15 ms·

South Korea's program of higher wages and taxes – so far, it's not working

163 points by aetherson 8y ago

40acres 8y ago
Once your economy gets to a developed state the only way to see a significant bump in growth is through innovation. Look at the top 100 counties in terms of real GDP growth, not a lot of Western style counties there. South Korea has a reputation for a very educated work force, if I were a citizen I'd probably be advocating for policies that can fully take advantage of that over generic solutions such as raising or cutting taxes.
- dominotw 8y ago
  > if I were a citizen I'd probably be advocating for policies that can fully take advantage of that what are some of the examples of these policies.
  - whatshisface 8y ago
    If you believe that the best place to innovate is inside a big corporate lab, or a scrappy startup garage, or both, the answer would be "lower taxes," with the answer to the immediate next question ("for who?") being determined by your balance of preferences between industry labs and the Woz's garage.
    - Junk_Collector 8y ago
      Alternatively you could create very high taxes on large organizations and capital gains, then offer significant tax incentives to invest in R&D. This is more or less what gave us Bell Labs.
    - nradov 8y ago
      Most startups aren't profitable so lowering income taxes will have zero impact on them. You could make a case for lowering some employment taxes to encourage hiring.
    - throwawayjava 8y ago
      you're leaving out publicly funded labs at universities, which is where e.g. Google's "garage" days were spent. Public labs are nice for society because they're extraordinary cheap relative to their corporate counter-parts (grad student = 30k/yr with no benefits, research scientist = 200+k/yr with full benefits)
  - 40acres 8y ago
    I don't have specific ideas, I'm not well versed enough in policy or economics to provide a specific solution. However in general I think the pattern of increasing R&D budgets, and smart deregulation is key. You need to provide an environment where there is adequate resources to validate new ideas and an infrastructure to quickly get those ideas to market.
    - Symmetry 8y ago
      Maybe stop mandating people use Internet Explorer for online shopping, as an example.
      - kissickas 8y ago
        Wow, I read about that like seven years ago and it was somewhat laughable. Now I feel terrible for them.
    - hoaw 8y ago
      As someone who is usually fairly "socialist" I always mostly disagree when people want to use the government, or companies for that matter, to promote innovation. There is already a mechanism for innovation called the market. You probably want the market regulated and you don't want to leave everything up to the market. But still, if you want innovative companies you should leave their success and failure to the market. Research and regulation can be decided on as you go along. What you should be focusing on is how to get people in a position to innovate in the first place. Innovative companies don't rise and fall by 10% tax increase or decrease. They often make no money at all until the make a lot. The only people who are concerned about taxes are those who already have money. If you want to lower barriers you need to fix education, costs of living and security. You can't have every incentive saying to stay the course at a traditional job and expect new things to happen. These days everyone expects a large sum of money for themselves to fund their own company. That isn't something you get or can allocate for new things, especially not at scale. Because they are by nature new. So almost every industry started scrappy. Provide an advanced scrappy society and innovation will happen. People often say "But if this is such a good idea why aren't people in those kinds of countries innovating?". They are. It is just that it is marginal in the beginning and then it gets too large to notice. People think it came out of nowhere, which it sort of did. Even in the US a lot of the innovation, if not most, is related to the relative safety of the university system and subsequent industries. A lot of the famous entrepreneurs from the earlier days of the tech industry are people who were relatively well off if not rich, at least in terms of education or family, who I guess weren't that excited about their prospects and therefor also didn't have much to lose. In a good way. They could go work in a garage startup for a few year and still get the normal job later. They didn't have to, or didn't know to, worry about a mortgage. At least not yet. You always want to start something new from a position of, if not strength, at least abundance. The zero to hero idea is flawed. If you don't have unrealized potential either in yourself, your idea or the market there isn't something that can succeed. So you want to have more opportunities than you can realize. You want to have more motivation, time or skill than you need. Otherwise you are just going to do what needs to be done, which usually isn't innovation. Then on top of that you can do all kinds of things. But without the underlying foundation innovation at scale isn't going to happen. Even doing targeted research, you always need more people and better education than you think. For every success there is a hundred average efforts. Which is okay. That is how everything, from science to music scenes, is built. Cities often wonder why their initiatives isn't working, but if you aren't prepared to take on ten thousand new people in a year your industry isn't going to happen. It is going to plateau before you even notices it exists. At the end of the day, innovation is made by people. You optimize for people and you get new industries. That is every successful city for decades if not centuries. I guess most people wouldn't say that about the Bay Area today, but at one point it was far better than the alternative for a lot of people. Which is why they ended up there.
- passerby2019 8y ago
  They need to motivate men to start families.
dunpeal 8y ago
Why would anyone expect higher taxes to increase growth? > 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. That's not how that works at all. Whoever made this "plan" apparently skipped Macroeconomics 101. > Growth has slowed, unemployment has risen and small-business owners like Moon Seung are complaining. Any Economics undergrad would tell you that's exactly the expected outcome. Raising taxes hurts growth and increases unemployment because you are reducing the profitability of all businesses. Raising minimum wage increases unemployment because you are raising the cost of labor. And small businesses often pay the highest price for these policies.
- whatshisface 8y ago
  When I took Economics 101 I was told that there was one school that says "taking people's money away will make the economy worse because they know how to spend it best," and another school that says, "the economy is powered by money changing hands, so if you take away money that would otherwise have sat around and use it to buy random items, you will force the economy to be more active than it would otherwise have been."
  - wbl 8y ago
    Keynesian stimulus is intertemporal not redistributive.
  - deleted 8y ago
    [deleted]
  - pazimzadeh 8y ago
    The latter makes intuitive sense. If you give money to the poor and needy, they will spend it on things they need (food, cars, etc..) so the money will end up back in corporations' hands anyway.
    - dunpeal 8y ago
      You are assuming any of that money will end up with the "poor and needy", instead of hiring more bureaucrats whose function is often to hinder economic activity and growth by numerous rules and regulations.
