*The author is a columnist of the JoongAng Ilbo.
Psychologist Leon Festinger investigated why smokers continued to smoke when they knew it was not good for their health. He found four patterns. Some smokers change their behavior — smoking is unhealthy, so they quit. Some change their perspective — they focus on how enjoyable smoking is and ignore the effect on their health. Some justify their actions, saying they enjoy smoking and justify that smoking is good for relieving stress. Some ignore the issue and deny information they don’t like, believing that the research on the negative impact of smoking is exaggerated.
The psychology to deny reality when the reality is different from our beliefs is called cognitive dissonance. Some people call it “spiritual belief.” I think it applies to the economic policies of the Moon Jae-in administration’s first year. The income-led growth, which is like putting the horse before the carriage, is on the rocks, but there is no plan to change it. Instead, the administration is likely to push it further.
Let’s look at the minimum wage. Major side effects were expected from the beginning, and 3 trillion won ($2.8 billion) of tax money was allocated to buffer the impact. The shock was greater than expected. When joblessness increased at the beginning of the year, the National Statistics Service argued that it could not be considered a result of the minimum wage after only a month. In March, the job number worsened, especially in the service industry. The gross domestic product grew by 1.1 percent in the first quarter, but retail wholesale and food and hospitality industries shrunk by 0.9 percent. The number of new hires decreased by 116,000. Vice Prime Minister for Economic Affairs Kim Dong-yeon said that the impact of the minimum wage can be analyzed after six months. I expected some repentance on pushing it too hastily, but the administration went further. The Ministry of Justice defined the minimum wage of 10,000 won as the National Human Rights Basic Plan. It is the first time that the human rights plan has stated a specific amount. It seems to be the third stage of cognitive dissonance, justifying wrong behavior.
How about the labor policy? On March 15, it was determined that the overprotection of regular employment was the cause of sluggish employment, but the introduction of a job-based payment system was not discussed. The Ministry of Strategy and Finance changed the position as the structural issue could not be resolved at once. Ministers say that jobs are created by companies, but the number of civil servant jobs is increasing. The administration opposes a special law on a regulation free zone.
A spiritual victory doesn’t work for the economy. The results are out. On the report card for Moon Jae-in’s first year in office, the economy comes out the worst. Among ten economic indicators, retail sales and consumer psychology are two figures that improved from last year.
Eight indicators, including import and export growth rate, manufacturing and service production, have worsened. The economy that was on the rise has slowed down in a year.
When you know you are wrong, you have to stop. In the economy, it is called sunk costs. When you go further, you cannot return.
JoongAng Ilbo, May 10, Page 30