Let’s not ‘exit’ too hastilyThe government announced that it will gradually wind down the various stimulus measures it instituted to get the economy through the global financial crisis two years ago, thanks to positive economic signs. In other words, it will adjust its crisis-driven expansionary approach to macroeconomic policies now that the economy is recovered and growing.
In making its announcement, the government used a carefully worded phrase: “incremental normalization.” But in effect, it announced an exit from its current policy stance, or a return to tightening. The government also added it will focus on improving public welfare and living conditions in the latter half of the year, and help small businesses who haven’t recovered as much as the large corporations.
The government cited promising economic data and various positive forecasts for our economy by major international bodies as reasons for preparing to change its policy mind-set. The Ministry of Strategy and Finance raised the government forecast for this year’s growth to 5.8 percent from an earlier 5 percent. President Lee Myung-bak observed that despite better numbers, our people, especially the working class, have yet to feel the benefits of economic recovery. He warned against feeling too optimistic just because of statistics. He has hit the nail on the head. But still we can’t shake a sinking feeling that he too lacks a full understanding of the gap between economic data and realities. Economic numbers are meaningless if the people don’t agree with what they’re supposed to be saying.
If the lives of ordinary people are little changed, the economy hasn’t really improved, even if the numbers say the contrary. It means that the economic recovery has not been substantial enough to reach their doors, not that they have been blind to the improvements.
Despite progress in the growth rate of gross domestic product and employment - which were cited by the government - there haven’t been improvements in household incomes and employment conditions. The government should seek out data that accurately mirrors economic reality instead of sticking to a few customary statistics to gauge how the nation is faring. If there is a gap between data and the reality, someone should fix the data, not bend the reality. The government did express concern about potential dangers from the European credit crisis, but failed to factor in that risk in its upbeat economic forecast.
If a government accepts flawed assessments of the economy, it will start pursuing flawed policies. Our economy in the second half may turn for the worse if authorities exit too hastily and, at the same time, start spending resources to pursue populist welfare policies.