[Op-Ed] Government Spending and Money Supply Growth Drive Inflation

Persistent Inflation Leads to Wealth Polarization, Asset Market Instability, and Declining Exports

To Stabilize Prices, the Oversupply of Money Must Be Resolved

Continued Attention and Effort by Individuals, Organizations, and the Government Can Curb Rising Prices

At present, prices are continuing to rise due to a range of factors. To prevent this, the government, businesses, and individuals must make active efforts from their respective positions to seek solutions.

The main cause of rising prices is an increase in the money supply. Government fiscal spending and growth in the money supply are the key reasons. In particular, during the COVID-19 pandemic, the government pursued expansionary monetary policy, resulting in the problem of excess money supply. This is what gave rise to inflation.

If inflation persists, it can lead to problems such as wealth polarization, instability in asset markets, and declining exports. When the prices of real assets rise, owners of those assets do not suffer a loss in real value, but salaried workers who do not own such assets see their real income decline. As a result, the gap between rich and poor can widen. Persistent inflation also lowers the value of money and risks undermining national economic growth.

To respond to this, a shift to sound money is necessary. This is because prolonged inflation can have direct and indirect negative effects on everyone’s life. Sound money refers to “money whose value as money and power as a means of payment remain stable.” Through this, quality of life can be maintained without concern that the value of money will deteriorate.

To stabilize prices, the phenomenon of excess money supply already excessively released into the market must be addressed. The issuance of money plays an important role in determining the course of the economy. At present, too much money has been oversupplied, causing inflation and ultimately leading to rising prices. The issuance of money must be decided carefully and kept in balance with the real economy.

Improving business productivity is also important. Another solution is to pursue policies aimed at raising productivity through methods such as technological development, support for corporate education and training, and diversification of sourcing. When productivity improves, workers’ wages can increase. This helps ease the burden of rising prices caused by inflation and can contribute to price stability.

If price stability is pursued by refraining from recklessly increasing the money supply and by making efforts such as improving business productivity, the harmful effects of inflation can be reduced and economic stability can be achieved. Price stability is an indispensable task for the Korean economy to continue growing. At the same time, it is a goal that must be pursued with attention over the medium to long term.

If the government refrains from carelessly increasing the money supply, and if businesses and individuals strive to improve productivity, prices can be stabilized. Continued attention and effort by individuals, organizations, and the government are necessary, along with steady step-by-step efforts toward change. Through such efforts, the Korean economy will reach the level of advanced countries.

Yoojin Jung, Intern Researcher, Center for Free Enterprise (CFE)

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Original title: [칼럼] 정부의 재정 지출과 통화량 증가가 물가상승 원인

Author: Yu-jin Jung

Date: 2025-02-18

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=free_opinion&idx=27355