[Chong-Bum An’s Policy Diagnosis] Policies are creatures.

[Financial News, October 17, 2023] Chong-Bum An (President of PERI)

[Chong-Bum An’s Policy Diagnosis] Policies are creatures.

It’s often said that politics is a living thing. It’s a metaphor for how changeable and unpredictable politics is. But policies are also living things. People react to policies in some way. However, unlike politics, policy is a creature that can be better understood and prepared for.

A famous example is the window tax, which was introduced in England in 1696. The idea was to tax people based on the number of windows they had, and it lasted for 150 years, making it very expensive to fill them. Sweden abolished its inheritance tax in 2005, and there’s a case to be made that death rates briefly increased shortly afterward. The tax was such a scary creature that people were willing to live a little longer to avoid it.

“If you don’t have the money to pay the estate tax, move!” and “Take from the 2% rich and give to the 98%!” were the words of President Roh Moo-hyun as he tightened real estate taxes. A decade later, President Moon Jae-in said something similar, promising to stabilize house prices by taxing speculation. But both government real estate measures failed for the same reason. They tried to suppress demand with taxes without supply measures, and house prices and monthly rent increased unaffordably. Both governments labeled homeowners as speculators or unearned income and accused them of using all kinds of means to avoid taxes. Real estate agents were also considered to be bad speculators and were monitored and supervised by the National Tax Administration.

Why did we repeat the same mistakes? Because we made politics, not science, our policy. They were more concerned with packaging the policy in words that sounded good to the public than scientifically analyzing the expected effects of the policy. Policies should be well thought out, considering how people will be affected by them before they are implemented. This is why pre-evaluation is important. And post-evaluation is also important to scientifically analyze whether people behave as expected and whether the country as a whole has benefited.

But we didn’t do this pre- and post-evaluation, so we suffered from populism. The comprehensive taxation of financial income was blamed for causing the foreign exchange crisis and was suspended for three years from 1998, resulting in a worsening of the distributional structure. The food industry was devastated by the mad cow disease outbreak, and the opportunity to reform public companies was lost due to the water bill myth that privatization would increase water bills by a hundredfold. Fruit farmers were damaged by the THAAD myth, and KEPCO suffered huge losses due to the nuclear phase-out, which led to huge debts and the suspension of nuclear power exports. The national debt, which is approaching 50% due to reckless financing that started with the excuse of coronavirus and neglecting the need to protect the national debt ratio of 40%, is holding back the present and future of our economy and society.

The 1996 welfare reform, which is considered a success in the United States, shows the importance of pre- and post-evaluation. A decade of pre-evaluation before the Clinton administration’s reforms, and more than a decade of post-evaluation committees after the reforms, resulted in scientific evaluations. The U.S. even enacted the Evidence-Based Policy Act in 2018, which mandates policy evaluation based on data and scientific analysis.

We should also make and evaluate policies based on science and evidence, not politics. Unfortunately, the reality is that politics gets in the way of policy. The media sometimes makes it worse. Political stories are often sensationalized to grab readers’ attention and exaggerate divisions and confrontations.

Meanwhile, policy coverage is minimized. Policy stories are always buried in political stories because it is not easy for people to be interested in and understand policy. Therefore, I feel a great responsibility in starting this series called ‘Policy Diagnosis’.

October 17, 2023

<Chong-Bum An, President of PERI>