"Moon Administration Addicted to Fiscal Spending... Government Expenditure Has No Effect on Economic Growth"

Professor Yeom Myung-bae: "The Government's 'Pre-investment and Good Debt' Logic Is Fiction"
To the Next Government: "Must Abandon Blind Faith in Fiscal Spending Effects"

[Asia Economy Sejong=Reporter Kwon Haeyoung] Although the Moon Jae-in administration formulated a supplementary budget totaling 150 trillion won in 10 rounds, criticism has been raised that it was not effective for economic growth.

On the 6th, Professor Emeritus Yeom Myung-bae of the Department of Economics at Chungnam National University made this claim in a paper titled "Evaluation of the 5 Years of the Moon Jae-in Administration: Where and Why the Moon Jae-in Administration's Economic and Fiscal Policies Went Wrong."

Professor Yeom criticized the government, saying, "The government has excessively overinterpreted Keynesian theory, which emphasizes the fiscal role as a short-term economic crisis recovery measure, and mistakenly believes that fiscal policy is a panacea or magic wand that cures and solves all national problems," and that the government is "addicted to fiscal policy" and caught in "fiscal omnipotence."

He argued that the government's claims of "pre-investment" and "good debt" are fictitious.

He pointed out, "For fiscal policy to play a role as pre-investment, the economic growth rate must be greater than the increase in government spending," adding, "This means that the fiscal multiplier, calculated by dividing the economic growth rate by the increase in government spending, must be greater than 1."

According to the report, when calculating using government spending and Gross Domestic Product (GDP) size, the fiscal multiplier was above 1 during 2017?2018 when the fiscal expansion was below 20 trillion won, but it fell below 1 from 2019 onward as the fiscal expansion exceeded 40 trillion won. Regarding this, Professor Yeom analyzed, "This shows that government spending was not very effective in actually promoting economic growth," and "The recently sharply increased fiscal spending was mainly used for non-productive social security transfer expenditures such as emergency disaster relief funds, support for small business damage compensation, and fiscal job projects, rather than investments in highly productive sectors."

He also criticized the claim that even if debt is temporarily incurred, it can be repaid later by earning more money. Calculating the economic growth effect of the supplementary budget using GDP size showed 1.9 trillion won in 2019 and 9.6 trillion won in 2020 (including the 1st and 2nd supplementary budgets), but the net profit and loss after deducting deficit bond issuance was negative in both years.

Professor Yeom said, "This means that the money earned additionally by borrowing is less than the additional debt incurred," and pointed out, "The 'good debt' argument is essentially a simple political slogan with little practical feasibility." He continued, "The next administration must abandon unconditional faith in the effects of fiscal spending," and expressed concern that "If government spending is expanded by increasing debt, the so-called 'revenge of debt' phenomenon may begin in earnest, where hangover effects from fiscal addiction cause rising interest rates and inflationary pressures, hindering economic growth and increasing public suffering."

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