The Lee administration's unfamiliar forms of 'flattening'

Ha Hyun-ock

The author is an editorial writer at the JoongAng Ilbo.

A new keyword has entered the economic vocabulary of the Lee Jae Myung administration: “flattening.”

Ordinarily associated with construction work, the term describes making an uneven surface level. But changing times and new political arguments can give familiar words entirely new identities. The government's various forms of “flattening” therefor deserve closer examination.

First came “real estate flattening,” introduced at President Lee's Sept. 18 news conference. Asked about Seoul housing prices, Lee said prices in outlying areas were rising while those in Gangnam, previously far higher, were declining.

“What we seem to be seeing is a kind of flattening,” he said.

The presidential office subsequently explained that Lee was describing price trends. Nevertheless, his characterization of falling Gangnam prices and rising prices elsewhere provoked controversy.

As demand shifted under the administration's heavier taxes and lending restrictions, more than four in 10 Seoul apartments came to cost over 1.5 billion won ($1.12 million). Efforts to restrain Gangnam prices may have achieved something, but other neighborhoods have increasingly converged toward the same expensive benchmark.

This resembles a balloon effect, with pressure in one market pushing demand into another, or an upward leveling of prices rather than genuine flattening. The government has effectively raised the ground beneath housing prices, making market entry harder.

The expression has even inspired a sarcastic pun: pyeongtanhwa, the Korean word for flattening, now supposedly also means raising home prices in Pyeongchon, Dongtan and Hwaseo, three outlying areas in Gyeonggi whose housing prices have risen sharply this year and whose syllables can be combined to make the word.

Perhaps reducing price disparities, rather than stabilizing housing costs, has become the objective. Either way, “real estate flattening” remains puzzling. Critics even warn that it could lead to “approval rating flattening.”

The newest addition is “government bond issuance flattening.”

During an Oct. 8 parliamentary audit, an opposition lawmaker questioned why the government would issue 106 trillion won in bonds while retaining 104 trillion won in surplus resources in its Future Response Fund.

Minister of Planning and Budget Park Hong-keun responded by citing Norway. He said Norway continued issuing government bonds despite having no need to finance deficits, because large fluctuations in issuance could generate unnecessary costs.

Maintaining steady issuance, Park argued, was Norway's official policy. His implication was that reducing borrowing to repay debt, even when resources were available, could disrupt financial markets.

But using “bond issuance flattening” to justify additional borrowing while accumulating funds instead of repaying debt, despite surplus tax revenues, sounds remarkably strained.

Certainly, issuing government bonds can support market liquidity and financial efficiency. Yet present conditions hardly suggest that the government can afford to be complacent.

With yields on three-year government bonds hovering around 4 percent amid a sharp increase in borrowing costs, officials are even considering emergency bond buybacks to adjust supply and demand.

Nevertheless, the government invokes issuance flattening to defend the Future Response Fund, which critics have described as a discretionary reserve for the administration.

A third example is “interest rate flattening.” Under government pressure to promote inclusive finance, lending rates for highly creditworthy borrowers are rising while those for riskier borrowers are falling, contrary to conventional market pricing.

Apparently, flattening has become an irresistible fashion in economic policymaking.

The problem is that the scale of the distortions and unintended consequences these policies may create is difficult to predict.

Differences in housing prices reflect supply and demand. Differences in lending rates reflect assessments of credit risk. Government bond issuance should reflect principles of fiscal management.

These distinctions are not arbitrary irregularities that policymakers can simply smooth away. They carry information about scarcity, risk and the responsible use of public resources.

That is why the administration's unfamiliar flattening initiatives invite an uncomfortable question: Are they attempts to override market mechanisms while concealing policy failures behind reassuring new terminology?

One hopes this suspicion is misplaced. But replacing meaningful economic distinctions with the language of leveling does not make the underlying problems disappear.