[FOUNTAIN]When saving is no longer a virtueIn 1998, Japanese municipal governments issued their citizens purchase vouchers, ranging in value from 30,000 yen to 100,000 yen. They were void if not used within six months; the point was to encourage immediate spending. When the government cut taxes by 3.5 trillion yen ($31 billion), taxpayers received the rebates in cash. In the past they had been directly deposited into accounts, but that had boosted savings, not consumption.
Japan had reckoned that spending was the way out of its prolonged recession. But when its people earned money, they hurried it to the bank. The authorities seriously considered dropping cash from helicopters, and making Monday a holiday dedicated to shopping. The interest rate was reduced to zero, but that didn’t work either. People saved whatever they could. Japan’s “lost decade” was quickly turning into two.
Koreans used to excitedly celebrate Savings Day every October. Schools would hold composition contests, and indivuduals who had accumulated fortunes by saving pittances over the years were rewarded. Last year, however, the Bank of Korea did not release the customary Savings Day press release. Banks are working hard to discontinue savings accounts through schools; the fact is that interest rates are so low that it is not worth the banks’ while to maintain such small accounts.
The national savings rate, which once hovered around 35 percent, fell to 27 percent last year, but there is little concern to be heard. The government is frequently checking the revenues of department stores to make sure they are not falling. The sentiment that “saving is a virtue” has quietly disappeared. “Consumption is a virtue,” which once would have sounded absurd on its face, no longer seems so strange.
Seventy years ago, the American economist John Maynard Keynes offered the “paradox of thrift.” He said frugality was reasonable for individuals, but for the society as a whole, it could result in reduced income and even recession. When savings increase, demand falls; when supply declines as a result, unemployment rises, and the economy slips into recession.
An economic institute recently warned that the Korean economy has fallen into the paradox of thrift. It pointed out that consumption and production have been undermined as the companies that are supposed to get loans and make investments have joined the ranks of those who are saving.
Most nations experience the paradox of thrift long after they become fully developed, but we are going through it earlier than that. Does the phenomenon mean that our economy is advanced, or that it is immature?
by Lee Chul-ho
The writer is a JoongAng Ilbo editorial writer.