[The Editors' Verdict] Should Fiscal Resources Be Sacrificed for Election Victory?

[Asia Economy Reporter Choi Il-kwon] The proposition that "debt is also an asset" remains valid. Like capital, debt can be a means to increase assets if invested in highly productive areas. The role of debt becomes even more prominent during difficult times.

Debt is often likened to a "double-edged sword." Borrowing money to generate profit can create opportunities to grow assets through leverage effects, but if it grows uncontrollably beyond one’s capacity, it becomes a threatening factor that makes social life difficult. The same applies when a country incurs debt for various purposes. If growth targets are achieved, it acts as a catalyst, but if not, all citizens face a harsh life tightening their belts. This is why individuals and nations alike must exercise caution when borrowing money.

Recently, perceptions of debt have become considerably more lenient. The belief that "one must never incur debt" has gradually faded, replaced by the idea that debt is a means to generate income.

This shift in perception was directly triggered by the COVID-19 pandemic that struck the world last year. Central banks rushed to lower interest rates and issue bonds to facilitate the flow of funds. As the value of money decreased, conditions for borrowing became easier. Increasing debt to secure the stability of businesses and households became the most important goal, and individuals also borrowed money at low interest rates to pour funds into real estate and stocks. Although the scale of debt is growing, economic experts in the U.S. and Europe still advocate for the abundant liquidity, saying "now is the time to spend money generously."

The abundant liquidity stems from self-reflection following the 2008 global financial crisis. At that time, policies to lower interest rates and inject money were pursued, but liquidity was quickly withdrawn as signs of stabilization appeared. As a result, there were widespread assessments that the effects relative to fiscal input were insufficient. This is why arguments against stopping cash support after the COVID-19 pandemic have gained traction.

However, the current liquidity supply is more akin to subsistence consumption that disappears rather than a catalyst for creating a better future, which raises concerns. While real estate prices have soared and the stock market is overheated, investments to increase employment and strengthen innovation have taken a backseat. The trend of young people, who find it difficult to get jobs, borrowing money to jump into the stock market is a clear example of the flow of money. With opportunities to earn money disappearing, they are rushing into the overheated asset market.

In a situation where asset prices are soaring, no one wants the money party to stop. Especially when looking at the Democratic Party’s proposal to provide a 4th round of disaster relief funds targeting vulnerable groups and the entire population, one can see the intention to continue the money party. There is even a sense of anxiety ahead of the April by-elections. Given the fiscal limits, the party’s insistence on going its own way despite experts’ counterarguments to provide robust support only to vulnerable groups is even more apparent.

The ruling party may hold the perception that "debt is also an asset." They believe that indiscriminate support will eventually act as a catalyst to revive the economy. However, at this point, such claims read as if fiscal sacrifice is inevitable for the sake of elections.

Last year, national tax revenue decreased by nearly 8 trillion won. Not only has it declined for two consecutive years, but the scale of the decrease is also significant. If support payments are made to the entire population as the ruling party suggests, additional national debt will have to be incurred. This negatively affects the country’s credit rating. Fiscal resources cannot be sacrificed for elections. Elections come again in a few years, but once damaged, fiscal health is difficult to restore.

This content was produced with the assistance of AI translation services.