Economic Recovery?

"The South Korean government plans to inject an additional 5 trillion won ($4.7 billion) worth of policy funds this year to jumpstart the slowing economic recovery, the Finance Ministry said Wednesday."

"On Tuesday, the Bank of Korea said Korea was likely to continue to recover modestly, backed by a global economic recovery and ongoing economic policies."

- The Korea Herald

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Why is the "economic recovery" slowing in the first place? Or to ask a more realistic question, is there really a slowing economic recovery? If such an economic recovery exists even though it is slow, it remains a good news. However, this is the reality as a Keynesian economist sees it. I guess an Austrian economist would see it differently. No economic recovery is taking place. What a Keynesian economist sees as the slowing of economic recovery is actually the gradual disappearance of the impact of previous "economic solution" to boost the economy. And since such impact is disappearing, what is needed this time is for more stimulus package to "boost the economy". In reality, this is an act of stopping the market from correcting the economy and instead prolonging the "illusion of growth". The authority can do it as a short-term solution, but its long term impact is far more serious and destructive that may end in a possible humanitarian crisis. The truth is, no economic recovery is happening. We are still in the midst of economic crisis, not only South Korea, but the world. However, governments refuse to accept it, and they are using the only weapon they know to "boost the economy", injecting paper money into the economy through the nations' central banks. 

In South Korea, expect the weakening of won and the strengthening of export industry in the coming months. This is what they call "speeding" the economic recovery. To my knowledge, Austrians call it "joining the race to the bottom". 

Another Evidence of Statist Subtlety?

"The economics of success is clear: higher spending on urbanization, health care, and education, funded by increases in taxes, could simultaneously sustain growth, improve the environment, and reduce inequality. If China’s politics can manage the implementation of this agenda, China and the entire world will be better off." - Joseph E. Stiglitz, "Reforming state-market balance in China"

"Reform" is a popular word subtly used by advocates of statist economic policies. They call such policies as "a better strategy" and "the economics of success." They diagnose that "too much market and too little government" is the source of the problem. The antidote therefore is to expand the size of government bureaucracy funded by greater amount of taxes.

This statement is correct understood in its proper context: "The government is clearly doing some things that it should not, it is also not doing some things that it should." To put it in a different context advocating for greater government intervention is not only a distortion of the real state of the economy, but in the end will result into further economic destruction. Allocating more resources to health care and education, and calling for government to take a "leading role" in these sectors of the economy are typical examples. And yet, they still call it "market economy."

Last December 6, 2013, The Freeman published an article, "Abundance Down There, and Back Up." In it, The Freeman claims that there is an ongoing revolution that is quiet and invisible to many. This revolution is happening in the midst of "The Great Stagnation" as described by intellectuals and economists, and has something to do with "automation of everything" and "nanomanufacturing." As a result of this revolution, industries will certainly benefit, but "the political class" is the primary obstacle for the realization of this vision particularly in sectors of economy such as "healthcare, education, and energy." The favorite strategy of this class is increasing economic regulations. No wonder, products and services in these three sectors of economy "are getting worse, slower, and more expensive." 

The progressives do not trust the market; they actually hate it, but they avoid to clearly express their hostility in public. And so they change their language to make their statist ideas palatable to the people. The most successful among them is given a Nobel laureate in "economics." 

Nothing to Fear

Companies and banks are also financially healthier...All signs so far - from manufacturing to consumer spending - are pointing to a firmer rebound, not just in the US but also in other recently stagnant developed economies like Europe and Japan...So while Asia may be in for a rocky ride as the US eases out of QE, most economies are in a good position to manage the adjustment without giving in to fears of a new crisis. - The Korea Herald 

Fiona Chan wrote the "Fears of Asian financial crisis may be overblown" at The Korea Herald dated August 29, 2013. Her article attracted my attention for it is about the economic situation of Asia and contains materials related to the Philippines. She thinks that Asia has nothing to fear for it has strong economic fundamentals and actually have experienced "boom for the last three years". Countries, which she identified as strong include Taiwan, Philippines and South Korea. In fact, she also thinks that the US, EU and Japan were already out of recession pit and on their way to recovery. 

