Moon Jae-in chases Kim Jong-un while South Korea’s economy burns

Just over a year ago, Bloomberg Opinion published an op-ed under the title, “Can South Korea Save Liberalism?” It purred that Moon Jae-in was “charting an entirely contrary course in economic policy than much of the rest of the developed world” that was “unapologetically … dependent on the kind of taxing and spending conservatives loathe.” “If successful,” it hypothesized, “the experiment could alter how governments tackle the most challenging problems of our day.” As recently as June, The Diplomat published an article explaining that Moon’s economic policy was meant to unburden households of excessive debt by putting more income in their bank accounts. Its title was, “Is Moononomics Working Yet?” We now have our answers to both questions. South Korea’s experiment certainly should alter how governments tackle economic problems, just as Venezuela’s should. “Moononomics” is working — disastrously for South Koreans who voted for a “jobs president.”

I’m slightly conflicted about this. I oppose Moon’s servile, hallucinogenic, hypocritical, and un-humanitarian North Korea policy, just as I oppose Trump’s during even-numbered years. I loathe Moon’s heavy-handed domestic censorship. I loathe his authoritarian tools in the National Assembly who are hauling Google executives before an Un-Korean Activities Committee to enforce it (“save liberalism” indeed!). I want those parts of his agenda to fail, but I am sympathetic to parts of his social agenda. South Korea has too wide a gulf between rich and poor, workers spend too much time at work and not enough time with their families, and the younger generations must unlearn their frivolous habits about spending and debt (to say nothing of national security). South Korea is ripe for the transition that economies must make when they graduate from rapid export-driven growth to stable prosperity. But transitions of this sort must be gradual to avoid smothering growth or inducing economic shocks, which are dangerous things for debt-laden economies.

Herein lies Moon’s problem. Behind the savvy politician’s glib smile are hard-line ideologues who are making reckless and destructive policies. I’ve harped on the long, pro-North Korean history of his powerful Chief of Staff, who shows no sign of having moderated with age. A man who couldn’t pass a background investigation to deliver your mail now has the run of our most sensitive defense technology, intelligence sources and methods, and contingency plans.

The same goes for Moon’s economic policy. He has filled several of his administration’s key posts from a basket of hard-left, anti-American, anti-anti-North Korean conspiracy nutters called People’s Solidarity for Popular Democracy. The PSPD earned everlasting infamy during the anti-American violence of 2002, the mad cow protests of 2008, and after North Korea sank the South Korean warship Cheonan in 2010. As conspiracy theorists will do, PSPD combined I’m-just-asking-questions denialism with a contradictory but-if-they-did-it-we-deserved-it justification. Rational people do not think this way. PSPD alum Kim Ki-shik headed the Financial Supervisory Service in Moon’s cabinet until he resigned after being implicated in campaign finance law violations. Other top Moon aides, including the man Moon picked to lead the Korea Fair Trade Commission, are called “chaebol snipers,” although Moon hasn’t taken any serious steps toward reforming the chaebol, stripping away their anti-competitive advantages, or taming their pernicious influence as off-budget slush funds for opportunistic politicians. The hard-left Korean Confederation of Trade Unions, with its own long history of violence and pro-North Korean sympathies, also exerts a significant influence on Moon’s policies, but mainly from the outside.

~   ~   ~

Consistent with the truism that personnel is policy, Moon’s administration jacked up the minimum wage so high and so suddenly that businesses can’t afford to hire and are laying workers off. It created government jobs to reemploy them, no doubt hoping for both economic stimulus and political patronage. The opposition and a state watchdog are already alleging corruption in the distribution of some of those jobs. And business knows that Moon will have to raise taxes eventually to pay for all those salaries.

We see the results of this now. Job growth has stagnated, unemployment is at 4.2 percent (an eight-year high), and youth unemployment hit 10.5 percent (an 18-year high). The Bank of Korea estimates that the South Korean economy will create just 90,000 jobs in 2018, half of what was estimated just three months ago. Corporate capital investment is falling and employers are hiring fewer people. Because you can’t pay your bills without a job, household debt remains high. More than 2,000 people have left the country to escape their debts. Rising insecurity is throttling domestic consumption, which means fewer jobs in the retail and service industries.