kortilla 8y ago
Why would you expect higher taxes to heat up the economy? That’s in the same boat as raising interest rates.
- GreeniFi 8y ago
  If the cash is redistributed, theoretically you increase buying power, both state and individual. Holding all other variables steady.
  - briandear 8y ago
    However that also causes inflation. Holding all other variables steady.
    - philjohn 8y ago
      Which isn't necessarily a bad thing - it encourages companies to spend on expansion instead of hoarding, and reduces the value of debt.
- aetherson 8y ago
  You raise taxes and redistribute money from the wealthy to the less-wealthy. It is not, like, outlandish to hear the claim that this would improve the economy, or at least be no worse for the economy than not doing it. I mean, it may not be true -- I don't tend to think that it's true -- but this should not be the first time that you've heard it. Obviously raising taxes and then setting the money raised on fire, or putting it in a bank vault, or shipping it overseas, would not help your economy. That's not what Korea is doing.
- stefs 8y ago
  higher taxes can be used for infrastructure, education, healthcare, unemployment, pensions, ... all of those make either the workforce more competitive and keep people from falling into poverty. people who have money (even though when they don't have a job) still buy things. i'm a big believer that small income disparity is better. mr. moon, the auto parts maker, probably still earns a multitude of what most of his employees make. if you earn 5 times of what a minimum wage employee makes and the really rich guys earn 7 times of the min wage, you're still considered rich. a ten times wage gap between what the poor and the middle class makes is, imo, just not good for a healthy population.
liveoneggs 8y ago
no workers were interviewed for this article, only bosses
sremani 8y ago
I am trying to understand the logic behind higher taxes for growth, is it because the domestic consumption is so low, that government decided to tax and spend "Bigly"? If they are spending bigly, what are they spending on?
- jakelazaroff 8y ago
  Seems like it: > Past tax cuts did little for growth or the wealth gap, Mr. Yoon said. Instead, Mr. Moon aims to improve the incomes of average Korean families so they will consume more, thus reducing the economy’s reliance on exports and, with them, the ups and downs of the global economy. (Exports accounted for 43 percent of South Korea’s gross domestic product in 2017, compared with 20 percent for China.)
- SketchySeaBeast 8y ago
  That's what I'm curious about - ok, you got this extra cash, whatcha doing with it? Is the money going into tech advancement, education? Is this a long term play towards expanding markets or capabilities or is it a neat way to get closer to/further into the black?
- nostrademons 8y ago
  There's a big marginal-propensity-to-consume argument. Poor people spend a much larger proportion of their income than rich people, so if you redirect money from rich people to poor people, you redirect it from hoarding & speculation toward economic activity. It's unclear at which threshold this actually occurs, as it implies that rich people are either sitting with their money in the bank or playing speculative games with it rather than investing it in productive enterprises that will spend it on innovation. South Korea's experience indicates that may not be the case, at least in South Korea, or it could indicate that government expenditures aren't actually reaching poor people, or it could indicate poor people blew it all on Bitcoin rather than spending it on useful things. Anyway, that's the theory, whether it applies to reality is still an open question.
  - stale2002 8y ago
    Well, that's only if you believe that "consumption" is a good thing that is supposed to be encouraged. In reality, it is the opposite. Consumption, is by definition the destruction of resources. I am not sure why people believe that the destruction of resources is something that we should be promoting. Instead, we should be promoting savings, and the preservation of resources, as well as the creation of capital.
neilwilson 8y ago
It won't. That's not what taxes are for. "The necessity for a government to tax in order to maintain both its independence and its solvency is true for state and local governments, but it is not true for a national government. Two changes of the greatest consequence have occurred in the last twenty-five years which have substantially altered the position of the national state with respect to the financing of its current requirements. The first of these changes is the gaining of vast new experience in the management of central banks. The second change is the elimination, for domestic purposes, of the convertibility of the currency into gold. Final freedom from the domestic money market exists for every sovereign national state where there exists an institution which functions in the manner of a modern central bank, and whose currency is not convertible into gold or into some other commodity." Taxes for Revenue is Obsolete - Beardsley Ruml (Chair of New York Fed 1946) http://home.hiwaay.net/~becraft/RUMLTAXES.html http://home.hiwaay.net/~becraft/RUMLTAXES.html South Korea is overtaxed for the size of government it has. As is any nation with any long term unemployment.
- vijayr02 8y ago
  That’s not true if you have free movement of capital across the national border. Debt is a claim on future productivity of the nation, and if a necessary share of the national income is not being claimed through taxes to service the debt, capital will exit to brighter climes. That statement may have been true in 1946 when the US was the only non-shattered developed economy in town but it’s hardly axiomatic.
  - RobertoG 8y ago
    >>"Debt is a claim on future productivity of the nation, and if a necessary share of the national income is not being claimed through taxes to service the debt, capital will exit to brighter climes. " What debt? The grandparent is telling you that debt is not necessary to finance a state that control its own floating currency.
    - vijayr02 8y ago
      I don't read that? The quote says that taxes are not needed by a country that does not promise to convert its currency into gold etc. It says nothing about whether that country had issued debt outstanding or not.
nostrademons 8y ago
It's interesting to see contrasting articles on taxes & growth. There's this article about how South Korea raised taxes in a bid to grow faster and failed, but there are also plenty of articles about how Kansas's attempt to lower taxes in a bid to grow faster also failed [1], as well as predictions that California's high taxes would hamper growth (which hasn't really happened yet). What if the actual conclusion is that it just doesn't matter. Growth is driven by other factors, like when a brilliant but insufferable physicist moves back home to be close to his mother [2], and is a function of individual, private firms performing functions of the economy more efficiently than existing incumbents. Tax policy follows as a consequence, and can go in either direction: either the newly-rich individuals think "Oh well, I've got plenty of money to spare, I can afford to burn some to ensure the people around me live decent lives", or they think "I want to keep more of this money to myself so I can decide how to allocate it." Regardless, wealth brings power, and so they have the ability to shape local government policy based on their particular worldview. If this is correct, tax policy is a huge distraction, and if governments really want to jump-start growth they should be funding basic research, ensuring that the results are public (to their citizens, at least), and encouraging bright young people from across the world to immigrate to their jurisdictions. [1] https://www.cbpp.org/research/state-budget-and-tax/kansas-provides-compelling-evidence-of-failure-of-supply-side-tax-cuts https://www.cbpp.org/research/state-budget-and-tax/kansas-pr... [2] https://en.wikipedia.org/wiki/William_Shockley#Career https://en.wikipedia.org/wiki/William_Shockley#Career