My reading of Austrian analysis about Asian economy leads me to a different conclusion from Chan. If she thinks that those who see a repetition of the Asian financial crisis in the coming years are misguided, Austrians think that a far greater crisis is actually approaching. We just do not know when. It depends on several factors particularly in relation to the political and economic move of the US. But either way, we cannot escape a far serious economic bust. 

Even reading Chan's article, you will see a hint about the kind of monetary system that we have right now. She said that "if the authorities tighten monetary policy to stabilize currencies or reduce inflation, that risks sapping economic vitality." This is an admission that existing monetary system is unstable. Any attempt to stabilize it will make the situation worse. So the tune that we are playing now is to allow lose monetary policy and let inflation has its way.

You can detect another indication that we are not in a healthy condition when she quoted one economist saying " 'Asian economies have been on a steamroller boom for the last three years, and the fact is that many Asian economies are fundamentally on a much firmer economic footing this time around. '... they do not 'appear to be in danger of falling into an outright currency crisis.' " From Austrian point of view, this is exactly the one to fear - the boom she is referring to for it is caused not by sound business practices, but by credit expansion. After this, bust follows depending on the length of the impact of the easy money injected to the economy in the first place. So I assume that if we could interview an Austrian, he would say "It's actually the reverse: Asian economies are on a more serious and shaky economic footing right now." 

If Chan saw that the world economy has already escaped the 2008 crisis, for an Austrian, the crisis has never been solved. It was actually expanded...

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

Revolution within IMF?

I don’t know if one of the editorials from The Korea Herald should be an occasion for rejoicing. While reading Stephen Richter’s “The silent revolution underway inside the IMF”, my emotion is mixed. The writer is talking about reform and revolution. I assume Austrian economists would question even the very existence of the IMF and would go for its abolition.

The writer himself is negative towards the IMF for he describes it as an institution “whose machinations have proven to have effects similar to nuclear radiation.” However, the irony here is that a destructive institution such as the IMF is now criticizing another destructive financial institution, the Federal Reserve.

New voices within the IMF are now exposing the negative impact of the Fed’s financial stimulus on emerging markets. Quantitative easing is said to have failed in boosting the real economy and “has mainly boosted the stock market.” And now, even the effect of the stimulus package on the stock market is “wearing off”.

The writer identified these new voices.  They are Tharman Shanmugaratnam of Singapore and Guido Mantega of Brazil. Richter even praised Brazil and South Korea for their “counter-cyclical capital account regulations” (I do not know exactly the meaning of these regulations).

In concluding the editorial, Richter is happy. He invites the world to rejoice with him:

“The world at large has reason to rejoice in the fact that the IMF is taking off its self-imposed ideological blinders. If the current trend of change continues, and all indications are that it will, it would represent a big step forward for better global governance.”

Will you accept Richter’s invitation?

Reference: Richter, Stephan. January 13, 2012. “The silent revolution underway inside the IMF”. The Korea Herald.

Note: First posted last January 10 this year. 

Free Market’s Failure Justifies Welfare

Reading the fourth article from The Korea Herald issued as of November 6, 2012 convinced me about the influence of mainstream social theme about the alleged “crimes” of free market. The writer identified two among those crimes. These are the increasing socio-economic inequity and the collapse of traditional family values that left both the children and the elderly unattended.  Due to free market failure as the mainstream rhetoric wants us to believe, the entry of government welfare is now justified. And this serves as the rallying point of the three presidential candidates in South Korea: Park Geun-hye, Moon Jae-in, and Ahn Cheol-soo.