GDP growth has fallen short of forecasts. Exports, which are all that’s still holding the economy up, are sagging, in part because of the shorter work week. Industrial production fell 1.3 percent in September, the biggest decline in more than five years. Moody’s has downgraded its outlooks for both Hyundai Motors and Kia Motors. Companies are afraid of higher taxes and interest rates, and that fear is dragging down the stock market. The KOSPI index fell below the psychological barrier of 2,000 points this week, for the first time in nearly two years, despite a heavy-handed state intervention to buy shares in “undervalued” companies (it is trading slightly above 2,000 today). Most of the losses were due to a weak retail sector and a sell-off by foreign investors.

[source]

Even the government admits that it doesn’t expect matters to improve soon. There is growing talk of an economic crisis, or what Japan hit at a similar point in its economic development — a “lost decade” of slow growth. South Korea is not yet in a recession, a condition defined as two consecutive quarters of negative economic growth, but Deutsche Welle reports that “there is little disguising the fact that the domestic economy is on the brink of” one, and that “analysts agree the outlook is rather bleak.” Smart people should have predicted this, but on issue after issue, the reckless pursuit of dogma overpowers reason and experience.

Let’s also be fair enough to admit that it’s not all Moon’s fault. Some of the reasons for South Korea’s declining economy are probably structural, reflecting its hard-won maturation. No developed economy can sustain four percent growth forever. Chinese economic bullying over THAAD contributed to the problem. So did trade disputes between the U.S. and China.

~   ~   ~

But Moon certainly deserves blame for the negative economic effects of his North Korea policy on the economy. Sunshiners love to characterize investments in North Korea as a bonanza for investors. I wish they could name an example of this spin aligning with reality. Investors in North Korea never repatriate a net profit; they’re lucky to get out of there with their machinery and their vehicles. Those who lend to Pyongyang don’t get repaid. What South Korean ever put money into North Korea and got more money out? Most South Koreans approve of reduced tensions with the North in the abstract, until it starts to cost them. Then, the more sensible ones question the wisdom of pouring hundreds of millions of dollars into this money pit while Moon raises domestic spending and levies stifling taxes to pay for it. As I’d predicted, Pyongyang is harnessing Moon’s political power to loot South Korea’s economy and split its alliance with the U.S., to which Moon’s record is one of ambivalence, at best.

Moon certainly seems to have pushed South Korean banks to invest in North Korea, which would have violated a series of U.N. Security Council resolutions and U.S. sanctions laws. U.S. sanctions ban new investments in North Korea and sanction certain sectors of the North Korean economy, including mining, transportation, and manufacturing. Violations are punishable by prison time, fines, penalties, forfeitures, and the freezing of assets. A South Korean bank that even indirectly deals with a North Korean bank can be blacklisted or banned from the financial system. Treasury recently gave some South Korean banks some very direct warnings about these sanctions risks. Rumors of imminent Treasury sanctions shook the banks’ stock prices this week. Contrary to Yonhap’s characterization, Treasury isn’t exactly denying those rumors. It talks like it wants those banks to feel its hot breath on their necks. The last thing Moon needs now is a bank failure.

Moon also seems to have pushed the chaebol to invest in North Korea, and we all know how well that worked before. All Korean politicians use their power to milk the chaebol to serve their own political purposes, of course. Park Geun-hye was impeached for it; Moon gets away with it despite the fact that he’s directly encouraging the violation of U.N. sanctions and — I simply cannot stress this enough — the commission of felonies that people do time for. As with the banks, Moon is also exposing the chaebol — the very foundations of the South Korean economy — to sanctions risks that could potentially damage them as badly as they damaged the Chinese conglomerate ZTE, which was recently fined $1.19 billion and had to accept U.S. oversight on its board of directors after exporting routers and servers to North Korea.

Chaebol shareholders have a lot to lose if corporate officers don’t get and follow sound legal advice about those risks. The corporate officers stand to lose much more. As this timely post by Korea-based attorney Sean Hayes explains, corporate officers in Korea face higher criminal liability risks than their American counterparts would for lapses of due diligence. Even without the sanctions risks, investments in North Korea are sure losers in the best of times. They’re sheer financial madness in uncertain times like these. The only reasons to invest in North Korea are political ones.

