to the movement of the economy.” It would appear from this comment that he was considering expanding government expenditures.
We agree with the theory that we need short-term “pump priming” policies to revive the economy. It is a matter of choice whether to use fiscal expansion or tax deduction.
In the case of boosting government expenditure, we can expect to see direct benefits from the policy, but it is questionable whether the government can ensure that investments are made in the proper projects in the proper manner. Tax deductions would increase people’s purchasing power and provide businesses extra money for investment. But the benefits of this policy come slowly. As both of these policies have their merits and demerits, it is difficult to say with any certainty which one is the right answer.
More important is to waste no time in finding a way to revive the economy before we lose more growth potential. Reflecting on past experience, we can recall bad side effects from such pump priming policies.
But with exports, the last bastion of our economy, showing signs of a slowdown, and predictions emerging that next year’s growth rate will be as low as 3 percent, this is not a time for hesitation when it comes to stimulating this stagnant economy.
At the same time, it shouldn’t be forgotten that the cause of the current economic fiasco lies in the anxiety of the economic players. Pump priming policies are mere short-term solutions. Without fundamental solutions that will stabilize the psychology of the economic players and reinstate the entreprenurial spirit, we cannot raise our growth potential.