Among the three candidates, it was reported that Moon Jae-in is the boldest in his welfare platform and dreams to be “ ‘the first president of South Korea as a welfare state’ ”.  Ahn Cheol-soo’s source of financing for his “reliable welfare” program is commendable. It is similar to the monetary policies advocated by Ron Paul, the Tea Party US Congressman who is passionate to spread the Austrian economics way of thinking. Ahn’s “cut government spending” and “tax exemption measures” are really great ideas that will somehow help ease the existing economic situation in the country due to global crisis.

Listening to the voice of Austrian economists, a different diagnosis would come out concerning the alleged crimes of the free market in South Korea. They identify government’s intervention of the free-market as the primary culprit. Mainstream media and the academic community feed the public with such wrong notion for the government’s interventionist policy to escape public attention.

This fourth article really caused me to think hard. So I searched for other sites to learn how they look at the situation in South Korea. I typed in the search browser two lines of thoughts: South Korea and welfare state and South Korea and Austrian economics. And among numerous links, I chose four:

• Thoughts about Austrian Economists in the Present Context and Investing
• Good News from Korea, China, and Vietnam
• It’s time for Japan and South Korea to go Nuclear
• Why is South Korea so Successful?

So in addition to the writing task I mentioned in the previous article, I add the above four. I am also thinking about reflecting on the economic situation in my country, the Philippines.

US and SOKOR’s Elections and the Coming Winter

Our Senior Pastor handed me The Korea Herald today. Though he did not plainly say, I thought of summarizing the content of today’s issue. I find several interesting and alarming article news, which I intend to write about beginning today:

• Obama, Romney make last push in tight race
• Moon, Ahn agree on private talks on unified candidacy
• Two nuclear reactors shut down for substandard parts
• Welfare key campaign agenda for big three
• With the U. S. presidential election on a knife edge…How will the outcome affect Korea?
• Education is now a global issue
• The biggest issue in U. S. election, and
• The world has a stake in outcome of U. S. election

US Election

Reading the first article news, I realized the meaning of my conversation with one Korean pastor yesterday about the difference between the systems of election in the US and South Korea. He has been telling me about “direct” and “indirect” ways of knowing the election results. The article news distinguishes between “the nationwide popular vote” and “state-by-state contests”. In “democratic” countries like South Korea, knowing the election results is direct or by nationwide popular vote whereas in the US, it is indirect or determined by the majority number of states voting for a candidate.

I find one interesting comment related to Obama’s advantage over Romney. The writer connected such advantage to the way President Obama responded to Superstorm Sandy. Reading this comment I could not help but remember an article I read several days ago about the belief that Hurricane Sandy was actually technologically manipulated.

Obama Ordered DHS to Control Hurricanes

Unification in Presidential Election

Turning to the second article, it puzzles me how a presidential candidate like Ahn Cheol-Soo could join forces with Moon Jae-in, a left-wing presidential candidate? Except for his welfare platform, it appears to me that Ahn has at least two similarities with Ron Paul, the US Tea party Congressman in terms of monetary reforms. His platform of cutting government spending and tax exemption measures are commendable moves seen from the perspective of Austrian economics.

Substandard Components of Nuclear Reactor and the Approaching Winter

The third news is particularly interesting to me for it is my first time to experience winter. Autumn is already difficult for me and people here laughed at me when they heard me say, “It’s very cold.” For them, autumn is their most awaited season.

The third article is about the shutting down of two units of nuclear reactors in South Jeolla Province, South Korea due to “substandard parts”. This government announcement alarmed the public over safety and power shortages in the approaching winter. It was even predicted that a possible partial blackout would occur during the first two months of 2013.  The Knowledge Economy Ministry, in order to prevent the negative repercussion, organized a contingency team to communicate with businesses consuming huge amount of electricity.

Reading this article, I also came to know the significance of nuclear plants in the total economy of South Korea. I realized that 30% of the country’s total power need is coming from nuclear power plants. And also some businesses related to nuclear production are worried about the impact of the unfortunate incident on their export. Moreover, it was reported that South Korea “has sought to become a major world nuclear energy country” and actually “won a $20 billion contract to supply four nuclear reactors to UAE in 2009.”

Note: First posted last November 6, 2012