THE BLOG
11/29/2012 03:45 pm ET Updated Jan 29, 2013

Trust and the Economy: Yes, They Do Go Together

There's no shortage of debate about public policy which should or should not be used to deal with our current economic situation and the looming fiscal cliff. Do nothing, raise taxes on everyone, reduce taxes on everyone, targeted increases or decreases -- the possibilities are endless and important. However, amid all of the hubbub about public policy, there seems to be little discussion of the key changes in private policy that may also have a huge economic and social impact.

In particular, I feel that a major reason for our economic predicament is the broad-based decline in integrity in so many public and private situations. I think that so many people have lost their trust in our major institutions and in each other that this is inhibiting economic activity. Wherever one goes, we are confronted with this appalling decline. While the matter is not amenable to empirical proof, to me it is self evident that when one believes that those around them are likely to be cheating them or someone else, that they are less confident of the merits of engaging in commerce or making commitments to do so.

From our major institutions to celebrities and individual actors, we see untrustworthy behavior. I trace much of it back to the Watergate scandal and the Clinton/Lewinsky escapades, which suggested to many Americans that our leaders saw themselves as exempt from law and social norms.

Today we see similar behavior from public figures as varied as the CIA Director, a revered general, engaging in an unseemly extramarital affair and a U.S. Congressman dropping out of sight while running for reelection, and emerging just long enough to resign while acknowledging an investigation into campaign finance impropriety. Add to this, the pathetic spectacle of a former occupant of his seat, who was imprisoned for sexual misconduct involving an underage girl and financial improprieties, seeking re-election to it.

Even outside government and the political arena, we see and endless parade of so-called athletic 'stars' seeking unfair competitive advantages with the use of performance enhancing drugs. At the same time, we see a major corporation, Hewlett-Packard, which has seemingly been deceiving itself, as it protests that it was defrauded in a major acquisition of autonomy, despite the fact that it willingly paid $10 billion [30 times revenue!] for a company which was little more than a start-up, and engaged a number of 'big name' advisers. How did it expect such a pricey deal to make sense, and why is it insulting everyone's intelligence with its current protests that it had good reason for such expectation?

Seemingly, every week brings new revelations of insider trading in stocks leading to civil or criminal claims against those who are sufficiently sophisticated to know better.

The problem is not confined to the prominent. Everyday transactions are seemingly always done against a backdrop of disreputable behavior in them or in similar transactions. Goods and services are frequently procured by those with little ability to pay for them or little interest in doing so absent extensive collection efforts. Certainly, there are many cases where genuine changes in circumstances render moot initial good faith, but there are also many where such good faith was absent.

Manufacturers bob and weave to avoid claims under express warranties, and the idea of honoring an 'informal' assurance because it's the right thing to do or will lead to long-term benefit from customer goodwill draws peals of laughter and derision directed toward anyone who would expect such behavior. Large corporations ignore vendor contracts requiring payment in a specified time and call it 'cash management.'

I am well aware that not everyone behaves in this manner, and that there are plenty of honest, ethical people in every field. Nevertheless, evidence of the wrong kind of behavior comes to light every day, and in my opinion is poisoning our economic and moral climates. The concept of trust has been eroded to such an extent that I feel it is chilling economic activity.

What is to be done? We can not do anything about the behavior of others, whether the others are Gen. Petraeus, Congressman Jackson, HP or the disreputable neighbor that is ripping off those with whom they deal. However, we can do something about our own behavior and the behavior of those with whom we deal. If enough 'ordinary people' resolve to do things the right way and insist wherever possible upon the same from those with whom they deal and who solicit their vote or patronage, maybe, just maybe, we can gradually make a difference, and create a better environment irrespective of what Congress or some celebrity do. Isn't it worth a try?