By disregarding sanctions, Moon took Kim Jong-un’s bait and put himself in direct opposition to U.S. policy. The U.S. embassy has sent pointed warnings to the chaebol about this. But of course, the examples of Orascom and every other foreign investor in North Korea ought to be warning enough; only one man makes money from foreign investments in North Korea. Worse, if Moon tempts a mercurial American president into breaking the countries’ alliance, it would cause an exodus of capital out of the country. That’s why bank customers and shareholders should welcome the news that the U.S. and South Korea have formed a working group to coordinate North Korea policy. That group will be a necessary channel for the U.S. to explain sanctions to South Korean officials who have, thus far, either refused to read or disregarded them.

Latest word has it that Moon’s grand plans to catapult money over the DMZ have stalled under U.S. pressure. Thank God for that. Two allies cannot form a coherent policy by which one subsidizes the same state that the other one sanctions.

~   ~   ~

All of this has had political consequences for Moon, and those consequences are about to deepen. His approval rating, which was so recently at 84 percent, is within the margin of error of its previous low point of 58 percent (Realmeter has him lower, at 55). That was before the latest batch of bad economic news and the revelation that Moon’s servility to Pyongyang has strained ties with the U.S. without achieving the aims of anyone but Kim Jong-un. Kim’s flirtations with visiting Seoul — something his father never did — suggest a desperation to keep the concessions coming. But summits can only work as political theater so many times before voters begin to wonder what coherent gains they’ve achieved. Already, South Koreans grow uneasy about the pace and risk of Moon’s concessions, the paucity of their returns, and his apparent apathy about an economic disaster that’s more self-inflicted than not.

On top of the glaring economic incompetence, another problem with Moon is his fixation on North Korea. There are a lot of things Moon has done right regarding North Korea, but he is also being criticized for rushing to reduce sanctions on Pyongyang and obsessing over North Korean leader Kim Jong-un’s visit to Seoul within the year.

Many South Koreans would like to see a North Korean leader reciprocating our leader’s visit. But most people still first want to see real changes from Pyongyang toward denuclearization. Moon’s rush for improving inter-Korean ties is also out of step with the U.S., stoking fears of cracks in the Korea-U.S. alliance.

Moon’s recent ratification of inter-Korean agreements such as the Pyongyang joint Declaration, the outcome of the latest inter-Korean summit in September, and the inter-Korean military accord were also heavily criticized by opposition parties as premature. Moon’s popularity will wane significantly if he keeps up his unilateral ways on diplomacy with North Korea. [Editorial, Korea Times]

As the economy burns around him, Moon clings to his monomaniacal obsession with gaining His Porcine Majesty’s favor. He speaks of Kim’s visit as “miracle,” like a shaman who promises that sacrifices and incantations can conjure corn from the dust. By the time Kim comes, if he comes, who will still care? How many times can Moon repeat this trick before the next National Assembly election in 2020? If he’s not careful — and if he isn’t able to censor his opposition to permanent oblivion — that opposition might finally get its shit together and come up with a coherent messenger and a coherent message. One already sees a theme emerging that Moon is so fixated on appeasing Pyongyang that he’s neglecting South Koreans’ economic hardships. This will cause people to question Moon’s judgment and deepen the divisiveness of his North Korea policy.

If Moon is anything, he’s a skillful politician. He knows that he needs to turn the economy around, and before that, he knows that he needs to look like he’s trying to. He recently replaced some of his cabinet ministers, though it’s not clear they were among the more extreme ones. More replacements are rumored, but there are no signs of more moderate policies yet. Moon’s 2019 budget contains big increases in taxes, social welfare spending, and hiring subsidies, despite a situation that calls for modest ones. If Moon can’t moderate his own ideologues, avert a recession, and avoid splitting his party, his support will continue to decline. The more the economy deteriorates, the more it will define him instead of the splashy photo ops with a tyrant who is credibly accused of crimes against humanity, and who has yet to make more than cosmetic gestures toward disarmament.

The sensible decision for Moon is to turn to the hard, dull work of governing competently. That starts with picking competent people. But if Moon’s belief that a liberal democracy can confederate with — or subordinate itself to — a totalitarian oligarchy is as obsessive and all-consuming for him as I suspect it is, it’s the very reason he’s spent decades pursuing the presidency at all. You might as well ask Donald Trump to take his name off all those buildings, take the advice of his cabinet, or quit Twitter.