Populism in full swing
The author is an editorial writer of the JoongAng Ilbo.
The issue of the government compensating the losses the self-employed have suffered due to the pandemic is heating over. President Moon Jae-in seems to refrain from mentioning the issue for now. In the National Assembly, however, a bill aiming to write off their debt was submitted already. The Moon administration and ruling Democratic Party (DP) have twice extended the maturity date for a 120-trillion-won ($106.2 billion) principal to be repaid by small merchants to September. The government flexed its muscles to force commercial banks to delay the deadline for their customers — the self-employed and mom-and-pop store owners. This time, however, the government wants to enact a bill that obligates financial institutions to reduce or write off their debts.
That’s not all. A district in Daejeon city plans to give elementary school students their monthly allowance out of local taxpayers’ money to protect their rights to “basic consumption.” (The district relies on the central government for 90 percent of its entire budget.) A district in Seoul pays 100,000 won to seniors aged 65 or over each month to show respect for them separate from the basic income they receive from the central government. (Basic income for the elderly is given to senior citizens in the lower 40 percent income group.) The Gyeonggi Province jumped on the bandwagon by raising the “allowance for job interview” to 300,000 won for each young job-seeker. Governments, central and local, are engrossed with doling out cash to the people in the Covid-19 crisis.
The question is “Now what?” Ahead of the presidential election next March, a presidential hopeful’s proposal — that the government save 100 million won for each person until they are 20 years old to help them build their future — was followed by another presidential aspirant’s promise to give 20 million won to people to help develop their skills. A pledge to offer 30 million won to whoever has finished his military duty was also replaced by a promise to hand out 300,000 won to help cut their housing expenses. Whether it be housing or assets or loans, such hefty spending plan will follow one after another.
When you carry them out, you need a gargantuan budget by issuing massive debt. If someone worries about the fiscal health, they reassure them with the sword of “Too big to fail.” They kindly suggest you look at the United States. The U.S. government once spent as much as 1,000 trillion won for national defense. But Korea’s total national debt has reached the threshold of 1,000 trillion won — a whopping 400-trillion-won increase from the Park Geun-hye administration just in four years. We have come this far.
The Roman Empire collapsed not because of barbarian aggressions but because of its overspending. After Rome was unable to support the emperors’ repeated splurges on building massive infrastructure, the city state minted coins with no restriction. After being critically hit by an internal injury from overspending, Rome could not rebound. In his book “The Wealth and Poverty of Nations,” David Lands (1924-2013), an emeritus professor of economics at Harvard University, wrote that Spain became poor because it had too much money.
What about mounting government debts unrelated to the pandemic? If a local government borrows money to allow high school graduates to have a free trip overseas, who pays it back? The government must be careful to issue debt. Over 90 countries have enacted and are executing their own fiscal guidelines to safeguard fiscal integrity. In Korea, a revision to the law on fiscal spending contains such a guideline, but the bill is sleeping in the National Assembly.
Last week, presidential hopefuls from both sides of the aisle rushed to declare their candidacy. But only when the fiscal guidelines are fixed can the aspirants compete within the boundary of the standards. Seneca famously said, “It takes all of our life to learn how to live.” But Moon has already entered his final year in the single five-year presidency. Anyone will love the idea of travelling overseas for free. But that went too far. Several years ago, Argentine President Mauricio Macri asked for an IMF bailout after admitting that his people lived beyond their means. No one knows whether the same fate will befall us again.