| Yonhap |
By Oh Young-jin
That would be my response to a 40 percent pay cut President Moon Jae-in made together with top government officials.
Moon kindly offered the chunk of his salary to people suffering the effects of the ongoing coronavirus pandemic ― hundreds of thousands of small merchants and gig workers who have seen their incomes tumble and their jobs gone.
Some say Moon's pain-sharing Good Samaritan act is aimed at buying the minds and hearts of voters before the April 15 general election but I don't believe so.
I wouldn't point out that the donations would not reach an amount to significantly address the difficulty of so many people. But I would raise an issue over it, for it doesn't address the cause of the current economic dire straits, therefore sending the wrong message to the nation.
More bluntly, Moon's pay cut is like a square peg in a round hole. Specifically, Gyeonggi Governor Lee Jae-myung is closer to the solution when he decided to provide each resident with cash-equivalent coupons of 100,000 won (about $80) in the disaster-triggered basic income subsidy.
First, the current crisis is not like the 1998 dollar crisis, or International Monetary Fund (IMF) crisis, when Korea didn't have enough foreign exchange to cover its debts, so it was put under an IMF-controlled restructuring program. Then, we staged a nationwide gold collection drive to bring in enough dollars while putting our insolvent firms up for fire sale.
The 2008 Great Recession was triggered by subprime mortgages in the U.S. The U.S. banks were short of liquidity and cut off cash flows to corporations, spreading the problem like a virus to the rest of the world. The U.S., Europe and Japan flooded financial institutions with trillions of dollars in a series of quantitative easing (QE) moves. China was spared the brunt of the blow and helped the world pull out of it.
But this time, the COVID-19 crisis is caused by the suspension of all economic activities in demand and supply. In this economic stasis, people are either telecommuting or simply stuck at home, performing a hint of what they did before the coronavirus onslaught. Factories, schools, shops, theaters, etc, are closed.
People have a dwindling amount of income with little work to go around or tend to hold on to whatever precious cash is left to their name.
To get the economy going requires people to earn incomes. For that, it would be important to get money to where it is needed ― to corporations that are short of funds to cover their maturing debts. That is what is happening as the government Tuesday unveiled a 100 trillion won package for corporate bond rollovers and stock markets. It followed half of that amount for small businesses. So the corporations will be able to stay afloat and pay their employees, while the self-employed can continue to do business.
Are these big guns enough for this crisis of unprecedented proportions?
Maybe, maybe not. We can't afford to under-react only to regret the collapse of the world economy. “Helicopter money,” or direct cash payments to people, can have a more direct impact to get them to spend, spend, spend so as to get the consumption-demand cycle going again.
Moon's pay cut may cascade down to rank and file government officials and trigger contagion to the private sectors, putting a damper on the spending sprit.
We have practiced frugality so long that it is regarded as a virtue without much thought. What we may need most is not a frugal but spendthrift in this new, challenging era. Again, thank you, Mr. President, but no thank you.
Oh Young-jin (foolsdie@gmail.com, foolsdie5@koreatimes.co.kr) is The Korea Times' director for content.