[Viewpoint] Higher growth vs. higher taxesThe dollar’s strengthening against the local currency can benefit exporters at the expense of domestic consumers. Lower interest rates and an increased money supply can incite inflationary pressure, giving the government the leeway to support corporate and household debtors as well as servicing fiscal deficits.
Loose monetary policy, as result, can be a legitimate way to collect taxes. When the government hit the wealthy with multiple property taxes for hundreds of thousands of won, they filed a lawsuit against the government and staged an anti-government campaign. But they remained subdued when the cost of their extravagance in financing their overseas travels and children’s oversees schooling doubled due to a stronger dollar. Few would not have been so quiet if the government proposed the idea of subsidizing exporters by levying sales tax on consumers. The market, public and media aren’t always moved by such reasons.
Therefore, it is important for the state to maintain honesty, fairness and decency in making and implementing policies because the public can be easily fooled and manipulated by economic policies. Expansionary fiscal and monetary policy to boost spending does not immediately translate into individual losses. In the short term, everyone is happy as the stimulus helps job and growth figures. The bill unequivocally arrives in eroding forces of higher taxes or inflation either in our times or in later generation.
The global financial crisis has given economists the opportunity to reflect on conventional models and embark on new ways of thinking. The market-efficient and rationality theories proved largely plausible in hypothetical debates but wanting in times of real liquidity crisis and volatility. To comprehend economics and the financial markets, we have to study beyond finance and macro-economic textbooks to incorporate political, social, psychological as well as historical perspectives. It’s back to go back to the basics just like early teachers and schools of economics in the 18th and 19th centuries pored over philosophy, ethics, politics and human behavior for their ideas.
One line of critical argument claims the government can subsidize and fatten the pockets of a particular interest group at the expense of today’s and future taxpayers. Since the 1990s, the U.S. government made itself the patron of the financial industry, advocating what’s best for Wall Street was likewise for the country and its economy.
Wall Street thanked its blessings, signing generous checks for politicians, public officials, journalists and scholars. Regulations and restrictions eased and the financial institutions expanded, merged and ventured forth new securitization financed through debt.
A recent study by the Federal Reserve found the combined market share of the top ten U.S. banks jumped to 53.9 percent in 2008 from 35.6 percent in 1999. During the same period, the salaries of the banks’ employees and executives rose to $74.9 billion from $30.8 billion. Ordinary shareholders, on the other hand, received 0.3 percent of the net assets in dividends in 2008, down from 0.8 percent nine years earlier. In fact, the income of bank staff was more than four times the dividends earned by shareholders, while the losses from the crisis translated into smaller returns for shareholders.
Despite all of the calamities it caused the country and the world, Washington is still rewarding Wall Street with heavy fiscal bailouts and monetary supplies. Bloomberg estimates losses from mortgage delinquencies amounted to around $150 billion, while the federal government and bank are pouring in $13.2 trillion to pull the financial industry out of the shambles. The fire is out for the moment, but few want to imagine who will be picking up the tab.
Taxpayers are the most probable candidates. Washington’s nostrum to battle the financial crisis - aggressive fiscal and monetary stimulus synchronized by other nations - will likely send more than a few ripples to political, economic and social corners around the globe. Each country will be tested on its decency and fairness depending on how well they accommodated and appropriated the stimulus cost. Can higher employment and growth figures justify a greater burden on the taxpayers?
If stronger economic growth numbers can excuse any moral hazard and structural impairments, we cannot have hope for a prudent government that sincerely worries about the country’s future and next generation.
*The writer is the head of Sogang University Graduate School of International Studies. Translation by the JoongAng Daily staff.
by Cho Yoon-je