Tuesday, June 4, 2013

Inflation and Domestic Chaos

"The weak yen is a bigger economic risk than North Korean threats", said South Korean Finance Minister Hyun Oh Seok as reported in The Korea Herald last May 30, 2013. South Korea is blaming Japan's monetary policy for its negative impact on their export industry. On the other hand, Koichi Hamada, an economic adviser of Prime Minister Shinzo Abe told South Korea to stop blaming Japan. Instead South Korea could also take care of their own economy by expanding their monetary supply.

Will South Korea follow the foot step of Japan? I have no knowledge about the extent of Austrian influence in South Korea, but I am hoping that economic adviser of Park administration would share similar insight as found in David Howden's June 3 article.

Based on Howden's article, as Japan will inject $1.4 trillion dollars into her economy over the next 2 years, she is actually heading into domestic chaos in the long run. The goal for the increase in monetary supply is to boost export industry. The immediate impact of such act of currency depreciation is difficult to see. Howden, a convinced Misesian, is able to identify long-term detrimental consequences of inflating the money supply. He names four: reduction of foreign investment, increase in production cost, overconsumption and malinvestment. 

I wish that not only South Korea, but also top economic advisers in other countries would be able to see the wisdom of Mises' economic analysis. Howden warns, "If the policy is ineffective in the long run, Mises demonstrated that the short-run gains are illusory. The same monetary policy aimed at depreciating the currency to promote international trade will reap domestic chaos."

Related Article:

Japan Just Gave Us a Warning of What's Coming Our Way