[THE VIEW] Today's 250,000 Won, Tomorrow's Boomerang

The Vicious Cycle of Inflation Triggered by 20 Trillion Won Grants
Why the United Kingdom and Switzerland Abandoned Basic Income

The new government has formulated a supplementary budget worth 20 trillion won and announced the distribution of a 250,000 won livelihood recovery grant to all citizens, making clear its intention to boost consumption. Although the amounts may vary, the policy direction remains one of "universal welfare benefits." Considering the pledge for basic income, fiscal expenditure is expected to increase even further in the future.

In the short term, this is expected to stimulate domestic demand, leading to increased sales for small business owners and ripple effects for both small and large enterprises. In fact, this "bold welfare policy," which coincides with the launch of the new administration, is serving as a signal for the recovery of the Korean economy, along with the KOSPI surpassing the 3,000 mark.

However, expansionary welfare without a long-term roadmap can result in serious side effects. While small, one-time grants may not have a significant impact on current price trends, large-scale, ongoing welfare programs such as basic income carry a high risk of triggering structural inflation.

If the increase in cash inflow outpaces growth in production, the supply-demand imbalance will worsen. Sectors with limited supply capacity, such as restaurants, delivery services, and retail, will see demand concentrated first, leading to upward pressure on prices. Because these grants are immediately consumed?such as "buying chicken with the grant"?businesses in these industries are likely to raise prices in response to the surge in demand.

As prices rise in this process, real purchasing power declines again, diluting the perceived benefits of the welfare payments. Subsequent "demands for additional support" create a vicious cycle in which rising prices and welfare reinforce each other. A representative example is when the introduction of postpartum care grants in the past led the industry to raise prices by the amount of the grant.

Coordination with Monetary Policy... Lessons from Overseas Cases

The government must simultaneously pursue productivity improvements and infrastructure expansion that match the increase in consumption, based on sophisticated simulations. At the same time, it should work closely with the Bank of Korea to establish price stabilization mechanisms through interest rate adjustments or liquidity absorption. This requires highly delicate policy coordination based on expert analysis and forecasts.

So far, the focus has been primarily on the expansionary welfare policy itself, while systematic responses to its long-term economic impact appear relatively lacking. The attempts to introduce basic income in the United Kingdom and Switzerland offer valuable lessons. In Switzerland, the proposal was rejected by national referendum, while the United Kingdom limited itself to small-scale pilot projects and ultimately shifted policy toward strengthening targeted support and job creation through corporate growth.

Both countries placed significant emphasis on the potential shock to the labor market. They concluded that a situation in which young people lose faith in the possibility of "success through effort" and become increasingly dependent on basic income would lead to a decline in national competitiveness.

Korea, too, needs a more cautious approach to avoid such negative side effects. Welfare expansion should proceed carefully, with a detailed and long-term plan. Welfare policies must be designed to maintain social trust that "those who work harder can live better," while not undermining the vitality of the labor market.

In addition, a mature civic consciousness is required to support these efforts. Citizens should not focus solely on the immediate benefits of grants, but also consider how the funds are raised and the future burdens involved. It is important to recognize that today's grants could become national debt for future generations or return as an "invisible tax" in the form of currency devaluation.

Only when each citizen embraces this sense of responsibility and chooses consumption and investment that genuinely enhance productivity and social value will welfare policy attain its true significance.

Professor Kyung Nakyung, Department of Computer Science, National University of Singapore