Saturday, January 12, 2019

Liberal Economics in South Korea: So Far, Not So Great

The Times:
As President Trump leads a drive to slash taxes and pare back regulation, one major economy is taking a different approach.

Under President Moon Jae-in, South Korea has raised taxes and the minimum wage in the name of economic growth. So far, it hasn’t worked out as planned.

Growth has slowed, unemployment has risen and small-business owners are complaining. . . .

With his progressive policies, President Moon is trying to tackle some of the same economic problems that plague the United States and much of the developed world. They include a widening wealth gap, slower growth and stagnant wages.

The discouraging early results don’t mean that Mr. Moon is wrong and Mr. Trump is right. Wage growth in the United States, though stronger in recent months, has generally remained stubbornly low despite the tightest labor market in a generation, and the American economy is widely expected to slow in 2019 as the economic sugar rush of Mr. Trump’s tax cuts wears off. . . .

Still, South Korea’s troubles suggest the limits of the state in solving economic problems, especially without addressing the underlying structural issues. Rapid changes like Mr. Moon’s can also have unintended consequences for small businesses and others.
My general feeling about a regime of higher taxes and higher minimum wages is that while there is little evidence that they will make the economy much better, there isn't much evidence that they make it worse, either. Since a strong economy seems possible with tax rates anywhere between 20 percent and 70 percent, why not set them at 70 percent and use the money for public aims instead of leaving it in the hands of the rich? Also, while higher minimum wages may not produce dramatic benefits for the poor as a class -- the economics is sketchy here, with studies showing both modest gains and modest losses -- I think it is better in the long run to make work pay well, thereby promoting a lifestyle of taking work seriously.

The main argument against this basic liberal position, as I see it, is not that the economy as a whole will be worse; I just don't see any evidence of that. It is that with more money democratic governments will just do wasteful things, or that the costs of the things they already do will simply rise to use up all of the available funds, which is what seems to have happened with infrastructure projects like new highways or subways, and in our universities. This means that one of the key goals of anyone with a leftist agenda has to be to make government work better.

No comments: