No more skepticism, please
When South Korea defaulted in November 1997 and its need for an international bailout became formal amid the Asian financial crisis, soothsayers poured out from all over, crying out, “I told you so.”
That even included the financial authorities. The Bank of Korea said it had already forewarned of a currency crisis in a report in March, and think tanks all claimed they saw it coming.
The all-mighty Ministry of Strategy and Finance, which at the time oversaw financial policy on top of macro-economic and budgetary affairs, joined the chorus.
And while they may have all wanted to escape blame, the onus fell on those who didn’t make excuses for themselves fast enough.
The lessons of 1997 crisis have been well taught. Warnings and alarm bells went off on early signs of danger - the technology and venture bubble, the credit card crisis, real estate overheat and the financial crisis in the 2000s. Some had sufficient grounds for their foresights and criticisms. But most just cried wolf and muddled or undermined credibility in policy decisions and forecasts.
It is important to foresee economic dangers ahead. Like the adage goes, “forewarned is forearmed,” even if the harbinger turns out to be wrong. It is safer to warn because then no one can say “I told you so.” If they are wrong, they could always blame it on economic odds.
Nouriel Roubini, a professor at New York University, gained the nickname Dr. Doom for his accurate forewarning of the Wall Street crisis ahead of the 2008 financial meltdown. He spoke again of a “perfect storm” in 2013 that could wreck the global economy in a scale tantamount to the Great Depression. But the giant storm never arrived. The global economy remains feeble, but few now believe an apocalyptic storm is on the horizon. Still, Roubini remains more appreciated than resented for sharing his thoughts.
The rising star in the circle of economists is Thomas Piketty, a professor at the Paris School of Economics and the author of groundbreaking research on wealth inequality. His bulky 696-page book, “Capital in the Twenty-First Century,” became an international best-seller. In it, he points out that the income and wealth gap between the very rich and the rest has worsened to late 19th-century levels and won’t likely reverse. Citing data over the past three centuries, he claims wealth inequality accelerated because the return on capital outpaced the increase in economic output. In other words, those who have capital earn at a faster rate than the economy grows, and the discrepancies will likely worsen as the world population’s growth subsides and wealth becomes even more concentrated.
He was criticized for such a simple comparison of the two data sets, but unless various policies and economic structures change, Piketty’s thesis is likely to be more right than wrong. No one will blame him if he proves wrong because who wouldn’t be happy if the wealth gap narrows?
Deputy Prime Minister Choi Kyung-hwan went straight to work to make fixes on the hardly moving economy when he was put in charge of economic affairs two months ago. He squeezed out all possible fiscal and monetary measures to jump-start the economy. Soothsayers and skeptics all went to work with their warnings. They have a strong point. All the easing could end up only aggravating household debt.
Expansionary fiscal spending also may just undermine fiscal integrity, which has been the strongest asset of the Korean public economy, if it fails to revive the demand. The central bank remains neutral and conservative. The BOK has always taken a safe route. At the beginning, it went along with the deputy prime minister, who called for emergency action.
Now, it is murmuring “I told you so” as the economy shows little to no signs of improvement. BOK Governor Lee Ju-yeol said, “There is a limit [to reviving the economy] through fiscal expansion and monetary easing.”
Politicians are also pessimistic about artificial stimuli. Criticism from the opposition is understandable. But even the ruling party is questioning the measures. Saenuri Party Chairman Kim Moo-sung expressed concern about the government’s hope to increase fiscal spending. The unfavorable tide is bad news for Choi and his economic team because they need legislative support to pass the economic laws needed to push ahead with the campaign to vitalize domestic demand.
The government is well aware of the limitations of its stimuli outline. But it cannot protest because options are few. “Structural reforms take a long time to reap fruit. In the meantime, we are hoping stimuli measures will buy time,” one ministry official said.
Without stimuli to sustain corporate and consumer spending, domestic demand could sink further in three to four months time. By then, policy ammunitions would have been wasted. Policy makers argue that, if the economy dies either way, they must try everything.
While his predecessor was criticized for doing too little, Choi may have been too eager to do the opposite. Genuine concern and advice are needed. But in times like these, what Choi and the government need is support, not smug remarks. The methods may not be the best, but for now they are better than nothing.
JoongAng Ilbo, Oct. 14, Page 28
*The author is the acting editor-in-chief of the JoongAng Ilbo.
by Koh Hyun-kohn