[돈의 심리] A policy that causes inflation and causes losses to all citizens… The rich become richer and the poor poorer
A political party proposed a plan to provide 250,000 won in livelihood support to all citizens. Just as we donated hundreds of thousands of won in disaster relief funds to all citizens during the COVID-19 pandemic, this time we are also talking about providing 250,000 won to all citizens. I’m in trouble. Should I agree or oppose? Of course, whether I agree or disagree will have no effect on the implementation of the livelihood subsidy policy. However, as a person who majored in economic policy, I should have opinions for and against this. But this time I’m really worried. Should I agree or oppose this policy?
A few years ago I would have been decidedly against it. In fact, they also opposed disaster relief funds provided to all citizens during the COVID-19 pandemic. I even wrote a newspaper article about it at the time. Some people wonder why people oppose disaster relief funds and livelihood funds provided to all citizens. If some people give it to others and others don’t, they may object. Even if some people give more and others less, they may resist. If you say you will collect taxes and provide subsidies, those who pay taxes may object. But the national subsidy is not like that. Stop giving money to everyone. Everyone is equal, no one loses. But why are you against it? Those who oppose universal benefits are sometimes seen as twisted people who fail to see what is good for others, or as veterans who resist helping the poor.
It looks good right away, but causes side effects.
Although many people are in favor of national subsidies, most people who work in the economic field are against them. I also graduated in economics. I am completely against national subsidies. The reasons for the opposition are clear. This is because, although the national subsidy may seem good at the time, it ultimately causes losses for most people. Even if it represents an advantage now, I cannot support such a policy if it risks causing greater losses in the future.
A famous Korean drama is “My Love from the Star”. The main character, Do Min-jun (played by Kim Soo-hyun), is an alien who can use various supernatural powers such as stopping time, moving through space, and telekinesis. In the play, a lawyer who knows Do Min-jun’s identity asks Do Min-jun.
“Couldn’t you use those skills to help people in need?”
When Do Min-jun first arrived during the Joseon Dynasty, he helped people in need. I helped someone who was angry about losing money gambling, win money. However, that person became addicted to gambling because he could not forget the pleasure of winning a lot of money through gambling. He later became an unscrupulous man who devoted all his wealth to gambling and even gambled with his daughter. If he hadn’t won money in the first place, he would never have snooped in the gambling den again, but because Do Min-jun helped him, his life ended up being ruined. Through these experiences, Do Min-jun eventually became very cautious about helping others. Something that seems good now should never be done if it causes worse results later.
Things are good right now, but they eventually get worse. There are many such things in economics. Therefore, economics often opposes things that the general public thinks are good and agrees with. It is certainly good to have higher wages, but the economy is against raising the wages of all citizens. It would be good if the government intervened and prevented prices from rising, but the economy is averse to such price contraction. Even if it seems good right now, the side effects will be greater later. The reason for opposing national subsidies is also the same. That’s fine for now. But there will definitely be bigger losses later.
Prices will increase by 1%
Livelihood support funds provided to all citizens cause inflation, resulting in a decrease in the real income of low-income people. [GETTYIMAGES]
The problem with distributing money to the entire population is that it causes inflation. If you only give money to those who don’t have it, inflation won’t happen. However, if money is distributed evenly to all citizens, inflation usually occurs. During the COVID-19 epidemic, all citizens were paid disaster relief funds amounting to several hundred thousand won per person. It’s nice to have free money. No one would have hated the arrival of disaster relief funds. But whether this is really beneficial is not the case. The inflation rate in 2022 was 5.1%. With the release of money due to the COVID-19 incident, the inflation rate has increased much more than usual. An inflation rate of 5.1% means that 5.1% of income simply disappears. A person with an income of 20 million won lost about 1 million won, while a household with an income of 40 million won lost 2 million won. If you received 1 million won in disaster relief funds and 2 million won disappear due to rising prices, this is clearly a huge loss. The difference is that the million won in subsidy is a recognized benefit, but the loss due to rising prices and inflation happens without our knowledge, like clothes getting wet in a light rain. If you know this system, it is not possible to support subsidies for all citizens. This is why economic experts oppose subsidies for all citizens, and it is also why I am against them too.
Now in Korea we are talking again about subsidies for all citizens. So the principle is that this time too I have to take the opposite position. But this time it’s a little ambiguous. Should I agree or oppose this? Inflation has another important side effect besides reducing people’s real income. The point is that the poor get richer and the rich get richer. Economic policies usually create a gap between rich and poor, but not between the rich. While the income of the poor increases slightly, the income of the rich increases a lot, worsening the gap between rich and poor. However, the poor are not poor and the poor become even poorer. However, inflation causes the rich to get richer while the poor get poorer. Even when inflation occurs, wage income rarely increases. Wages are growing less than inflation. Therefore, when inflation occurs, the real income of low-income people decreases further. The poor are getting poorer and poorer. Instead, when inflation occurs, stock and real estate prices increase significantly. increases more than inflation. Therefore, people who own stocks and real estate see their wealth increase during times of inflation and rising prices. During the COVID-19 outbreak, countries around the world have released money, and stock and real estate prices around the world have soared. At the time, many people became newly wealthy due to rising asset prices. In fact, my wealth also increased significantly during the COVID-19 crash. When the asset market collapsed in the early stages of the COVID-19 crash, stocks and other securities plummeted and suffered huge losses, but when governments around the world started releasing money, asset prices soared. increased dramatically, leading to an increase in wealth.
Economists should oppose subsidies for people’s livelihoods
What will happen if the government now releases support funds to all citizens? Prices will increase. Even if it doesn’t significantly increase by 5% or 10%, it will at least increase by about 1% from the current figure. If prices increase by 1%, stock and real estate prices increase more significantly. People without assets will lose out in real income, but people with assets will see big gains. Previously, he had opposed inflation-inducing policies that created the rich while the poor became even richer. I cannot support such a policy when only a few people benefit from it and the majority suffer.
However, I am now part of the minority who own assets that can benefit greatly from inflation. If so, shouldn’t we be actively in favor of policies that cause inflation and subsidies for all citizens? To maximize my profits.
What should I do? The national dole may seem like a good thing right now, but it is a policy that causes inflation and ultimately causes all citizens to lose more than the dole. As a person who has studied economics and as a scholar with a conscience, I can never agree with this. However, from an individual perspective, the national subsidy is a policy that can significantly increase my wealth once again. The national subsidy will increase prices, and with the increase in stock and property prices, I will be able to earn a lot of money. It affects my personal interests in this way, so why should I object, wondering what the impact will be on the country as a whole? Rather, shouldn’t we be actively in favor of subsidies for all citizens? I never imagined that I would worry about whether I would have to support the livelihood support fund. It is about abandoning the economic logic that has been maintained throughout one’s life and one’s conscience as a scholar for the sake of money. But what should I do since it will make me a lot of money?
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〈This article was published in Weekly Donga n. 1437〉
Seongrak Choi, Ph.D. in Business Administration
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