South Korea’s Presidential Race Ignites Debate Over “Hotel Economy” and Local Spending

South Korea’s Presidential Race Heats Up with a Controversial Economic Idea: The “Hotel Economy”

In the midst of South Korea’s heated presidential campaign, a seemingly simple economic metaphor is causing quite a stir. The opposition leader, Lee Jae-myung of the Democratic Party, has brought back an old-school economic story — often called the “hotel economy” — to make a case for his signature policy agenda focused on boosting local spending through government-backed initiatives.

What Exactly Is the "Hotel Economy"?

Here’s the gist: Imagine a traveler arrives in a small town and puts down a $100 deposit at a local hotel. That $100 isn’t just sitting idle — the hotel owner uses it to pay off a debt to a furniture store. The furniture store owner then spends that same money at a nearby restaurant. The restaurant owner, in turn, pays her stationery shop debts with that cash. Finally, the stationery shop owner repays the debt owed to the hotel, completing the cycle. Eventually, the traveler cancels the reservation, gets their $100 back, and leaves town.

Sounds like a neat little money loop, right? Although no new money entered the town, this chain of transactions cleared debts and jump-started business activity in the local economy.

Lee Jae-myung highlights this story to illustrate his core belief: “No new money was added, but the money circulated. That’s what an economy is.” He used the analogy during a recent campaign rally in Gunsan, roughly 135 miles south of Seoul, emphasizing the importance of keeping money moving to stimulate growth.

The Stakes Are High: Lee Leads the Polls but Faces Fierce Pushback

A recent Gallup Korea poll showed Lee leading the race with 46%, well ahead of the ruling People Power Party’s candidate Kim Moon-soo, who held 34%. The election is set for June 3, and Lee is aiming to succeed the impeached President Yoon Suk-yeol, who was ousted last year after a brief martial law declaration shook the nation.

Lee is no stranger to this economic metaphor; he leaned on the hotel economy idea during the 2022 election as well, narrowly losing to Yoon. The theory underpins his push for expanding government spending — especially through local currencies or regional vouchers designed to keep money circulating within communities.

Why the Hotel Economy Idea is Catching Attention

Lee’s focus on local currencies — government-issued vouchers usable only in specific towns or provinces — aims to encourage residents to spend locally rather than letting money leak out to bigger cities or online markets. It’s a way to stimulate small businesses and keep local economies humming even during downturns.

He argues that even when the overall economy is sluggish, these measures help the “multiplier effect”: spending leads to more spending, creating a virtuous cycle of economic activity. For instance, when a neighborhood fried chicken joint sees higher sales, the owner might celebrate with a drink and order more supplies, which in turn benefits other local businesses.

But Not Everyone’s Buying It: Critics Slam the Hotel Economy Theory

The ruling party isn’t having it. Critics argue Lee’s hotel economy concept is flawed, if not downright misleading. Representative Choi Eun-seok, a former businessman, publicly dismantled the theory on social media.

Choi’s main point? The $100 deposit the traveler puts down isn’t actually revenue for the hotel until the stay happens. Until then, it’s a liability — money owed back to the customer. So, accounting-wise, that deposit doesn’t count as economic growth or real income.

He called it a “deceptive scheme” masked in sweet words designed to push through massive local voucher programs with little to no real economic benefit — all while inflating government debt.

People Power Party’s spokesman Shin Dong-wook echoed these concerns, warning that reckless spending like Lee’s would balloon the country’s sovereign debt and saddle future generations with the bill.

The Debate Over National Debt and Fiscal Responsibility

This clash taps into a broader debate over fiscal policy and national debt. Lee’s critics warn that expanding government spending, especially via local vouchers, risks crowding out private investment and saddling South Korea with unsustainable debt.

On the other hand, Lee insists that circulating money locally is key to economic revival, especially when times are tough. He fired back at his critics during a speech in Paju, north of Seoul:

“If money circulates at the neighborhood fried chicken shop and sales go up, the owner might have a drink and buy more chickens, as well as extra seasoning. Then, the local economy will get better, even if just a little. This is called the 'multiplier effect,' but there are fools who don't understand it.”

What Do the Experts Say? Mixed Reactions

Economists remain divided over the hotel economy’s practical implications. Lee Phil-sang, a former Seoul National University professor and adviser at Aju Research Institute, argues the whole analogy rests on shaky assumptions.

He explains that South Korea’s marginal propensity to consume (MPC) — essentially how much people spend out of additional income — is only about 0.3. That means if someone gets an extra $100, they only spend around $30 of it. So, the hotel economy’s idea that money keeps circulating endlessly doesn’t hold up. According to Lee Phil-sang, such policies might just increase government debt without actually boosting economic activity.

He also warned about the crowding-out effect, where more government spending might actually reduce private sector investments, negating intended benefits.

Lee Yoon-soo, an economics professor at Sogang University, shares a similar skepticism. While he acknowledges that injecting liquidity can help if the economy is suffering from a cash shortage, he believes the real problem in South Korea lies in declining productivity, which can’t be fixed simply by moving money around.

A Different Perspective: Teaching Tool or Real Policy?

On the flip side, Ha Joon-kyung, an economics professor at Hanyang University, sees value in the hotel economy story — but more as an educational tool than a literal policy blueprint.

He wrote on social media that the story is meant to simplify and clarify economic concepts, showing how money circulation can boost local economies without necessarily requiring new funds.

In other words, the hotel economy metaphor helps explain how economic activity flows through communities, even if it’s not a perfect reflection of real-world dynamics.

Why This Matters: The Bigger Picture for South Korea’s Economy

South Korea is grappling with multiple economic challenges: slowing growth, rising debt, and uneven development between urban and rural areas. The debate over the hotel economy highlights the tension between stimulating growth through fiscal policies and maintaining long-term financial stability.

Lee’s push for expanded local vouchers aims to empower smaller communities and support struggling businesses — a bold approach that appeals to many voters hungry for change. But critics warn of the risks associated with ballooning government debt and question whether this strategy can deliver sustainable results.

Quick Takeaways:

• The “hotel economy” metaphor illustrates how money circulating through different local businesses can spur economic activity even without new funds being introduced.

• Lee Jae-myung uses this theory to justify expanded fiscal spending and local currencies aimed at revitalizing communities.

• Critics say the analogy ignores accounting realities and risks increasing national debt without real economic benefits.

• Economists are divided: some see flaws in the assumptions, while others value it as a teaching tool.

• The upcoming election will likely hinge on which vision voters find more convincing — bold local stimulus or cautious fiscal responsibility.

As the campaign unfolds, the hotel economy debate is more than just academic — it’s shaping policy proposals and framing how South Korea’s economic future will be discussed. Whether Lee’s vision for circulating money locally will deliver on its promises or become a cautionary tale of overspending remains to be seen.

One thing’s for sure: in a country where every dollar counts, the hotel economy is a fascinating lens through which to watch this pivotal election.