- 40acres 8y ago
  Agreed, tax policy overall is just an ineffective lever for growth. It may help on the margins (tax break to build a factory, tax break on electric cars, tax increase to fund national health and education programs) but it doesn't spur the fundamental earth shaking innovation that advanced economies need to grow at a clip above 2-3%.
- ddebernardy 8y ago
  > If this is correct, tax policy is a huge distraction, and if governments really want to jump-start growth they should be funding basic research ... which requires taxes, which makes tax policy not a huge distraction.
microcolonel 8y ago
Korea seems to be the sort of place where they could pull back from a policy like this, without a decade of idiotic bickering.
iheartpotatoes 8y ago
Odd they only interviewed business owners and employers, and not the people who benefit from higher wages. Of course, this article scratches its head because it is assuming SKorea = USA and South Koreans = 'Muricans. Maybe we should look at the biggest driver of the economy in the US: consumer spending. Giving workers higher wages causes a boom in spending and a boom in economic growth (see: the wage increases in the 1990's and the largest boom in latter 20th century history). Maybe SKoreans just don't need to own piles of crap like americans? Maybe we should look at what historically the biggest driver of the SKorean economy is, and see if raising wages would actually increase that. Too bad the article is so thin on actual economic history and, um, knowledge.
- theredbox 8y ago
  What the heck that's ironic. Primary driving factor for SKorean economy is export. Which means americans buying shit.
  - iheartpotatoes 8y ago
    That... that is very ironic. Makes even more sense that growth wouldn't respond to wage increase. Huh.
- oceanplexian 8y ago
  There's some truth to what you're saying but the idea that you "give workers higher wages...(to create) a boom in spending", as if wages were some kind of perpetual motion machine is not accurate. If everyone was paid more for no reason, that creates inflation since it artificially alters supply and demand even though no new value was created in the labor market. Prices for everything would simply increase. But even this, is a simplistic view. Inflation typically causes previously issued corporate debt to drop in price and newly issued fixed rate instruments to increase in yield. The problem with that is that increased yield cost corporations more money to borrow when they refinance their existing debt. Now companies are in trouble from two angles: One, a higher cost of labor due to inflation, and two, from higher costs of borrowing money. As a result, companies increase prices even further, which starts an upward spiral where wages can't keep up. By the way, this is the cause of the recent meltdown in US Stocks over the last 4-6 months. If this process is allowed to run without any controls, you'll wind up with a hyperinflationary environment, similar to Argentina, where the dollars in your bank account are worth 40% less than they were the previous year. People wind up unable to afford anything beyond day-to-day goods like food and housing, consumerism, the main driver of most Western economies, slows to a crawl (You can't save for an iPhone when it costs double what it did last year), industries that rely on discretionary income go out of business, and the economy contracts and collapses on itself. I know this is a bit dramatic, but it can and does happen. It can happen even without a trigger, but if you suddenly increased the minimum wage in a tight labor market you're basically throwing gasoline on the fire that is inflation.
perseusprime11 8y ago
Raising taxes will not result in growth. The government has to think like a company and invest in the right opportunities to make more money and create better jobs. Maybe its time we rethink the role of our government. Instead of asking us for taxes, maybe they pay us back.
- philjohn 8y ago
  Put the Ayn Rand down and join the real world please. Also - case in point - Kansas. Lower taxes, and they now can't fund schools properly - which means no educated workforce 10-20 years down the line.
  - dang 8y ago
    Please don't do personal attacks on HN or take the thread further into ideological flamewar, regardless of how lame another comment was. https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html
alkyon 8y ago
Is a slight slowdown in the economy fault of new president's policies or rather just economic cycle? My assumption is that in the short run labour cost to the economy will increase, but in the medium to long run the positive effects could be more noticeable: accumulation of savings, growth if taxes were invested sensibly by government (i.e. in R&D).
proee 8y ago
Many, many businesses are barely making it - so taxes them more goes right to their bottom line. Perhaps the tax rate on business should be progressive, so that businesses working to stay afloat don't sink, and those that are chock full of cash can pay the standard rate. Better yet would be to create programs that offset taxes by opening/hiring more employees. I'd personally like to see the money stay in the private sector than go to the government directly. Hiring more people still increases taxes through personal income taxes.
- gamblor956 8y ago
  A business tax is paid on profits, so it has little to no effect on struggling businesses.
  - proee 8y ago
    False. If your small business is barley making it - any and all money goes directly back into the company for survival. If you're on the edge of going under, any additional money you can keep on the table increases the chances of survival.
pastor_elm 8y ago
no mention of the crypto crash here which funneled massive amounts of cash outside the country. Many koreans invested everything they had into crypto. They were completely scammed! https://qz.com/1166103/a-third-of-south-korean-workers-have-invested-in-cryptocurrencies-like-bitcoin/ https://qz.com/1166103/a-third-of-south-korean-workers-have-...
cdmckay 8y ago
I love how it's more important to have high economic growth than to pay people a living wage. What exactly is the alternative that everyone here is suggesting? Lower taxes and the growth will somehow give these people more money? Really? No. It may increase growth, but that money will go to the people on top and the people on the bottom will be exactly where they were. At least in this case, the money is redistributed to people who need it.
- defertoreptar 8y ago
  > Lower taxes and the growth will somehow give these people more money? Really? Lowering tax rates can actually increase a country's total tax receipts. Having more GDP not only means more stuff per person, but also more stuff to tax. That said, the goal of a country is not even to maximize its tax receipts in the first place. Taxes are one way that a country achieves its goals. A country's goals are going to be a mixed bag, anything from redistribution wealth to the poor as you've said, to reducing tax burdens on its citizens.
  - dmode 8y ago
    Do we really believe that lowering taxes increases tax receipts ? I don’t think any tax experts believe it anymore. There have been number of examples, like Bush Tax cuts and Kansas tax cuts that didn’t increase tax revenue
    - defertoreptar 8y ago
