Power of the purse
The author is an editorial writer at the JoongAng Ilbo.
Stresses and strains add to life’s stimuli. But sometimes enough is enough. Debt has become the biggest stress and strain for Koreans. A study showed that half of young people in their 20s and 30s start their careers with average individual debt of 35 million won ($30,782). Consumer debt has been growing at a dizzying pace as more people take out loans to fund their lifestyles — and sometimes to finance pre-existing debt!
The government blames its conservative predecessor for encouraging people to take out cheap loans to buy homes. But the current liberal government has been liberal with debt to finance its populist policies. Its tendency toward extravagance started with the education superintendent election in 2010. The then-opposition Democratic Party promised free school meals, day care, health care and halved university tuitions. After liberals swept the education front on those freehanded policies, welfare promises dominated election campaigns.
The country’s debt swells as campaign promises are redeemed. The government is set to propose another supplementary budget on top of 2019’s record-sized extra budget. Such a debt-financed stimulus is intended to win public favor ahead of next year’s general election. The government claims the extra money will go to fighting fine dust and aiding fire-ravaged areas. But such funds could come from reserve coffers. The government also argues it needs more spending to stimulate the economy. It has already been spending heavily to bolster the economy and make jobs in the public sector, pushing up employment figures for seniors.
The real purpose behind the additional budget will be political rather than economic. The government has been announcing major pork-barrel projects. When it was the opposition, the liberal party lambasted the conservative government for pork-barrel spending, yet it has been doing the same and at a faster pace as it exempted many projects from preliminary feasibility studies. Ruling party leaders have been touring the nation making spending promises in each area.
There is no problem per se in a supplementary budget, but it should be spent well and when necessary. The International Monetary Fund (IMF) actually advised the government to spend more, but it recommended spending to bolster growth potential. In fact, there has not been any spending earmarked for the future.
The path Japan has gone down is one that must be avoided. Japan’s lost decade owed a lot to politics. Japan spent heavily to win votes. During the brief rule by the Democratic Party of Japan, Tokyo subsidized day care, high school education and road tolls, but the government faced a fiscal crisis.
Leaders who succeeded in coming out of economic crises all did the opposite. They reformed the public sector first. “Government is not the solution to our problem. Government IS the problem,” President Ronald Reagan said in his inauguration speech. He axed heavy taxes and government spending and supported killer interest rates hovering above 20 percent. His unpopular policies corrected and strengthened the U.S. economy. British Prime Minister Margaret Thatcher, German Chancellor Gerhard Schröder and French President Emmanuel Macron also restructured economies with highly-contested reform agendas.
Youth unemployment shows little sign of easing despite record fiscal spending and supplementary budgeting over the last two years. Despite the strain on public finances due to increased hiring of government employees, the Ministry of Employment and Labor has expanded subsidies for unemployment allowances for young people. It is handing out money to 50,000 jobseekers. Japan was able to survive a lengthy stagnation because of its fundamentals. Argentina, on the other hand, had to run to the IMF to keep its economy afloat. No country can subsist on reckless spending.
JoongAng Ilbo, April 19, Page 30