Friday, July 25, 2014

Super Fun Economic Review – Part 1: The Boring News Stuff Before We Dive Into the Fun Stuff

Economics can be a very dry subject to many people. In fact, when I first came across the topic of economics while I was in high school, the only thing I knew about the subject was that it is a study about money that I don't have.

I would have slept through the whole class in high school had it not been for the fact that my economics teacher, Mrs. Charice Lai, was a smoking hot woman who had the amazing ability to make lessons about the Production Possibility Curve and the differences between comparative and absolute advantages sound like she was reading from a dirty romance novel.

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Hence, I paid very close attention in class and before I knew it, I was majoring in economics in college. My other major was political science. So what was it like majoring in both economics and political science? Other than realizing that double majoring in the social sciences during a world-wide economic slump was probably not the best investment decision that I had ever made in my life, the other lesson that I learned can be summed up by this quote from the esteemed economist Thomas Sowell.

The first lesson of economics is scarcity: there is never enough of anything to fully satisfy all those who want it. The first lesson of politics is to disregard the first lesson of economics.

As regular readers of this blog will know, I do write a fair deal about economics. And I plan to keep doing it. Mark Twain did say that people should write what they know. But it is a very dry topic and I don't have Charice Lai's curves or sultry voice.

However, when I read a series of news articles recently about Finance Minister Choi Kyung-hwan's views about Korea's economy, its future, exchange rate policies, taxes, and income distribution, I knew that I had to write about it. Unfortunately, there is way too much to write in response to everything he has said and done in the past month. My longest post to date, “The Philosophy of Snowpiercer” was a thirty-minute read (yes, I timed it) but it was at least about a fun movie. A single post that long about economics would bore most everyone to tears. More realistically, it would remain unread.

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So, the first decision that I made was that I am going to write this post as a series just like I did when I wrote about the “Are You All Right” Movement. The second decision that I made was that I am going to make this as relatable as possible by trying to incorporate anecdotes, jokes, analogies, etc.

However, before we can get to the fun part, we do have to slog through some of the boring parts that were in the news. If we don't, then you will have no idea where all of this rambling is coming from.

So here we go. This will mark the first of the series “Super Fun Economic Review” – Part 1: The Boring News Stuff Before We Dive Into the Fun Stuff.

(Of course it is a ridiculous title that is begging for clicks! Would you have clicked on the link if it had been “A Critique of Expansionist Fiscal and Monetary Policies?”)

Why won't people read my blog post about Supply Side Policies and Competitiveness???
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Anyway, with less than a week to go for the July 30th by-elections, the ruling conservative Saenuri Party is predicted to lose its majority in the National Assembly. Considering the rapid-paced economic announcements that have been coming out of the Blue House and the Ministry of Strategy and Finance, it would seem that both President Park and the Saenuri Party are desperately trying to stave off defeat. And there is no other time that politicians pander more than when they are truly desperate.

For example, it was reported in an article in The Korea Times that Saenuri Party lawmaker, Representative Kim Moo-seong, said that the government ought to depreciate the value of the Won. He said, “There is a Currency War going on in the world right now and the Bank of Korea ought to come up with ways to adjust the exchange rate. However, the Bank of Korea has not come up with any measures. We have to depreciate the currency.” (This was translated from the Korean text, which does not appear in the English version.)

In the same article, the newly appointed Finance Minister Choi Kyung-hwan said that there are too many corporations that are hoarding excessive profits. In order to ensure that “more money goes to households,” he said that he would push for tax breaks to provide incentives for corporations to increase wages and dividends for small investors. However, if those corporations that have surplus profits build up internal savings without raising wages or dividends, the government will then tax the “excess profits.”

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Furthermore, Minister Choi also said that low growth, low inflation, and an excessive current account surplus are signs that Korea may follow in the path of Japan at the start of its so-called “lost two decades.”

Therefore, in an attempt to avoid a much-feared long period of deflation that Japan went through, it was just reported today (July 25th 2014) that the Korean government plans to inject the economy with a ₩41 trillion (US$39.8 billion) stimulus package to revive the sagging economy. Minister Choi also said, “The government plans to use expansionary measures until the economy shows clear signs of recovery.”

As further measures, the government plans to expand tax deductions for people who use debit cards to make purchases from 30 percent to 40 percent. The government also plans to increase tax deductions for households that earn ₩70 million in annual salaries or less that plan to purchase homes and also plans to increase government-provided home mortgages.

So, that's the background information that you need to know for now. Stay tuned for the next installment that will deal with the topic of currency depreciation.

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