[The Editors' Verdict] The Government's Moral Hazard Has Put the People at Risk

Causing harm by failing to do what is right and doing what should not be done is called moral hazard. When the government falls into moral hazard, not only the lives and safety of the people but also their property and income are put at risk. The land speculation by employees of Korea Land and Housing Corporation (LH) on sites planned for new towns, the excuses made for it, and the Minister of Land, Infrastructure and Transport’s protection of them are typical examples of moral hazard that cause property damage to the public. The securing of COVID-19 vaccines, which is directly related to the lives of the people, is another example. According to the World Health Organization (WHO) COVID vaccine administration statistics, as of March 5, the number per 100 people worldwide is 3.74, but in Korea, it is only 0.57. Although the government has belatedly started securing vaccines, which will reduce this gap, the time to resolve COVID will inevitably be delayed. The government tries to excuse the vaccine procurement failure by saying the number of COVID infections is small, but it cannot avoid criticism for neglecting its most basic responsibility.

Even if the government claims that the number of COVID infections is small, it should have at least reduced economic damage. However, it failed even in this regard. To revitalize the economy, the government should have supported increased corporate investment, but instead, it tightened restrictions on businesses. As a result, countries with low COVID infections such as China, Vietnam, and Taiwan achieved nearly 3% economic growth in 2020, while Korea’s economy contracted by -1%. China has entered a V-shaped recovery and is moving toward a COVID exit strategy by reducing this year’s fiscal spending. The government boasts that Korea’s economic growth rate is higher than that of the United States, which has the highest death toll in the world, and Europe, which even imposed city lockdowns, but these are not appropriate comparisons. These countries had to significantly increase fiscal spending due to severe human losses, but Korea, which did not face such losses, followed the same path. Ultimately, national debt rapidly increased and is expected to reach 1,000 trillion won this year. The national debt ratio also rose from 36% of GDP in 2017 to 48% in 2021, increasing by 12 percentage points in four years.

When the fiscal deficit grows, the government’s duty is to spend more frugally. Issuance of government bonds, which future generations will have to repay, should be restrained and, if necessary, used for investment rather than consumption. If disaster relief funds are used to compensate for damages, they should be proportional to the damage. However, fiscal expansion has become a tool for regime maintenance, and the government has become an entity that only wastes taxpayers’ money. Over the past four years, the government claimed that expanding fiscal spending would increase jobs and reduce inequality, and when COVID-19 occurred, it said disaster relief funds would stimulate consumption. However, the results were the opposite. According to Statistics Korea’s January employment statistics, the number of unemployed exceeded 1.5 million, and the employment rate of young people dropped to 55.7%, lower than during the foreign exchange crisis. According to Statistics Korea’s 4th quarter 2020 household trend survey, while the income of the low-income group (1st quintile) increased by 1.7%, that of the high-income group (5th quintile) increased by 2.7%. The Korea Development Institute (KDI), a government research institute, analyzed that the consumption stimulation effect of disaster relief funds was only 30%.

The government’s moral hazard has put the people in danger. This year, with the by-elections for the mayors of Seoul and Busan and the upcoming presidential election, the situation will become more serious. There are also the national consolation support funds promised when the COVID-19 situation improves, a damage compensation system that even the Minister of SMEs and Startups says is unprecedented worldwide, as well as basic income, profit-sharing systems, and social solidarity funds waiting in the wings. Preventing the government’s moral hazard is the responsibility of the people. The government’s giving money may bring momentary joy, but it ultimately returns as debt that the people must repay. We cannot grant a license for the government’s moral hazard.

Kim Taegi, Professor of Economics, Dankook University