A business cycle refers to the state of the economy. When the economy is strong, production and consumption increase, employment rates rise, and welfare expands. When the economy is weak, production and consumption decline, unemployment rates rise, and welfare shrinks.

When you wonder about the business cycle, check people’s spending around you!

You can understand the business cycle as the state of the economy. More important than pondering the definition of the business cycle is directly expressing the meaning of phrases like ‘the economy is good’ and ‘the economy is bad’. Start with your surroundings. A ‘good business cycle’ means people around you are spending more, while a ‘bad business cycle’ means their wallets are tightening. Expanding this further, a ‘good business cycle’ means the owner of the restaurant you frequent is making good money. This is because people spending more are more likely to go to restaurants and buy meals. When the restaurant owner earns more money, the suppliers providing ingredients to that restaurant naturally earn more too. If you understand this far, you’ve grasped the meaning of ‘a good business cycle’ as experienced by households and small business owners.
Let’s broaden the scope further. Among the ingredients used in restaurants, rice is mostly domestically produced, but livestock and seafood are often imported. Especially for meat, imported products are so common that domestically produced meat is specifically highlighted. Foreign livestock producers wouldn’t sell meat directly to Korean restaurants.
Who acts as the intermediary? Importers. In other words, when my spending and that of people around me increases, the sales of importers or import companies also increase. Did you notice the subtly different phrasing compared to households and self-employed individuals? I said “sales increase” rather than “earn more money.” You can now express “the business cycle is good” from a corporate perspective.

If my salary increases, does the government also earn money?

This time, let’s shift our perspective slightly. Suppose you are an ordinary salaried worker. Your annual salary is fixed. Yet, the monthly salary deposited into your account is less than one-twelfth of your annual salary. To explain this precisely would require mobilizing various concepts and terms, but simply put, it’s because ‘the government takes a portion’. The money the government takes from your paycheck is tax. Strictly speaking, social security contributions like pensions aren’t included in taxes, but for simplicity’s sake, let’s just lump it all together as ‘money the government takes = taxes’. The government collects taxes not only from salaried workers but also from the self-employed and corporations. The more money you earn, the more tax you pay. Therefore, when people’s incomes increase, ‘the government’s tax revenue increases’.
To recap from the beginning: When the business cycle is strong, individuals spend more, restaurant owners earn more, importers see increased sales, and government tax revenue rises. But where did individuals get the money to spend more? These individuals could be the restaurant owners who earned more, or employees of importers with increased sales. The government, having collected more taxes, implements more welfare policies. They repair deteriorated roads, add elevators to subway stations, and increase subsidies for the socially vulnerable. As a result, people become happier and more generous towards each other.
Now, let’s consider the opposite situation. What happens when the business cycle worsens? First, people tighten their purse strings. They dine out less, so restaurant owners see reduced sales. With lower restaurant sales, orders for ingredients also decrease. This directly means reduced sales for livestock importers. Lower sales increase inventory management costs while decreasing revenue. The government, too, inevitably collects less tax revenue. When individuals spend less, self-employed individuals and businesses cut back on expenses, hire fewer people, and postpone facility investments. With reduced tax revenue, the government cuts or halts budgets for non-urgent matters. So when the business cycle worsens, people’s expressions harden and they become harsher towards each other.

Expressing the business cycle with numbers makes it more persuasive

The meanings of ‘good business cycle’ and ‘bad business cycle’ can be interpreted this way from each perspective. To illustrate with a simpler example, imagine all the people in our country gathering to share a loaf of bread. ‘A good business cycle’ means the loaf has grown larger, while ‘a bad business cycle’ means the loaf has shrunk. Understanding this basic concept is sufficient for navigating a market economy.
An improved business cycle is usually expressed numerically. Using numbers has the advantage of increasing reliability and enabling comparisons. Suppose you develop feelings for someone, and it seems like they like you too. When you tell your friends this, they respond, “You’re mistaken!” How can you convince your friends that the other person genuinely likes you? It’s better to explain ‘my feelings’ with numbers than with heartfelt descriptions. Appropriate indicators could be the number of meetings or calls, the duration of meetings, or their frequency. The same applies to the economy. When describing ‘good’ or ‘bad,’ adding a few indicators makes the argument much more persuasive. It also reduces reliance on uncertain feelings.

The Basics of Economics Seen Through ‘Food’

People typically perceive and express the economy as ‘making a living.’ Just look at how people often say “it’s hard to make ends meet” when times are tough financially. While this is sufficient in daily life, you need to know a bit more when watching the news. Most news outlets use other expressions instead of ‘the difficulty of making a living.’ A prime example is GDP. Consider the following article headlines.

Household debt tops world in Q1 relative to GDP… Corporate debt bomb also growing!
Corporate debt relative to GDP hits highest since financial crisis… Second fastest growth after Vietnam!
Domestic demand averted Q3 contraction… “Q4 -0.6% possible”
Semiconductor power… Will Taiwan catch up to Korea’s per capita GDP this year?

