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What is Hotel Economics?
Recently, the 'Hotel Economics' proposed by candidate Lee Jae-myung during his election campaign has become a hot topic.
This concept is mainly used as a theory to revitalize local economies, containing the logic that a 100,000 won payment by a tourist circulates within the region and drives the economy. Hotel Economics serves as a metaphor emphasizing the importance of local economies.
The structure of Hotel Economics is quite interesting. It begins when a tourist deposits 100,000 won to book a room. The hotel then uses this fund to purchase beds from a furniture store. Subsequently, the furniture store buys food from a chicken restaurant, and the chicken restaurant then purchases supplies from a stationery store. Finally, the stationery store repays its debt to the hotel.
If the tourist cancels the reservation, the hotel will return the initial deposit of 100,000 won. At first glance, it may seem like there is no remaining money, but this process actively circulates the local economy. It is intriguing that such a circulation structure positively impacts the local economy.
Conditions for the Establishment of Hotel Economics
Several essential conditions are required for this economic logic to hold.
First, all transaction participants must have a debt of exactly 100,000 won each. At this point, after the money circulates, all debts must ultimately be settled so that the hotel can process refunds without incurring losses.
Second, transactions must occur strictly in the form of 'debt repayment.' In cases where actual goods are delivered, inventory movement and costs arise, which may lead to a cash shortfall at the time of refund.
Third, all transactions must be realized at an immediate cash payment and of the same amount. If someone pays only 90,000 won and leaves a balance of 10,000 won, it can disrupt the balance and result in an impossible situation for refunds.
Finally, confidence in the creditworthiness of the transaction partner is necessary. The hotel must have confidence that the 100,000 won will return for refunds at any time.
In conclusion, this structure can only exist when short-term liquidity is temporarily supplied for debt settlement. In the real economy, if there is no cash at the time of refund, the hotel may face the risk of bankruptcy.
Difference Between Keynesian Multiplier and Hotel Economics
The Keynesian multiplier effect explains the impact of government spending on the economy. When the government injects funds, consumption rises, creating a structure that activates the economy.
The relevant formula is as follows:
Multiplier = 1 / (1 - MPC)
(MPC: Marginal Propensity to Consume)
This means that government financial support leads to increased consumption, producing a chain reaction of effects across the economy. Through this process, the foundation for economic growth is established.
The principle of Hotel Economics focuses on the circulation of existing capital. It operates within a structure where no new funds are introduced, thus economic effects are limited.
Basic income or local currency involves government funds being injected to activate the economy, whereas Hotel Economics has the characteristic that refunded money disappears due to refunds. This leads to temporary and non-sustained economic effects.
Difference with Basic Income and Local Coupons
| Item | Hotel Economics | Basic Income · Local Coupons |
| Funding Source | Deposits from external guests (refunded) | Government finances · Local finances (not refunded) |
| Net Cash Inflow | Ultimately 0 | Ultimately +100,000 won |
| Sustainability of Economic Effects | Ends after debt settlement | Continued consumer spending → Accumulated multiplier effect |
| Risk | Potential cash shortage at refund | No obligation to refund due to government-issued currency and budget |
The economic stimulus through basic income and local currency is based on the premise that new funds are introduced and not recouped. However, from the perspective of Hotel Economics, if refunds or recoupments occur, it is challenging to expect sustained effects beyond simple liquidity supply.
Applicability in Reality
The method of debt settlement, that is, the way to repay debts, is theoretically possible, but its success depends on the alignment of amount, timing, and credit status in a complex situation.
Furthermore, purchasing goods in physical transactions can lead to cash flow problems for hotels during the refund process for items like beds or chicken, making it realistically difficult. Goods transactions involve various elements entangled with inventory management, cost calculations, tax issues, etc., and are not simply resolved by the circulation of money.
From a policy perspective, basic income and local coupons have the effect of enhancing consumer purchasing power through actual financial expenditures, thereby revitalizing the economy. However, the magnitude of these effects can vary due to factors such as consumer propensity, regional restrictions, tax leakage, and savings.
Limitations of Hotel Economics and Its Political Significance
Hotel Economics was an attempt to simplify complex economic concepts for easier understanding. However, the reality is that such a simple structure is unrealistic in the actual economy.
In an environment without net expenditure, it is challenging to expect multiplier effects, and it remains a simplistic analogy that ignores various elements of the real economy. Candidate Lee Jae-myung's claims suggest a direction for economic revitalization, but if the design of policies lacks specificity and validity, it may lead to adverse effects.
To maximize political effects, it is crucial to clearly present theoretical foundations and practical applicability. Without such support, economic policies might face criticism regardless of their intentions.
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