So, a 41 trillion won stimulus? How do I get some of that action, huh?

Korea’s economic growth over the last year and a half hasn’t been great.  It’s been average at best and hasn’t been up to expectations or projections.  From a some perspectives, the Korean economy isn’t employing enough young people coming out of college and isn’t creating a lot of wage growth for many of those who are employed.  Well, it’s fair to say that Korea isn’t the only country suffering the same woes, but any ways.

So, the natives are getting restless and something needs to be sacrificed to the volcano god.  Madame Park pounded her fist on the table in a recent cabinet meeting and demanded ideas to “revive the economy no matter what.”

What’s the old standby when you need instant economic gratification?  Pump cash into the economy! So, Finance Minister Choi Kyung-hwan came up with the (sarcasm on) brilliant idea (sarcasm off) to dump 41 trillion won ($39.8 billion USD) into the economy through three ways:  1) make buying homes cheaper 2) make capital cheaper for some businesses and 3) give households more spending power.

Choi Kyung-hwan has dubbed this policy “Choinomics.”  Many people (including this writer) are skeptical that it is the panacea that many in the Korean press is making it out to be.  Short term stimulus, whether by fiscal (Choinomic) or monetary (Abenomics) means, are a temporary fix.  It’s kind of like cocaine, makes you feel like you are on top of the world for a few hours, but it’s not real medicine.  Structural reform is the real medicine.  But, like in Japan, structural reform is tedious and sometimes hurtful (in the short term) to the immediate electorate, so it is often the economic weapon of last resort.

If Choinomics is just a morale saving measure to counteract the artificial temporary decline in GDP caused by the Sewol disaster, then I would be more supportive.  Given the modest improvement in GDP estimated by Choi (estimated at only 0.1% GDP improvement for this year and 2015) I suspect that’s all it is, despite the enthusiasm for it demonstrated in the Korean press as some sort of counter to the equally futile Abenomics.  So, my qualms are not in the actual policy itself, but in the manner in which it is being marketed by the government and the press as a “do all” and “save all” genius economic miracle policy.

  • brier

    I don’t understand why the government is so confident the housing bubble as it exist today won’t get a little too unstable. Unless the real beneficiaries of the loan openings aren’t the marginal and poor with spotty credit histories, but beneficiaries are the wealthy and it a way to get these cash rich citizens to invest and get the economy moving. Maybe the marginal and the poor are already frozen out, so the government doesn’t have to really worry? It’s only a guess and I don’t have data that would tell me one way or the other.

  • redwhitedude

    “Choinomics” sounds like “Abenomics”.
    Nothing fundamental just to a superficial patch up job. Throw more money without any fundamental changes. Unfortunately fundamental changes tend to happen when they are in a dire crisis situation just like in 1997.

    I wonder if the not enough youth employed thing has something to do with SME?

    I get the feeling that these people cannot think outside the box.

  • wangkon936

    Your first paragraph is like… Cliff Notes on my post… hahaha…

    Your last two sentences are good observations. Yes, it does seem like the Park Administration doesn’t have much economic vision, unlike her father who had loads of economic vision.

  • redwhitedude

    It’s funny how you can look at Korea from the outside and they keep throwing around the same kind of banter and nobody comes with anything original.

  • http://www.eslwriting.org/ eslwriter

    Change the rules so that people with stagnant incomes and a teetering employment status can take on a mortgage to buy a home? Brilliant.

    How many jobs will that create? Thousands, potentially. Each bank branch will employ one fresh grad to sit in the corner, do nothing and learn nothing.

    Then the branch manager can check the “created one job” box, pocket the government’s six month grant and tell his buddies in the church congregation about his positive contribution to the development of the great society.

  • RElgin

    I have watched over the last ten years a slow and steady degradation of disposable income and the increase of economic desperation – the presence of loan shark stickers in supposedly well-off neighbourhoods, a literal pawn shop just opposite from the Hyundai Department store in Apkujong-dong – personal debt here is no joke, so when I hear of “giving households more spending power”, I know that any additional money offered Korean households will likely go towards paying down debt rather than spending.

    My worry increases as well, though I am better off than many.

  • redwhitedude

    I wonder how things could have gotten this bad.

  • RElgin

    Irresponsible governance has played a major role, just like the sub-loan crisis in America, however this problem goes back to Kim DaeJung.

  • redwhitedude

    The only thing that Kim Dae Jung did alright was the handling of the 1997 crisis. Everything else he sucked. Unconditional aid to NK i.e. sunshine policy was among his biggest mistakes.

  • http://thekoreanforeigner.blogspot.kr/ John Lee

    Though I did not agree with you at all in regards to your review of Paris Baguette opening shop in Paris, if we are going to talk only about economic views, I think you and I can get along splendidly as I, too, wrote about this topic.

    http://thekoreanforeigner.blogspot.kr/2014/07/super-fun-economic-review-part-2.html