The first two headlines contain the phrase ‘relative to GDP’. This shows GDP serves as a benchmark. The third headline hides GDP, while the fourth adds the condition ‘per capita’. To interpret the articles by finding the hidden GDP, we must first understand what GDP means.

GDP = The Size of the Rice Bowl

To explain it simply, GDP is the ‘total value added created by all economic entities within a country’. In simpler terms, it’s the ‘size of a country’s rice bowl’. That is, it’s the sum of all products (total value added = monetary value = rice) produced within a country’s borders. Value created by foreigners doesn’t matter. The crucial factor is the border. That’s why it’s called Gross Domestic Product.
The larger the rice bowl, the more people can eat sufficiently. If the neighbor’s rice bowl is bigger than ours, the neighbors are likely to eat more than our family. Here, we use “rice bowl,” but it could just as well be “amount of rice” or “size of the pie.” GDP, which intuitively explains the economy like this, is often used as a representative figure showing ‘a country’s economic strength’.
A country being well-off and me being well-off are different. Let’s say there are two countries with rice bowls of the same size (identical GDP). One country has a population of 10, and the other has a population of 100. Which country’s citizens would eat better (live better)? Obviously, the country with 10 people. If the size of the rice bowl is the same, 10 people can eat more than 100 people sharing the same amount. Therefore, while a country’s total GDP is important for individuals, per capita GDP is also an indicator that cannot be ignored.

GDP = The total value of newly created wealth within a country over a specific period
Per capita GDP = Total GDP ÷ Number of citizens in that country

South Korea’s per capita GDP, which had been steadily rising for some time, is currently stagnating. Yet strangely, whether it’s rising or stagnating, my wallet always feels light. Why is that? There are several reasons, but first, consider the optical illusion effect caused by exchange rates. For example, $30,000 at an exchange rate of 1,000 won per dollar has a completely different value than $30,000 at 2,000 won per dollar. The amount differs by a factor of two when converted to won. Another reason is that individuals don’t share the total GDP in exactly equal proportions. It’s like when dividing rice from a bowl: someone scoops once with a rice paddle, while another scoops once with a teaspoon. Even though both take one scoop, the amount of rice (perceived income) that ends up in my mouth is a separate matter from the size of the nation’s rice bowl. Generally speaking, it’s correct to view an increase in per capita GDP as a positive thing. However, sometimes an increase in per capita GDP may have nothing to do with ‘me’. That’s why you need to read the news carefully.

Economic Growth Rate = Rate of Increase in the Size of the Rice Bowl

The economic growth rate refers to the growth rate of GDP, which directly shows how much larger a country’s rice bowl has become. Therefore, when assessing a country’s economic strength, GDP growth rate is typically used as an indicator (per capita GDP is also sometimes examined). There are two ways to assess this: comparing the country’s past GDP figures to see how much it has grown economically over time, and comparing its GDP figures with those of other countries during the same period to gauge its economic standing in the international community.
It probably goes without saying why so many countries place such importance on economic growth rate and fixate on that number. Whether our rice bowl is getting bigger, smaller, or staying about the same is a matter of great importance to everyone.

Debt = The Amount of Food You Owe Others

GDP is the sum of all newly created value within a country. Conversely, if someone within that country has incurred debt, this too must be added and examined. GDP growth is a good thing. But if debt also increases alongside it, is it truly all good? Let’s think about it simply. If GDP is the size of the rice bowl, debt is the amount of rice we must give to others (those who lent us the money). Even if I have 100 servings of rice, if I must give 90 servings to others, we are left with only 10 servings for ourselves. This is debt.
Debt is called by different names depending on who incurred it. If the government borrowed, it’s ‘national debt’. National debt includes both central government debt and local government debt. Opinions vary on whether to include debt incurred by other public institutions. When a company incurs debt, it’s called ‘corporate debt’; when a household does, it’s ‘household debt’. To gauge how large this debt is, it’s often compared to GDP. Even with high GDP, if debt is substantial, the long-term business cycle is likely to be unfavorable. The same applies to companies and households.
To understand the overall business cycle, one must carefully assess both ‘offense’ and ‘defense’. On the offensive side, we look at GDP; on the defensive side, we examine debt. If the defense is in shambles, even a strong offense struggles to win. No matter how many points you score, if you keep conceding to the opponent, shoring up the defense becomes the top priority. Therefore, to achieve steady economic growth, debt must be reduced. The scale of debt is just as important as the scale of GDP.

