What is the rational motive behind irrational policy?

Jang Deok-jin

The author is a professor of sociology at Seoul National University. 

Policy failure threatens to wreck the housing market. Landlords unable to bear heavier taxes are selling or moving in, while displaced tenants flood a depleted rental market. Finding either jeonse, Korea’s lump-sum key-money lease, or monthly rentals has become extraordinarily difficult.

Households pushed to the brink are borrowing heavily to buy. As a result of policy failures, Seoul apartment prices posted their largest first-half increase in 18 years. Lending restrictions drive reluctant buyers toward lower- and mid-priced apartments, where prices are consequently rising fastest. Online real estate forums are filled with demands that the government stop kicking the housing ladder out from underneath ordinary people.

Property and capital markets are closely connected. Financial Supervisory Service data show debt-financed stock investment by people in their 20s has more than doubled in a year, turning the market into a speculative casino.

Watching housing surge, anxious people in their 20s and 30s bet heavily on stocks and sometimes lose badly. Older owners of expensive homes rage that they face a “21st-century Goryeojang” — a term used nowadays to describe the practice of abandoning older people — because decades in one home have left them unable to afford the taxes.

Forcing through irrational policies inevitably creates holes. Plugging them with exceptions and provisos has turned the tax code into a patchwork. A couple jointly owning one home can pay more tax than if it were solely in the husband’s name. Calculating the comprehensive real estate holding tax has become almost a puzzle.

Behind these policies lurks the term “unearned income,” a concept that has largely disappeared from serious academic discussion. The expression implies that income obtained without labor is morally suspect. That might make sense to a Marxist committed to the labor theory of value, but it is difficult to sustain in 21st-century capitalism.

The Korean fixation on “unearned income” can be traced in part to American journalist Henry George. Largely self-educated after age 14, he gained attention in the 1870s and 1880s, especially through “Progress and Poverty” (1879).

George was struck that poverty seemed worse in wealthy New York than in poorer California. Why did poverty worsen amid progress? He argued that allowing private owners to reap enormous gains from natural resources such as land while productive workers paid heavy taxes was unjust and akin to slavery.

In George’s view, landlords and monopolists captured much of the wealth created by social and technological progress as economic rent, and this unearned income caused poverty. Today, George is more often treated as a figure in the history of economic thought than as the foundation for contemporary policy analysis.

Modern specialists instead examine real estate income, financial capital income, capital gains and economic rent separately, producing extensive research on rents, capital income, property taxes and wealth taxes.

If we insist on using “unearned income,” income from stocks, bonds and cryptocurrencies should qualify alongside apartments, as should gains from assets such as gold and membership rights. All should become policy targets.

If the issue is economic rent, consider unions at Samsung Electronics and SK hynix demanding enormous bonuses because their members happen to work in the semiconductor industry during an extraordinary boom that could alter Korea’s economic fortunes. Under George’s logic, this is rent-seeking: those in a privileged position capturing wealth generated by advances in AI and semiconductors as extraordinary bonuses.

The record rise in apartment prices in new towns where these companies are located could likewise contribute to inequality. Why, then, does the government leave other visible forms of supposed unearned income alone while targeting property owners, despite falling presidential approval ratings and the risk of heavy losses in the Seoul metropolitan area in the next general election?

When policy becomes this irrational, it is natural to look for a political intention that rationally explains the irrationality. During the presidential campaign, the basic-income proposal naively included a new landholding tax and provoked resistance. Now that the administration is in power, it can collect more taxes from the same people under the banner of “normalizing” the tax system. If they object, they can simply be rebuked for resisting the recovery of unearned income.

Populism begins by defining a portion of the public as the enemy. What political motive lies behind singling out property owners and trying, by whatever means, to create a battle line around them?