[Opinion] Lessons from the 'Brinkmanship' US Debt Ceiling Negotiations

Setting a debt ceiling and increasing it in the US
Spending 2 trillion won to save 2 minutes
Korean election pledge 'New Railway Construction' is similar
Need to reflect on fleeting policy actions

The countdown to the U.S. federal government's debt ceiling negotiation deadline is ticking. U.S. Treasury Secretary Janet Yellen has pinpointed June 1 as the X-date?the day when the federal government's cash reserves run out. In the United States, the debt ceiling was established in 1917 as an institutional mechanism to rationalize federal borrowing. However, the world has grown weary of the brinkmanship tactics used by the U.S., a country that prints astronomical amounts of money.

The U.S. political arena repeatedly engages in extreme confrontations by setting a national debt ceiling that it cannot uphold and routinely raising it. Is it a good tradition for a country enjoying the unrivaled dollar hegemony to maintain a debt ceiling system determined by Congress? Observing the rapidly increasing government debt ratio in the U.S., we consider the lessons we can learn.

In countries where fiscal soundness is important, careful scrutiny of populist policies is necessary. If mechanisms are not designed to ensure efficient resource allocation, outcomes contrary to the will of the entire populace may result.

How much resource waste occurs under the name of regional balanced development! Korea Electric Power Corporation (KEPCO) posted an astronomical deficit exceeding 31 trillion won last year. Criticism has arisen questioning whether it is appropriate to bear the financial responsibility (155.8 billion won) for Korea Electric Power University, which issues astronomical bonds and lacks survival competitiveness. Merging Korea Electric Power University with Gwangju Institute of Science and Technology seems wise.

When the high-speed rail from Gwangju to Mokpo is completed in 2025, it will save only 2 minutes compared to the regular train time of 35 minutes. Who created such a wasteful policy from the perspective of resource allocation efficiency? It was because politicians bowed to public opinion demanding a KTX station at Muan Airport, which has become a white elephant with no passengers since its completion in 2007. They agreed to establish Muan Airport Station and spend 2 trillion won to save 2 minutes?does that make sense? The Korea Development Institute (KDI), a national research institute, predicted that even if Muan Airport is revitalized and daily passengers exceed 6,000, only 250 (4%) would use the KTX daily.

Railroads are a staple campaign promise during every election. Seriously consider how many policies carried out under the name of regional balanced development are futile acts. American economist Anthony Downs suggested that even if the majority prefers something, policies biased toward minorities may be necessary due to voters' rational ignorance. Politicians sometimes exploit the crowd psychology of the majority but often pay more attention to minority interest groups who actually cast votes. Ahead of next year's U.S. presidential election and our country's parliamentary election, politicians are encouraged to study the Nobel Prize-winning theory of mechanism design.

This theory assumes that even if the government's policy intentions are good, voters prioritize their personal interests, so the intended policy effects may not be achieved. For example, suppose the government asks local residents about building a bridge. Even those who think the bridge is unnecessary will support its construction if it does not cost them personally. When making policies, the government should not only consider whether the policy is good or bad for the people but also study how to enable people to tell the truth. From the perspective of mechanism design, the frequent U.S. debt ceiling increases and our overused election promises receive failing grades.

Jowon Kyung, Professor at UNIST and Director of the Global Industry-Academia Cooperation Center

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