The economy is a Lego creation made of ‘people’ blocks

Population is an essential element for economic growth. This is especially true for countries like Korea. The first reason is that it lacks major resources (particularly crude oil) and has a small land area, resulting in a very weak foundation for primary industries (agriculture, livestock, fisheries, forestry, etc.). So it’s not strange to say ‘people are the resource’. The second reason is the rapidly advancing demographic shift. Low birth rates and aging are bringing the crisis of the ‘population cliff’ (a phenomenon where the proportion of the working-age population aged 15-64 within a nation’s total population sharply declines) closer to reality. Consequently, Korea’s demographic changes are far more severe than in other countries and are critically important, capable of altering the entire economic trajectory.
It’s easy to imagine why population matters in the economy and how it influences economic outcomes. However, because it involves people, there’s a higher likelihood of emotional responses over cold, hard numbers or logic. Yet, in an economy driven by money, there’s little room for emotion. Therefore, when examining population issues, a cooler head is needed for proper assessment.
Consider a masterpiece built with LEGO blocks. A single creation contains hundreds, even thousands, of individual blocks. If we liken a nation’s economy to a ‘superb LEGO creation,’ then each individual comprising its population is like a single LEGO brick. A sufficient quantity of these bricks is needed to establish a basic economic scale. To explain the relationship between population and economy, I will now use LEGO as an analogy.
Countries like China or India are often called ‘huge markets’ because their populations exceed one billion. If you’ve paid attention to articles discussing Southeast Asia’s positive economic growth potential, you’ll notice they invariably cite the region’s large populations as the driving force behind that growth. This indicates immense potential, even if growth hasn’t yet reached its full capacity. If one person has enough LEGO blocks to fill a room, and another has only a handful, who do you think can build a more impressive creation? Obviously, the one with more blocks. That’s why population must be considered when assessing a country’s economic growth.

India, heading toward a population of 1.6 billion, becomes the world’s third-largest economy!
South Korea faces sinking crisis amid ‘population cliff’… Clear signs of lost growth momentum!
Musk, who was surprised by Japan: “Korea has the world’s fastest population collapse”

Viewing the headlines above from this perspective makes it clearer why population matters in economics. A decline in newborns is like a ‘disruption in the supply of Lego blocks’. In this case, even if you’ve built an impressive Lego creation now, crafting something more magnificent and splendid (a more prosperous economy) becomes difficult. That’s why a falling birth rate (declining population) weakens the engine of economic growth.

Things to know when assembling population blocks

When LEGO blocks are scarce, assembly inevitably becomes difficult. If blocks represent people, assembly means employment. In other words, a shrinking population casts a shadow over the job market. So, can we simply buy people from elsewhere, like purchasing extra blocks when needed? Yes. We fill the shrinking labor force by bringing in workers from abroad. This process involves establishing immigration policies and can lead to issues related to foreign workers. However, there are limits to relying on foreign labor. Ultimately, the fundamental solution is to increase the population. We must produce the Lego blocks domestically. That’s why the government strongly pushes policies to boost the birth rate. This is the background behind our government’s recent introduction of various policies aimed at increasing the birth rate.

Discussions kick off on establishing an ‘Immigration Agency’ as an alternative to the population cliff… ‘Social resistance’ remains a challenge!
Expanding tax and financial support for young people marrying and having children… Reviewing improvements to the National Pension!

Let’s go a step beyond simply thinking of ‘population = number of heads = number of Lego blocks’. What happens if the types of Lego blocks composing the entire work change? The shape of the entire creation would change. What about the economy? The increase in the proportion of single-person households means that while there used to be many 4×6 size blocks, now there is a significant increase in 1×1 or 1×2 size blocks. Korea has seen a rapid surge in single-person households, shifting its economic structure itself from being centered on 3- or 4-person families to being centered on single-person households. The noticeable increase in meal kit foods at supermarkets is deeply related to this. Similarly, the size of housing people prefer is getting smaller, and purchases of products for fewer people are increasing. In this way, changes in the population structure alter the economic structure.
Now, let’s assume there are an unusually large number of old, worn-out Lego blocks. Lego blocks require precise fitting to assemble. If those blocks become worn and loose, wouldn’t it be difficult to create intricate works? The risk of the structure breaking increases, and some blocks may become unusable. This is precisely the problem of an aging society. To draw an analogy with Lego, a society with extreme aging is like having a large number of blocks in a state that makes them difficult to use for building. In the same vein, poverty can be seen as faded or broken Lego pieces. Like old blocks, these too are unsuitable for building. With Lego, you could simply discard the old, damaged pieces and buy new ones, but that’s not possible with people. That’s why aging becomes a problem a nation must bear.

Aging↑ / Birth rate↓ ⇨ Working-age population↓ ⇨ Productivity↓ ⇨ Foreign workers↑ ⇨ Dissatisfaction among domestic workers competing with foreigners↑ ⇨ Social problems arise

Of course, comparing people to Lego is inappropriate. Yet we use this analogy because when contemplating solutions to economic problems, stepping back allows for a cooler, more objective assessment. Finally, one more point: we must evaluate not only the Lego blocks or the creations made from them, but also whether the person using those blocks is useful or not. Even if that person claims, ‘I am healthy.’