      In the general sense, which is the sense I meant it, it's obvious. When you tax 100% and 0%, then your tax revenue goes to zero. When you tax 99% and 1%, they're a bit more than zero, but not by much. At some equilibrium, you maximize tax revenue. If the current tax is above that equilibrium, then logically you will increase tax revenue by lowering the tax rate. AKA the Laffer Curve.
- cryptonector 8y ago
  If the economy shrinks, everyone will get paid less one way or another. Growth has the opposite effect. You might complain about inequality, but pursuing policies that discourage growth (and maybe lead to a recession) definitely will not help. You can't just dictate higher wages, because all that does is increase the unemployment/underemployment rate.
theredbox 8y ago
The korean economy is at the moment ill and rotting away. The youngsters expect to be employed by the big corps earning big bucks while having insane job security. Samsung pays massive salaries , 15-17 salaries a year and companies face insane conditions due to super strong labor unions. No the real change would be to cut the bullshit for korean laborers. Korean workers spend insane amount of time at work DOING ABSOLUTELY nothing because their supervisor has some work to finish and is unable to delegate / manage better. Koreans have serious issues with productivity and the country should aim to ease the burden on both workers and companies.
mywittyname 8y ago
This article doesn't differentiate between tax and wage increases. Any business which needs to pay minimum wage in order to maintain a profit is in a precarious situation. A rising minimum wage is far from the only risk to the business; even simple economic growth is going to capsize them eventually as more local jobs pay higher wages. While we will blame the loss of these jobs on the minimum wage hike, I think it's safe to say these jobs were going away in the near term anyway.
- cryptonector 8y ago
  Or growth might improve the situation for marginal businesses. But raising the minimum wage will certainly push them out. Maybe that's a good thing: releasing resources for better uses. But maybe it's a bad thing too. I wouldn't raise the minimum wage just to push marginal businesses out.
lordnacho 8y ago
The thing that gets glossed over in most tax debates is that every tax system has its own wrinkles. For instance in Switzerland you pay tax on the imputed rent of a home you own. In Denmark you can can come as a foreigner and pay 27% for several years. In the UK you can claim non dom and avoid tax on all overseas income. In Malta corporations pay 35% but get back 30 quite soon. The brackets and deductibles are also all wildly different. And most importantly the taxes are paying for very different levels of service. So there's no sensible way to compress that into a headline without asterisks. That's not to say I don't think it's a worthwhile debate, just that a number of commentators seem to be going directly to economic theory, which generally does not address these wrinkles.
intopieces 8y ago
Moon Jae-In’s term started in May of 2017. There is not a lot of data in 18 months to parse here, so also not many conclusions to make.
- robertAngst 8y ago
  The top post about taxes not mattering references changes that happened in ~5 years. Changes happen over the scale of decades. You don't want to make bad policies today that turn your country into the USSR tomorrow.
whack 8y ago
> But joblessness hit an eight-year high in August of 4.2 percent after the new minimum wage took effect, though it has since improved. Growth was at 2 percent in the third quarter compared with the same period a year earlier, down from 2.8 percent in the second quarter. A 4.2 percent unemployment rate is remarkably low, and 2% growth in a quarter, isn't bad either. Increasing taxes and raising the minimum wage is certainly not going to lead to increased economic growth or lower unemployment. The primary benefit of such moves, is to improve the quality of life for the middle-class and lower-middle-class. Neither of which was mentioned in the article, which is surprising considering that's the primary motivation and metric against which it should be measured.
- mactrey 8y ago
  Presumably that 2% growth is annualized.
  - deleted 8y ago
    [deleted]
  - repolfx 8y ago
    But 2% annual growth is normal for developed economies. The USA with 4% under Trump is really kicking it and that looks unsustainable. Also I thought economists believed 5% unemployment was something of a lower bound, that there's always a bit of natural unemployment as people move around between jobs - you can't actually ever hit zero. So I'm not sure from these stats why South Korea thinks they have a growth or employment problem. It doesn't look like it. The primary driver of economic growth in advanced economies with stable populations is productivity increases and those come from technological advancement, which isn't going to be much affected by minimum wages.
tylerlro 8y ago
I really think the new kind of start up financing is going to explode. It is just inevitable, under the standard VC system, that there is going to be conflicts of interest. The VC's are going to push for growth and an IPO as quickly as possible in order to ensure that their money is protected. On the other hand, the CEO's of the startup's recognize the need for growth, but would like to do so in a more sustainable, organic method. This new method of raising capital that the article mentions might not be the best method, but it offers a new approach. It offers something different, and I believe, will allow for other new methods to arise that will better support the entrepreneur.
yongjik 8y ago
This article is overly simplistic, and all but guaranteed all these generic discussions about tax and growth rate, far detached from economic/social situation of Korea. South Korea has some serious problems. - Living as South Korean is hard and stressful. Really hard and stressful. It has one of the highest suicide rate, highest elderly poverty rate among OECD, and again one of the longest working hours. Not to mention extreme competition at school. - As a result, less and less Koreans are getting married, and less babies are born, because people cannot afford to marry and have babies. These days a lot of young people say they cannot afford to be in a relationship! We are turning into a country of "involuntary celibates." - This of course means there will be less and less young people to sustain the economy, which will start a positive feedback loop. Immigration might help but it can only help so much. The government is thus forced to do something. Increased minimum wage, more public sector jobs, better enforcement of workplace safety laws (which have been basically toothless): these are desperate attempts to make people stop feeling like walking next to a cliff (and hopefully to make more babies). If these policies also bring immediate economic growth, that's great, but that's not the primary objective, as far as I'm concerned.
- cryptonector 8y ago
  If young people cannot afford to marry and start families, then... they need more and better jobs, and to get to keep more of their income. I.e., more growth and lower taxes.
  - summerlight 8y ago
    You suggest "more growth" and "lower taxes" as a solution. The former is more of an objective rather than a solution; every single government wants "more growth" but how to achieve that is a completely different story. About "lower taxes", South Korea already tried that option for 9 years and it had spectacularly failed. (BTW, income and corporation tax in SK is generally much lower than the US, so apparently "even lower tax" that you might suggest won't likely work.)
    - cryptonector 8y ago

