[Viewpoint] How Should We Address the Prevalence of Cash Handout Populism?

Professor Kim Hong-beom, Department of Economics, Gyeongsang National University

The competition for cash pledges among leading presidential candidates from both ruling and opposition parties is in full swing. Regarding youth pledges, one side proposes a basic income (2 million KRW per year) and basic loans (10 million KRW), while the other counters with a youth leap guarantee (500,000 KRW per month for 8 months) and an account subsidy (2.5 million KRW per year). The presidential race targeting the youth is escalating into a contest of cash handout promises.

Handing out money is nothing new in our society. Over the past several years, the government has invested enormous fiscal resources (taxes) into job creation, but this has only resulted in the production of short-term, low-quality jobs. The poor results suggest that the numerous job policies implemented so far were essentially about distributing cash. This is entirely different from cash welfare effectively provided to vulnerable groups who have lost their ability to work due to old age or illness.

The Moon administration’s core redistribution policy (income-led growth) actually worsened employment and income distribution in the national economy. Furthermore, the real estate surge caused by a series of anti-market regulations has made it impossible for young people and low-income households without homes to even plan to buy a house despite working hard. This dismal policy failure has been covered up by populist attempts to win the favor of many citizens, which are nothing other than cash handouts. The government has expanded the number of beneficiaries under various benevolent pretexts, resulting in wasteful tax spending and a sharp increase in national debt. Not only that, but the decline in household work motivation and the expansion of government support dependency have rendered the national economy lethargic, and the spread of materialism has even worsened the health of society. Recent survey results showing that for Koreans, 'material happiness' rather than 'family' or 'job' has become the highest value in life are quite alarming.

The financial sector is in a similar situation. For example, the reality of financial services for low-income people is welfare policy. It is appropriate to support it with fiscal funds. However, if welfare is dressed as 'finance' and becomes low-income financial services, it should comply with financial principles. In reality, high-credit borrowers bear higher loan interest rates than low-credit borrowers (violation of financial principles). Moreover, the authorities recently undertook a large-scale (2.2 million people) credit pardon and now plan to forgive student loans for youth (20,000 people) (disruption of financial order). Is protecting specific groups such as low-income and youth by undermining financial principles and order truly consumer protection?

Globally, consumer protection is a goal and duty imposed on financial authorities in each country. However, there are two universal principles. First, supervisory authorities, as public institutions, must pursue "only the public interest" (Germany’s 'Financial Supervisory Authority Establishment Act (FinDAG)'). Here, public interest refers to the benefit of the 'entire consumer group,' not specific individuals or groups. Second, authorities should protect consumers "to an appropriate extent" (UK’s 'Financial Services Act 2012'). This means properly controlling the moral hazard of protected consumers. It is puzzling how our financial authorities (Financial Services Commission and Financial Supervisory Service), which should be independent professional supervisors, view these principles.

A ruling party presidential candidate who insisted on providing nationwide disaster relief funds to comfort all citizens recently withdrew his claim. This was thanks to several opinion polls showing that over 60% of the public opposed it. This reflects the maturity of civic consciousness that will no longer be swayed by cash handout offensives. It has now become clear that it is entirely the people’s responsibility to thoroughly eliminate the widespread populist cash handouts by politicians and the government in our society.

Kim Hong-beom, Professor, Department of Economics, Gyeongsang National University