Facing realityDeflation fears have been growing since Statistics Korea announced that the consumer price index fell 0.4 percent in September compared to the same period last year. The drop is the first of its kind since 1965, when the government started to collect such data. The Moon Jae-in administration attributed the drop to lower oil prices and food prices stabilizing this year after they soared last year due to an unprecedented heat wave in the summer.
That explanation is hard to accept. Price increases outside of the food and energy sectors were 0.5 percent on year — the lowest growth in 20 years — even when services prices went up sharply after the government pushed drastic hikes in the minimum wage over the last two years. The Korea Development Institute, a state-run think tank, blamed decreased demand for lower prices. “Deflation will likely continue,” it said bluntly.
Most indicators look bad, including exports, investment and production. In the meantime, our middle class is shrinking and wealth polarization is widening. Employment is not looking good. The liberal administration threw money at the problem but only increased jobs for the elderly. The Kospi and the won’s value has fallen by the largest margins among major global economies. Next year alone, the government needs to issue 60 trillion won ($50.1 billion) worth of national bonds.
The economy may go through a painful cycle of dwindling demand leading to reduced production, shrunken investment, job losses and decreased incomes. But the government’s reaction is strange. It says our economy has not entered the deflation phase yet.
Unfortunately, the issue is not whether our economy is in crisis or not, but what to do about the crisis we are in.
The Moon Jae-in administration is brushing off crisis talk as “fake news.” Moon went so far as saying, “Our economy is moving in the right direction.” To be fair, the government has its hands full defending controversial Justice Minister Cho Kuk from attacks from opposition parties — and contempt from the public at large.
We wonder if the government and ruling party are really insensitive to the people’s economic woes. A government long ago assured everyone of the strength of our economic fundamentals — and ended up seeking an international bailout in 1997. The Moon administration’s “income-led growth” policies failed over the past two and a half years. It must come up with pro-business policies to rejuvenate the economy before it’s too late.
JoongAng Ilbo, Oct. 5, Page 30