Three mistakes by the Lee administration’s economic team

Lee Sang-ryeol

The author is a senior editorial writer at the JoongAng Ilbo.

It was a scorching summer. Yet what made life harder than the heat was economic policy failure. Housing prices, jeonse (lump-sum deposits) and monthly rents across the Seoul metropolitan area have surged in an unprecedented upheaval, while stocks have plunged. The job market, a barometer of the economy people actually feel, remains weak. The employment rate for young people aged 15 to 29 has fallen for 27 consecutive months. Simultaneous breakdowns in housing, equities and the real economy are hardly normal.

What is unusual is that Korea faces no crisis comparable to the Asian financial crisis or global financial crisis. The problem is that misguided government policies pulled the trigger. Housing turmoil largely reflects policies focused exclusively on suppressing demand. The stock collapse was fueled by artificial stimuli, including the flawed introduction of single-stock leveraged exchange-traded funds. Behind the weak real economy are pro-labor policies symbolized by the "Yellow Envelope" act controversy.

President Lee Jae Myung set the direction on all three fronts. He distinguished owner-occupied from non-owner-occupied housing and made his determination to boost stocks clear. Even so, the economic team, including Presidential Chief of Staff for Policy Kim Yong-beom and Deputy Prime Minister and Finance Minister Koo Yun-cheol, bears heavy responsibility. The issue is not merely poor results. Their diagnosis of the economy and approach to policymaking contain serious flaws.

First, they fostered unrealistic expectations. They placed excessive faith in an AI-driven semiconductor supercycle. Kim’s argument that the “three highs” — high interest rates, inflation and exchange rates — are the “cost of success” stems from that optimism. Semiconductors are booming, but whether the boom will be large and durable enough to fundamentally transform Korea’s economy is uncertain.

Excessive optimism bred confidence that markets could not defy the government and encouraged an all-in bet on a Honam semiconductor project. Economic management shifted away from fiscal soundness and strengthening fundamentals toward deciding how to spend windfall profits and tax revenue. Meanwhile, the crisis among small businesses and the youth employment cliff slipped down the policy agenda.

Second, the economic team followed political power rather than challenging it. Advisers who cater to a president while disregarding reality are effectively neglecting their duty. Lee once pledged not to use taxes to control housing prices, yet has pivoted toward higher property taxes. The Roh Moo-hyun and Moon Jae-in administrations tried higher holding and capital gains taxes without success. Why is this government repeating the approach?

Lee has strongly suggested that owning one home without living in it amounts to speculation. But owning a home is a basic economic aspiration and homeowners sometimes need to move. Only 58.4 percent of Korean households lived in homes they owned in 2024. Roughly four in 10 therefore lived in someone else’s property, including many renting from single-home owners living elsewhere. Punitive taxes on those owners affect their tenants as well, ultimately constraining freedom of residence and mobility.

Third, policies were pushed through recklessly. The clearest example is leveraged ETFs tied to individual Samsung Electronics and SK hynix shares, launched one week before the June 3 local elections. The government inadequately examined forced selling during market declines or investor safeguards and there was no consultation between the government and ruling party. It was like selling a car without testing its brakes.

The economic team argues the products were introduced to stem foreign-exchange outflows caused by Koreans investing in U.S. stocks and that dollar outflows indeed fell sharply. If so, it effectively planted a bomb in the stock market to stabilize the exchange rate. The policy design was flawed from the outset and the process negligent.

Even policies pursued in good faith can fail. But policies that distort economic reality, align themselves with political power rather than markets and neglect preparation are overwhelmingly likely to fail. That is why the economic team bears such heavy responsibility.