However, with prices in the United States rising rapidly, the White House has been slow to communicate with the public in recent months, choosing instead to and without presenting a clear solution. South Korea’s example underscores the merits of an alternative path.
A multitude of factors contributed to price instability in South Korea during the 1970s. President Park Chung-hee chose to channel preferential loans to industries in “strategic fields” at the expense of investments in domestic consumer goods. This exacerbated the effects of existing restrictions on imports, creating shortages and raising prices. There was simultaneously a shortage of skilled workers in the domestic labor market, as many went to the Middle East to work on lucrative civil engineering projects. These workers then sent home wages that generated higher demand for goods at the exact moment when they were less available.
All this meant that a growing pool of money was chasing too few goods, resulting in inflation. The government had recognized that this was a problem by the late 1970s, but price fluctuations went into a tailspin with the political instability following Park’s assassination in 1979 and the subsequent coup d’etat orchestrated by General Chun Doo-hwan.
The new junta made price stabilization its number one economic goal. Led by Senior Economic Advisor Kim Jae-ik, the government achieved this objective by restructuring firms in strategic industries so that they were less reliant on low-interest loans; allowing more imports; expanding public skills training programs for high-demand vocations; and undertaking a myriad of other reforms.
But what the government did is perhaps less relevant to modern audiences than how they implemented the reforms. These stabilization measures required significant social coordination. For example, authorities asked workers to postpone demands for higher wages while corporations were asked to give up stakes in highly-prized industries and accept competition from foreign goods in the domestic market.that West Germany avoided high inflation in the late 1970s partly thanks to a broad social consensus around the importance of moderating price instability.
Placing South Korea’s example next to the United States today, there are obvious areas where the comparison between the two time periods do not overlap. For one, South Korea was then a dictatorship where the executive branch enjoyed higher degrees of control over the media and other means of public engagement than a democratic government today could possibly hope to wield. But one must also take into account that large segments of South Korean society considered Chun’s government as illegitimate – it had come into power through a military coup and committed human rights crimes almost as soon as it seized power. By comparison, a democratically-elected U.S. administration today starts off with significantly more public trust and faith.
There might be fears that the public will respond poorly to the government’s acknowledgement of its failure to preemptively address the issue. However, precedent in the United States also suggests this concern might be overblown. President Jimmy Carter’s laying out his concern that the then-ongoing economic challenges in the United States stemmed from a deeper “crisis of confidence” was well received. While misremembered today as a pessimistic speech that doomed his presidency, that Carter’s approval ratings hit a nadir in mid-1979 and rapidly rebounded after the speech – almost reaching 60 percent in early 1980.
These cases all underscore how proactively addressing a clear and present problem strengthens a government’s grip on the policy reins. While South Korea in the 1980s might feel like an esoteric case study, the – a Massachusetts Institute of Technology-trained economist who has written on South Korea’s liberalization during this period – to the presidency of the Federal Reserve Bank of Boston could mean that the lessons might be studied in greater depth by today’s inflation fighters.