163 points by aetherson 8y ago

Once your economy gets to a developed state the only way to see a significant bump in growth is through innovation. Look at the top 100 counties in terms of real GDP growth, not a lot of Western style counties there. South Korea has a reputation for a very educated work force, if I were a citizen I'd probably be advocating for policies that can fully take advantage of that over generic solutions such as raising or cutting taxes.

dominotw 8y ago
> if I were a citizen I'd probably be advocating for policies that can fully take advantage of that what are some of the examples of these policies.
- whatshisface 8y ago
  If you believe that the best place to innovate is inside a big corporate lab, or a scrappy startup garage, or both, the answer would be "lower taxes," with the answer to the immediate next question ("for who?") being determined by your balance of preferences between industry labs and the Woz's garage.
  - Junk_Collector 8y ago
    Alternatively you could create very high taxes on large organizations and capital gains, then offer significant tax incentives to invest in R&D. This is more or less what gave us Bell Labs.
  - nradov 8y ago
    Most startups aren't profitable so lowering income taxes will have zero impact on them. You could make a case for lowering some employment taxes to encourage hiring.
  - throwawayjava 8y ago
    you're leaving out publicly funded labs at universities, which is where e.g. Google's "garage" days were spent. Public labs are nice for society because they're extraordinary cheap relative to their corporate counter-parts (grad student = 30k/yr with no benefits, research scientist = 200+k/yr with full benefits)
- 40acres 8y ago
  I don't have specific ideas, I'm not well versed enough in policy or economics to provide a specific solution. However in general I think the pattern of increasing R&D budgets, and smart deregulation is key. You need to provide an environment where there is adequate resources to validate new ideas and an infrastructure to quickly get those ideas to market.
  - Symmetry 8y ago
    Maybe stop mandating people use Internet Explorer for online shopping, as an example.
    - kissickas 8y ago
      Wow, I read about that like seven years ago and it was somewhat laughable. Now I feel terrible for them.
  - hoaw 8y ago
    As someone who is usually fairly "socialist" I always mostly disagree when people want to use the government, or companies for that matter, to promote innovation. There is already a mechanism for innovation called the market. You probably want the market regulated and you don't want to leave everything up to the market. But still, if you want innovative companies you should leave their success and failure to the market. Research and regulation can be decided on as you go along. What you should be focusing on is how to get people in a position to innovate in the first place. Innovative companies don't rise and fall by 10% tax increase or decrease. They often make no money at all until the make a lot. The only people who are concerned about taxes are those who already have money. If you want to lower barriers you need to fix education, costs of living and security. You can't have every incentive saying to stay the course at a traditional job and expect new things to happen. These days everyone expects a large sum of money for themselves to fund their own company. That isn't something you get or can allocate for new things, especially not at scale. Because they are by nature new. So almost every industry started scrappy. Provide an advanced scrappy society and innovation will happen. People often say "But if this is such a good idea why aren't people in those kinds of countries innovating?". They are. It is just that it is marginal in the beginning and then it gets too large to notice. People think it came out of nowhere, which it sort of did. Even in the US a lot of the innovation, if not most, is related to the relative safety of the university system and subsequent industries. A lot of the famous entrepreneurs from the earlier days of the tech industry are people who were relatively well off if not rich, at least in terms of education or family, who I guess weren't that excited about their prospects and therefor also didn't have much to lose. In a good way. They could go work in a garage startup for a few year and still get the normal job later. They didn't have to, or didn't know to, worry about a mortgage. At least not yet. You always want to start something new from a position of, if not strength, at least abundance. The zero to hero idea is flawed. If you don't have unrealized potential either in yourself, your idea or the market there isn't something that can succeed. So you want to have more opportunities than you can realize. You want to have more motivation, time or skill than you need. Otherwise you are just going to do what needs to be done, which usually isn't innovation. Then on top of that you can do all kinds of things. But without the underlying foundation innovation at scale isn't going to happen. Even doing targeted research, you always need more people and better education than you think. For every success there is a hundred average efforts. Which is okay. That is how everything, from science to music scenes, is built. Cities often wonder why their initiatives isn't working, but if you aren't prepared to take on ten thousand new people in a year your industry isn't going to happen. It is going to plateau before you even notices it exists. At the end of the day, innovation is made by people. You optimize for people and you get new industries. That is every successful city for decades if not centuries. I guess most people wouldn't say that about the Bay Area today, but at one point it was far better than the alternative for a lot of people. Which is why they ended up there.
passerby2019 8y ago
They need to motivate men to start families.

dunpeal 8y ago

Why would anyone expect higher taxes to increase growth? > 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. That's not how that works at all. Whoever made this "plan" apparently skipped Macroeconomics 101. > Growth has slowed, unemployment has risen and small-business owners like Moon Seung are complaining. Any Economics undergrad would tell you that's exactly the expected outcome. Raising taxes hurts growth and increases unemployment because you are reducing the profitability of all businesses. Raising minimum wage increases unemployment because you are raising the cost of labor. And small businesses often pay the highest price for these policies.

whatshisface 8y ago
When I took Economics 101 I was told that there was one school that says "taking people's money away will make the economy worse because they know how to spend it best," and another school that says, "the economy is powered by money changing hands, so if you take away money that would otherwise have sat around and use it to buy random items, you will force the economy to be more active than it would otherwise have been."
- wbl 8y ago
  Keynesian stimulus is intertemporal not redistributive.
- deleted 8y ago
  [deleted]
- pazimzadeh 8y ago
  The latter makes intuitive sense. If you give money to the poor and needy, they will spend it on things they need (food, cars, etc..) so the money will end up back in corporations' hands anyway.
  - dunpeal 8y ago
    You are assuming any of that money will end up with the "poor and needy", instead of hiring more bureaucrats whose function is often to hinder economic activity and growth by numerous rules and regulations.

kortilla 8y ago

Why would you expect higher taxes to heat up the economy? That’s in the same boat as raising interest rates.

