[Viewpoint] Cool heads over warm hearts

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[Viewpoint] Cool heads over warm hearts

The state of Florida in the United States was devastated in the summer of 2004. It was paralyzed as Hurricane Charley swept through, claiming 22 lives and causing $11 billion in property damage.

The chaos grew after the hurricane passed due to profiteering by merchants. Shopkeepers charged $10 for an ice pack that used to cost $2 before the hurricane. The charge for one night’s lodging soared up to $160, enraging residents who were looking for a place to sleep after they lost their houses.

The state was seething with public uproar against retailers, with people denouncing them as predators that preyed on the pain caused by the natural disaster.

Fortunately, there was a law to punish profiteering acts in Florida. More than 2,000 reports of profiteering were filed.

A motel owner had to pay a $70,000 fine and refund some additional charges to guests. Residents were moved by the punishments, as they thought justice had won.

This justice, however, was questioned by liberal economists.

“It is neither greed nor brazenness that market demands tolerable prices. It is a way of distributing goods and services,” they said.

At first sight, prices seem absurdly high, but high prices encourage suppliers to increase production and discourage unnecessary consumption. Therefore, the gains are bigger than the losses, they argued. (Michael Sandel, “Justice: what’s the right thing to do?”)

What happened next? It’s obvious. Prices went from blatantly unscrupulous to find a happy medium in the end. So here is the question: What about the weak?

The same debate was reignited in Korea as President Lee Myung-bak grew angry at capital firms for charging excessively high interest rates for individual credit loans. President Lee wants financial firms to give poor people loans with low interest rates.

It would be really great if it could work out as President Lee wishes.

In reality, however, it would be very difficult for such a financial firm to exist in our society.

First of all, as long as it is not a charity group, no financial firm would give a low-interest rate credit loan to a person who is highly likely to be unable to pay it back. And if it did, the financial firm would not be around for long.

And because it is highly likely that borrowers with bad credit would be unable to pay back their loans, the financial firm would go bankrupt in the end.

The problems do not stop here. When a financial firm goes bankrupt, the government tends to liquidate the insolvent company using taxpayers’ money.

We may consider the poor as the weak. But a populist policy, unconditionally sympathizing with the weak and sparing no expense to give aid to the weak, is not a solution.

We can tell the same story in terms of real estate prices. Ordinary people, whose whole fortune is tied up in one house, will raise an outcry as home prices decline. They received mortgage loans from banks to buy their homes, but it is very difficult for them to pay back these loans. The outlook for good home prices seems dim in the foreseeable future as investor confidence has shrunk and supply exceeds demand.

Even so, we cannot side with the working-class unilaterally just because they are the weak.

It will be hard for the market to maintain order if the weak win gains when housing prices go up, but society absorbs all the losses when housing prices go down. It is this society’s principle that each individual should take responsibility for the investment decisions he or she makes.

Of course, it is society’s responsibility to take care of the weak with a social safety net. But it is not desirable for the government to pursue exclusively warm-hearted policies.

Needless to say, teaching the weak how to catch fish is more effective than giving them fish. It is time for the government to have a cool head, instead of a warm populist heart.

*The writer is a deputy business editor of the JoongAng Ilbo.


By Kim Jong-yoon
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