Revenge of the market
The author is the chief editor of contents production at the JoongAng Ilbo.
The market economy is being wrecked in Korea. Individual choices should be respected in the market. The market in return distributes limited resources. If the market system malfunctions, the government steps in to make the fixes. If the government intervention becomes over-eager and intrudes on the freedom of individual choices, greater problems could occur. The market loses steam and causes a retreat in the economy. It is the consequences of anti-market policies.
The Moon Jae-in administration has been overbearing and intrusive too many times. It caused steep increases in the minimum wage, cut back the statutory workweek to 52 hours, and put a price cap on new apartment offerings. It even abolished special-purpose and autonomous schools to eliminate elite schooling.
The fallout from the government’s stubborn choice of controversial former Justice Minister Cho Kuk — despite allegations of special education treatment for his children — ended up restricting public choice in schooling. Parents no longer have a right to offer differentiated schooling for their children. The super-rich already send their children to boarding schools overseas. Those who can afford to do so would follow suit.
More agencies for studying abroad will sprout and more capital would slip out of the country for overseas schooling. The middle class can only envy them because they cannot offer quality private schooling for their children as there are no longer options in Korea.
The market always takes its revenge for disruptive policies. The real estate market was first to react. The announcement to close elite schools have sent housing prices in Daechi-dong in Gangnam district in southern Seoul and Mok-dong in Yangcheon district in western Seoul — traditionally famous for good education and a high ratio of placing students at top universities. Parents of even elementary kids began to move to those districts. The spike in apartment prices amid fears of supply shortage due to the price cap was fueled by education demand. Apartment prices in Gangnam shot up, spreading the price spiral to elsewhere in Seoul.
Even if it had meant to help the ordinary people, the government has only made it more difficult for them to own a home. It has angered the market through excessive meddling. On Monday, it came up with its toughest-yet regulation. It would outright ban mortgage-backed loans on apartments valued at over 1.5 billion won ($1.3 million). It is even forbidding a needy buyer from the choice of purchasing an apartment through loans.
Why has owning an expensive residential space suddenly become a sin? Why can’t a person move to a good neighborhood with decent schools through legitimate borrowing? What is the guideline for 1.5 billion won anyway? Dec. 16, 2019, will go down in history as the day the Moon Jae-in government declared it would strip the public of their financial and economic freedom.
The market has become disorderly because authorities have suppressed prices. The more they are pushed down, the more prices tend to spring up. The measures of Sept. 13 last year brought about the same results. The government introduced even tougher multiple taxes than the Roh Moo-hyun administration as housing prices hit sky-high. Despite the criticism about the bombardment of taxes, the government maintained that the party, the presidential office and government were in agreement to rein in the housing prices no matter what it took.
The National Assembly Budget Office estimates an addition of more than 1 trillion won from the rise in comprehensive real estate tax this year from a year ago. Many have become resentful of the surge in the tax bills. The government aimed to force owners of many homes to sell their apartments by charging them more in taxes. But the market responded in the opposite direction. Landlords clung onto their assets amid a jump in their value and raised rents instead to compensate for the tax hike. Supply did not arrive on the market as the government had hoped for. Tenants would have to pay for the surge in taxes. Everyone wished to live in inner Seoul with better education, commuting and conveniences. Such a demand buttresses the prices. Still, the government stays blind to the market realities and keeps on suppressing the prices.
The cause for the runaway housing prices and collapse of the self-employed is the same. The government’s anti-market policies are responsible. The government pushed up wages beyond affordability and regulated work hours when they should be determined by the market.
The government also set prices for new apartments. Prices that follow the market principle of supply and demand are controlled by the state. Experts believe the market is malfunctioning because of over-interference from the government. The market always has its revenge. It is dreadful to imagine the consequences.
JoongAng Ilbo, Dec. 17, Page 30