GreeniFi 8y ago
If the cash is redistributed, theoretically you increase buying power, both state and individual. Holding all other variables steady.
- briandear 8y ago
  However that also causes inflation. Holding all other variables steady.
  - philjohn 8y ago
    Which isn't necessarily a bad thing - it encourages companies to spend on expansion instead of hoarding, and reduces the value of debt.
aetherson 8y ago
You raise taxes and redistribute money from the wealthy to the less-wealthy. It is not, like, outlandish to hear the claim that this would improve the economy, or at least be no worse for the economy than not doing it. I mean, it may not be true -- I don't tend to think that it's true -- but this should not be the first time that you've heard it. Obviously raising taxes and then setting the money raised on fire, or putting it in a bank vault, or shipping it overseas, would not help your economy. That's not what Korea is doing.
stefs 8y ago
higher taxes can be used for infrastructure, education, healthcare, unemployment, pensions, ... all of those make either the workforce more competitive and keep people from falling into poverty. people who have money (even though when they don't have a job) still buy things. i'm a big believer that small income disparity is better. mr. moon, the auto parts maker, probably still earns a multitude of what most of his employees make. if you earn 5 times of what a minimum wage employee makes and the really rich guys earn 7 times of the min wage, you're still considered rich. a ten times wage gap between what the poor and the middle class makes is, imo, just not good for a healthy population.

liveoneggs 8y ago

no workers were interviewed for this article, only bosses

sremani 8y ago

I am trying to understand the logic behind higher taxes for growth, is it because the domestic consumption is so low, that government decided to tax and spend "Bigly"? If they are spending bigly, what are they spending on?

jakelazaroff 8y ago
Seems like it: > Past tax cuts did little for growth or the wealth gap, Mr. Yoon said. Instead, Mr. Moon aims to improve the incomes of average Korean families so they will consume more, thus reducing the economy’s reliance on exports and, with them, the ups and downs of the global economy. (Exports accounted for 43 percent of South Korea’s gross domestic product in 2017, compared with 20 percent for China.)
SketchySeaBeast 8y ago
That's what I'm curious about - ok, you got this extra cash, whatcha doing with it? Is the money going into tech advancement, education? Is this a long term play towards expanding markets or capabilities or is it a neat way to get closer to/further into the black?
nostrademons 8y ago
There's a big marginal-propensity-to-consume argument. Poor people spend a much larger proportion of their income than rich people, so if you redirect money from rich people to poor people, you redirect it from hoarding & speculation toward economic activity. It's unclear at which threshold this actually occurs, as it implies that rich people are either sitting with their money in the bank or playing speculative games with it rather than investing it in productive enterprises that will spend it on innovation. South Korea's experience indicates that may not be the case, at least in South Korea, or it could indicate that government expenditures aren't actually reaching poor people, or it could indicate poor people blew it all on Bitcoin rather than spending it on useful things. Anyway, that's the theory, whether it applies to reality is still an open question.
- stale2002 8y ago
  Well, that's only if you believe that "consumption" is a good thing that is supposed to be encouraged. In reality, it is the opposite. Consumption, is by definition the destruction of resources. I am not sure why people believe that the destruction of resources is something that we should be promoting. Instead, we should be promoting savings, and the preservation of resources, as well as the creation of capital.

neilwilson 8y ago

It won't. That's not what taxes are for. "The necessity for a government to tax in order to maintain both its independence and its solvency is true for state and local governments, but it is not true for a national government. Two changes of the greatest consequence have occurred in the last twenty-five years which have substantially altered the position of the national state with respect to the financing of its current requirements. The first of these changes is the gaining of vast new experience in the management of central banks. The second change is the elimination, for domestic purposes, of the convertibility of the currency into gold. Final freedom from the domestic money market exists for every sovereign national state where there exists an institution which functions in the manner of a modern central bank, and whose currency is not convertible into gold or into some other commodity." Taxes for Revenue is Obsolete - Beardsley Ruml (Chair of New York Fed 1946) http://home.hiwaay.net/~becraft/RUMLTAXES.html http://home.hiwaay.net/~becraft/RUMLTAXES.html South Korea is overtaxed for the size of government it has. As is any nation with any long term unemployment.

vijayr02 8y ago
That’s not true if you have free movement of capital across the national border. Debt is a claim on future productivity of the nation, and if a necessary share of the national income is not being claimed through taxes to service the debt, capital will exit to brighter climes. That statement may have been true in 1946 when the US was the only non-shattered developed economy in town but it’s hardly axiomatic.
- RobertoG 8y ago
  >>"Debt is a claim on future productivity of the nation, and if a necessary share of the national income is not being claimed through taxes to service the debt, capital will exit to brighter climes. " What debt? The grandparent is telling you that debt is not necessary to finance a state that control its own floating currency.
  - vijayr02 8y ago
    I don't read that? The quote says that taxes are not needed by a country that does not promise to convert its currency into gold etc. It says nothing about whether that country had issued debt outstanding or not.

nostrademons 8y ago

It's interesting to see contrasting articles on taxes & growth. There's this article about how South Korea raised taxes in a bid to grow faster and failed, but there are also plenty of articles about how Kansas's attempt to lower taxes in a bid to grow faster also failed [1], as well as predictions that California's high taxes would hamper growth (which hasn't really happened yet). What if the actual conclusion is that it just doesn't matter. Growth is driven by other factors, like when a brilliant but insufferable physicist moves back home to be close to his mother [2], and is a function of individual, private firms performing functions of the economy more efficiently than existing incumbents. Tax policy follows as a consequence, and can go in either direction: either the newly-rich individuals think "Oh well, I've got plenty of money to spare, I can afford to burn some to ensure the people around me live decent lives", or they think "I want to keep more of this money to myself so I can decide how to allocate it." Regardless, wealth brings power, and so they have the ability to shape local government policy based on their particular worldview. If this is correct, tax policy is a huge distraction, and if governments really want to jump-start growth they should be funding basic research, ensuring that the results are public (to their citizens, at least), and encouraging bright young people from across the world to immigrate to their jurisdictions. [1] https://www.cbpp.org/research/state-budget-and-tax/kansas-provides-compelling-evidence-of-failure-of-supply-side-tax-cuts https://www.cbpp.org/research/state-budget-and-tax/kansas-pr... [2] https://en.wikipedia.org/wiki/William_Shockley#Career https://en.wikipedia.org/wiki/William_Shockley#Career

