The author is an editorial writer of the JoongAng Ilbo.
The oil tax cut on gasoline and diesel was an emergency measure. It has been used twice in the past, in 2000 after the currency crisis and in 2008 during the global financial crisis. From Nov. 6, the oil tax will be lowered by 1 percent for six months. While it is too early to tell whether the economy is in as critical a situation as on the two previous occasions, ominous signs are evident, so the government presented a desperate measure.
What the government really wanted to do was allocate a revised supplementary budget. In May, 3.8 trillion won ($3.3 billion) in supplementary budget was drafted to boost youth employment. But it is too late this time. Considering the budget draft, the National Assembly discussion and process, it is impossible to use the budget by the end of the year.
So the government fell back on the oil tax cut again. It means the situation is urgent. International oil prices are on the rise and spending is likely to dwindle further. As the oil price increase is offset by the tax cut, people can consume more or use the saved money on something else. Similarly, public agencies are to offer 59,000 temporary jobs by the end of the year. The growth rate prospect is declining, and jobs are not growing. When the economy loses vitality, the poor are most vulnerable. Winter is coming, and the government is setting up a shelter to block the wind and help people endure the cold.
Understandably, Kim Dong-yeon, the deputy prime minister for the economy, and ministers of major ministries got together on Oct. 25 and pledged to “do something.” They acknowledged the possibility of a crisis. The stock market is already in panic. A crisis does not come to those who are prepared. A crisis hits suddenly when people are distracted. Therefore, no one can blame the government for using all the available measures.
Problems arise when ideals and reality clash. According to Nobel Prize-winning economist Jan Tinbergen, there should be equal or more policy instruments to achieve a certain number of policy targets. The Tinbergen Rule states that it is hard to attain multiple targets at the same time with fewer instruments, according to “Economists on a Dining Table” by Jo Won-gyeong.
I wonder how innovative challenges can be made to ignite the growth engine. The regulatory reforms that the government pursued for innovative growth were vain attempts. Trying to lift unnecessary and outdated regulations did not work. For example, car sharing and carpooling are an unavoidable trend of the time, but the bureaucracy struggled to overcome the resistance of the taxi drivers.
So the government is using short-term means to keep the warmth and start the fire. But it is hard to expect results. The wet firewood of income-led growth is already in the furnace. Tinbergen said that there was no instrument to kill two birds with one stone.
Arrows should be aimed at only one point, the target of a crisis of management. The United States and China are engaged in a trade war and the United States is raising its interest rate. With internal and external challenges, adding kindling to the furnace with wet firewood won’t work.
Rather than adhering to unverified policies, it is more reasonable to first take out the wet firewood. We don’t have much time left to start the fire.
JoongAng Sunday, Oct. 27, Page 34