[Opinion] Disaster Relief Funds as an 'Antibiotic' for Economic Recovery

The solution to the recession is not vague sympathy for helping the common people
We must increase effective demand that leads to consumption

The Ministry of Economy and Finance insists on selective support but cannot provide evidence for effectiveness
If disaster relief funds are used half-heartedly, resistance develops
Policies that drain finances are policies that fail to use money effectively

Seojun Sik, Professor of Economics, Soongsil University

The state of economic activity stagnation is called a 'recession,' and a sudden, severe shock is called a 'panic.' In the author's view, a recession is defined as a situation where 'consumers are unable to sufficiently consume the goods produced by producers.' Since the late 19th century, marked by the Second Industrial Revolution represented by oil, electrical appliances, automobiles, radios, and chemical fertilizers, human society has entered an era of mass production. From that time, the capitalist system faced various crises as side effects of mass production.

Unlike Britain or France, Germany had almost no colonies to consume the mass-produced goods from the past. Although it enjoyed rapid industrialization in the early 1900s, it struggled to find markets for its produced goods. Eventually, conflicts over colonies and territorial issues continued, and Wilhelm II of Germany became a war criminal of World War I. Subsequently, conflicts such as currency wars and protectionism repeatedly arose among capitalist countries. Upon closer examination, these events were also related to how to consume the mass-produced goods domestically.

The biggest reason for panics such as the Great Depression, the global financial crisis, and the collapse of Japan's bubble economy was the insufficient income of consumers to absorb the mass-produced goods. New products flooded the market, and real estate prices soared, making the economy appear prosperous on the surface. However, in reality, workers' incomes were far too low compared to the prices of goods and real estate they had to pay for, causing household debt to surge. Crises repeated in such situations.

During crises, the Keynesian policy of governments supporting effective demand (money that leads to consumption) for ordinary people to consume producers' goods became the savior of capitalism. Unlike Japan, which misunderstood the essence and implemented it poorly, the United States boldly executed comprehensive Keynesian policies whenever a crisis occurred, escaping major difficulties. It seems fortunate for the U.S. that exemplary Keynesians like Roosevelt and Obama took power each time.

When a recession occurs, the essence of the solution is not vague compassion to help ordinary people. They understood that the 'invisible hand' engine broke down as produced goods could not be absorbed, and that restarting it was the core of the problem. The government's purpose in providing bread money to ordinary people during crises is not to simply satisfy hunger immediately. The essence of Keynesianism lies in consuming enough bread so that bakeries revive, hire more employees, and milk consumption increases, revitalizing farms?an all-encompassing economic recovery.

The method of providing disaster relief funds to overcome the COVID-19 crisis was decided as selective support. The various supplementary measures clearly show careful consideration. However, from the author's standpoint advocating universal support, the basis for this decision is disappointing. Since both universal support (1st round) and selective support (2nd to 4th rounds) have been implemented since last year, the government should have calculated their respective effects. Surprisingly, the Ministry of Economy and Finance, insisting on selective support, has not presented calculation evidence to back its claim and only vaguely states that 'this is better for fiscal health.'

Of course, support for marginalized groups is necessary and important. But welfare policies are like taking 'vitamins' to supplement lacking nutrients in one's body. These are policies created mainly by the Ministry of Health and Welfare and implemented patiently. In contrast, disaster relief funds overseen by the Ministry of Economy and Finance should have the nature of 'antibiotics.' When the capitalist system is threatened by a consumption cliff, it must provide consumers with the medicine of effective demand to save producers. The Ministry of Economy and Finance should focus on how to effectively and properly prescribe this 'antibiotic.' If used half-heartedly, only resistance develops, so a strong prescription that acts quickly is needed. A policy that drains finances is not one that spends a lot of money but one that fails to spend money effectively.

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