40acres 8y ago
Agreed, tax policy overall is just an ineffective lever for growth. It may help on the margins (tax break to build a factory, tax break on electric cars, tax increase to fund national health and education programs) but it doesn't spur the fundamental earth shaking innovation that advanced economies need to grow at a clip above 2-3%.
ddebernardy 8y ago
> If this is correct, tax policy is a huge distraction, and if governments really want to jump-start growth they should be funding basic research ... which requires taxes, which makes tax policy not a huge distraction.

microcolonel 8y ago

Korea seems to be the sort of place where they could pull back from a policy like this, without a decade of idiotic bickering.

iheartpotatoes 8y ago

Odd they only interviewed business owners and employers, and not the people who benefit from higher wages. Of course, this article scratches its head because it is assuming SKorea = USA and South Koreans = 'Muricans. Maybe we should look at the biggest driver of the economy in the US: consumer spending. Giving workers higher wages causes a boom in spending and a boom in economic growth (see: the wage increases in the 1990's and the largest boom in latter 20th century history). Maybe SKoreans just don't need to own piles of crap like americans? Maybe we should look at what historically the biggest driver of the SKorean economy is, and see if raising wages would actually increase that. Too bad the article is so thin on actual economic history and, um, knowledge.

theredbox 8y ago
What the heck that's ironic. Primary driving factor for SKorean economy is export. Which means americans buying shit.
- iheartpotatoes 8y ago
  That... that is very ironic. Makes even more sense that growth wouldn't respond to wage increase. Huh.
oceanplexian 8y ago
There's some truth to what you're saying but the idea that you "give workers higher wages...(to create) a boom in spending", as if wages were some kind of perpetual motion machine is not accurate. If everyone was paid more for no reason, that creates inflation since it artificially alters supply and demand even though no new value was created in the labor market. Prices for everything would simply increase. But even this, is a simplistic view. Inflation typically causes previously issued corporate debt to drop in price and newly issued fixed rate instruments to increase in yield. The problem with that is that increased yield cost corporations more money to borrow when they refinance their existing debt. Now companies are in trouble from two angles: One, a higher cost of labor due to inflation, and two, from higher costs of borrowing money. As a result, companies increase prices even further, which starts an upward spiral where wages can't keep up. By the way, this is the cause of the recent meltdown in US Stocks over the last 4-6 months. If this process is allowed to run without any controls, you'll wind up with a hyperinflationary environment, similar to Argentina, where the dollars in your bank account are worth 40% less than they were the previous year. People wind up unable to afford anything beyond day-to-day goods like food and housing, consumerism, the main driver of most Western economies, slows to a crawl (You can't save for an iPhone when it costs double what it did last year), industries that rely on discretionary income go out of business, and the economy contracts and collapses on itself. I know this is a bit dramatic, but it can and does happen. It can happen even without a trigger, but if you suddenly increased the minimum wage in a tight labor market you're basically throwing gasoline on the fire that is inflation.

perseusprime11 8y ago

Raising taxes will not result in growth. The government has to think like a company and invest in the right opportunities to make more money and create better jobs. Maybe its time we rethink the role of our government. Instead of asking us for taxes, maybe they pay us back.

philjohn 8y ago
Put the Ayn Rand down and join the real world please. Also - case in point - Kansas. Lower taxes, and they now can't fund schools properly - which means no educated workforce 10-20 years down the line.
- dang 8y ago
  Please don't do personal attacks on HN or take the thread further into ideological flamewar, regardless of how lame another comment was. https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html

alkyon 8y ago

Is a slight slowdown in the economy fault of new president's policies or rather just economic cycle? My assumption is that in the short run labour cost to the economy will increase, but in the medium to long run the positive effects could be more noticeable: accumulation of savings, growth if taxes were invested sensibly by government (i.e. in R&D).

proee 8y ago

Many, many businesses are barely making it - so taxes them more goes right to their bottom line. Perhaps the tax rate on business should be progressive, so that businesses working to stay afloat don't sink, and those that are chock full of cash can pay the standard rate. Better yet would be to create programs that offset taxes by opening/hiring more employees. I'd personally like to see the money stay in the private sector than go to the government directly. Hiring more people still increases taxes through personal income taxes.

gamblor956 8y ago
A business tax is paid on profits, so it has little to no effect on struggling businesses.
- proee 8y ago
  False. If your small business is barley making it - any and all money goes directly back into the company for survival. If you're on the edge of going under, any additional money you can keep on the table increases the chances of survival.

pastor_elm 8y ago

no mention of the crypto crash here which funneled massive amounts of cash outside the country. Many koreans invested everything they had into crypto. They were completely scammed! https://qz.com/1166103/a-third-of-south-korean-workers-have-invested-in-cryptocurrencies-like-bitcoin/ https://qz.com/1166103/a-third-of-south-korean-workers-have-...

cdmckay 8y ago

I love how it's more important to have high economic growth than to pay people a living wage. What exactly is the alternative that everyone here is suggesting? Lower taxes and the growth will somehow give these people more money? Really? No. It may increase growth, but that money will go to the people on top and the people on the bottom will be exactly where they were. At least in this case, the money is redistributed to people who need it.

defertoreptar 8y ago
> Lower taxes and the growth will somehow give these people more money? Really? Lowering tax rates can actually increase a country's total tax receipts. Having more GDP not only means more stuff per person, but also more stuff to tax. That said, the goal of a country is not even to maximize its tax receipts in the first place. Taxes are one way that a country achieves its goals. A country's goals are going to be a mixed bag, anything from redistribution wealth to the poor as you've said, to reducing tax burdens on its citizens.
- dmode 8y ago
  Do we really believe that lowering taxes increases tax receipts ? I don’t think any tax experts believe it anymore. There have been number of examples, like Bush Tax cuts and Kansas tax cuts that didn’t increase tax revenue
  - defertoreptar 8y ago
    In the general sense, which is the sense I meant it, it's obvious. When you tax 100% and 0%, then your tax revenue goes to zero. When you tax 99% and 1%, they're a bit more than zero, but not by much. At some equilibrium, you maximize tax revenue. If the current tax is above that equilibrium, then logically you will increase tax revenue by lowering the tax rate. AKA the Laffer Curve.
cryptonector 8y ago
If the economy shrinks, everyone will get paid less one way or another. Growth has the opposite effect. You might complain about inequality, but pursuing policies that discourage growth (and maybe lead to a recession) definitely will not help. You can't just dictate higher wages, because all that does is increase the unemployment/underemployment rate.

