[EDITORIALS]When all remedies fail

There are signs that the current economic recession will be prolonged. The government’s economic measures have had sluggish results, because changes involving the budget and monetary policy have been insufficient to revive the economy.
The Bank of Korea will decide whether to raise interest rates at a regular meeting of the Monetary Board on Thursday. At the moment, it appears likely that the rates will be frozen. Economics textbooks call for lowering the rates to boost the economy. But lowering rates further will not revive the economy when the practical interest rate is already near zero. Nevertheless, we are not in a situation to increase interest rates, either. In order to absorb the money in the market that is blamed for making real estate prices soar, interest rates should be raised. But when the economy is crawling at the bottom, it is not proper to discuss rate increases. Consequently, the central bank is in a dilemma. Studying how the wind blows, it has been holding the call rate steady for the past six months.
At the same time, the finance policy doesn’t work either. The government spent 100 trillion won ($100 billion), or 59 percent of the year’s budget, in the first six months, but the economy hasn’t budged. Some say a revised supplementary budget should be drawn up, but others warn that it will only increase the deficit. If it would revive the economy, there would be no reason to object to early implementation of the budget, or to a supplementary budget. But government money can’t be wasted randomly. Even when we spend more, there is no progress in major national projects. We feel burdened.
With monetary and financial policies having been ineffective, there are almost no macroeconomic policies left to propose. All remedies seem to have failed. If pouring in money does not spark the economy, then the reason for recession must be somewhere else. First of all, the construction sector, the most effective sector for revitalizing an economy, has been frozen by the government’s regulation of the real estate market. Big businesses’ investment plans have been blocked by regulations and the “balanced development” policy. If the government wants to revive the economy, it should change its paradigm of thinking now, instead of clinging to macroeconomic policies that have no real effect. It should listen to what the market wants.