Real estate demonizers
The author is an editorial writer of the JoongAng Ilbo.
Watching the debate among six presidential candidates running for the ruling Democratic Party (DP) nomination, the audience must have been half relieved and half worried. They would have been relieved by the serious debate over such issues as a proposed basic income. Their worries probably grew with the competitively tough talk on real estate regulations. The debate can be considered half-successful.
On the basic income theme, the views of the candidates from the liberal party were mixed. Gyeonggi Governor Lee Jae-myung, the frontrunner in polls, could not persuasively answer challengers how he would fund the universal monthly handouts. Lee backed down and defended himself by insisting on incremental adoption of the idea, but stopped short of convincing his rivals. The bottom line is that no countries are implementing universal basic incomes.
When a massive budget is spent on basic incomes, benefits for the more vulnerable part of society would have to be scaled back. If a business tycoon receives the same check as a street sweeper, the wealth gap will only worsen. More importantly, there is simply no way to finance such gargantuan spending. The televised debate only exposed the fissures on the idea of basic incomes among DP candidates.
Lee Nak-yon and Chung Sye-kyun, who both served as prime ministers under President Moon Jae-in, opposed the idea because of their experience in overseeing state affairs. The Moon administration had to raise supplementary budgets every year. The government had to wrack its brain to figure out how to pay for them each time. Ever since Moon questioned why government debt had to be contained at the level of 40 percent of gross domestic product, fiscal spending has picked up sharply, stretching national liabilities by 400 trillion won ($348 billion). Due to a cut in defense spending, some servicemen were served meager meals.
Adopting basic incomes on top of expanded social benefits would be preposterous. Japan carried out a similar policy experiment. After the left-leaning Democratic Party gained power in 2009, it promised childcare allowances of 20,000 yen ($180). But the handouts were cut to 13,000 yen because even Japan, then the world’s second largest economy, could not afford them.
But the candidates spoke in one voice on real estate policy. They competed to one-up each other in proposing anti-market regulations as if they were on a crusade. The property market has been wrecked by regulations throughout the last four years under the liberal administration. Yet the candidates competed to make things more difficult for homeowners. Gyeonggi Gov. Lee wants to establish a state entity to control housing purchases and a real estate supervisory watchdog. He proposes to control housing prices and levy punitive surcharges on properties beyond absolute necessity. Opposition People Power Party (PPP) Rep. Yoon Hee-suk, a former economist, said this was like considering apartments as a commodity like rice, which can be rationed.
Former Prime Minister and DP Chairman Lee Nak-yon promised to enact three laws which more or less would nationalize real estate, an unthinkable idea in a market economy. One of his proposed laws would limit individual property ownership in the greater Seoul area to 1,320 square meters (14,233 square feet). The idea is more suitable to a socialist economy. State-controlled economics failed because it suppressed individual desires to earn profit. History offers lessons as the Soviet Union broke apart partly due to state control of land ownership.
The reason why the senseless policy pursuit goes on is beyond understanding. The answer may lie in behavioral psychology. Traditional economic theory says that people make rational choices based on self-interest. But a pair of Israelis psychologists, Daniel Kahneman and Amos Tversky, proved that people frequently give way to emotions and make decisions on how a situation is framed. Their work was awarded a Nobel Prize in economics. The motive behind the DP presidential candidates’ push for anti-market policies cannot be explained otherwise.