theredbox 8y ago

The korean economy is at the moment ill and rotting away. The youngsters expect to be employed by the big corps earning big bucks while having insane job security. Samsung pays massive salaries , 15-17 salaries a year and companies face insane conditions due to super strong labor unions. No the real change would be to cut the bullshit for korean laborers. Korean workers spend insane amount of time at work DOING ABSOLUTELY nothing because their supervisor has some work to finish and is unable to delegate / manage better. Koreans have serious issues with productivity and the country should aim to ease the burden on both workers and companies.

mywittyname 8y ago

This article doesn't differentiate between tax and wage increases. Any business which needs to pay minimum wage in order to maintain a profit is in a precarious situation. A rising minimum wage is far from the only risk to the business; even simple economic growth is going to capsize them eventually as more local jobs pay higher wages. While we will blame the loss of these jobs on the minimum wage hike, I think it's safe to say these jobs were going away in the near term anyway.

cryptonector 8y ago
Or growth might improve the situation for marginal businesses. But raising the minimum wage will certainly push them out. Maybe that's a good thing: releasing resources for better uses. But maybe it's a bad thing too. I wouldn't raise the minimum wage just to push marginal businesses out.

lordnacho 8y ago

The thing that gets glossed over in most tax debates is that every tax system has its own wrinkles. For instance in Switzerland you pay tax on the imputed rent of a home you own. In Denmark you can can come as a foreigner and pay 27% for several years. In the UK you can claim non dom and avoid tax on all overseas income. In Malta corporations pay 35% but get back 30 quite soon. The brackets and deductibles are also all wildly different. And most importantly the taxes are paying for very different levels of service. So there's no sensible way to compress that into a headline without asterisks. That's not to say I don't think it's a worthwhile debate, just that a number of commentators seem to be going directly to economic theory, which generally does not address these wrinkles.

intopieces 8y ago

Moon Jae-In’s term started in May of 2017. There is not a lot of data in 18 months to parse here, so also not many conclusions to make.

robertAngst 8y ago
The top post about taxes not mattering references changes that happened in ~5 years. Changes happen over the scale of decades. You don't want to make bad policies today that turn your country into the USSR tomorrow.

whack 8y ago

> But joblessness hit an eight-year high in August of 4.2 percent after the new minimum wage took effect, though it has since improved. Growth was at 2 percent in the third quarter compared with the same period a year earlier, down from 2.8 percent in the second quarter. A 4.2 percent unemployment rate is remarkably low, and 2% growth in a quarter, isn't bad either. Increasing taxes and raising the minimum wage is certainly not going to lead to increased economic growth or lower unemployment. The primary benefit of such moves, is to improve the quality of life for the middle-class and lower-middle-class. Neither of which was mentioned in the article, which is surprising considering that's the primary motivation and metric against which it should be measured.

mactrey 8y ago
Presumably that 2% growth is annualized.
- deleted 8y ago
  [deleted]
- repolfx 8y ago
  But 2% annual growth is normal for developed economies. The USA with 4% under Trump is really kicking it and that looks unsustainable. Also I thought economists believed 5% unemployment was something of a lower bound, that there's always a bit of natural unemployment as people move around between jobs - you can't actually ever hit zero. So I'm not sure from these stats why South Korea thinks they have a growth or employment problem. It doesn't look like it. The primary driver of economic growth in advanced economies with stable populations is productivity increases and those come from technological advancement, which isn't going to be much affected by minimum wages.

tylerlro 8y ago

I really think the new kind of start up financing is going to explode. It is just inevitable, under the standard VC system, that there is going to be conflicts of interest. The VC's are going to push for growth and an IPO as quickly as possible in order to ensure that their money is protected. On the other hand, the CEO's of the startup's recognize the need for growth, but would like to do so in a more sustainable, organic method. This new method of raising capital that the article mentions might not be the best method, but it offers a new approach. It offers something different, and I believe, will allow for other new methods to arise that will better support the entrepreneur.

yongjik 8y ago

This article is overly simplistic, and all but guaranteed all these generic discussions about tax and growth rate, far detached from economic/social situation of Korea. South Korea has some serious problems. - Living as South Korean is hard and stressful. Really hard and stressful. It has one of the highest suicide rate, highest elderly poverty rate among OECD, and again one of the longest working hours. Not to mention extreme competition at school. - As a result, less and less Koreans are getting married, and less babies are born, because people cannot afford to marry and have babies. These days a lot of young people say they cannot afford to be in a relationship! We are turning into a country of "involuntary celibates." - This of course means there will be less and less young people to sustain the economy, which will start a positive feedback loop. Immigration might help but it can only help so much. The government is thus forced to do something. Increased minimum wage, more public sector jobs, better enforcement of workplace safety laws (which have been basically toothless): these are desperate attempts to make people stop feeling like walking next to a cliff (and hopefully to make more babies). If these policies also bring immediate economic growth, that's great, but that's not the primary objective, as far as I'm concerned.

cryptonector 8y ago
If young people cannot afford to marry and start families, then... they need more and better jobs, and to get to keep more of their income. I.e., more growth and lower taxes.
- summerlight 8y ago
  You suggest "more growth" and "lower taxes" as a solution. The former is more of an objective rather than a solution; every single government wants "more growth" but how to achieve that is a completely different story. About "lower taxes", South Korea already tried that option for 9 years and it had spectacularly failed. (BTW, income and corporation tax in SK is generally much lower than the US, so apparently "even lower tax" that you might suggest won't likely work.)
  - cryptonector 8y ago