"Trust" in the Economy and Electoral Politics

I've been thinking a lot about trust recently. When it is abundant everything goes more smoothly: from love to commerce, from sports to politics. When it is lacking, everything else can seem broken or meaningless.

Nowadays we hear the word "trust" used all the time in relation to the credit crunch and the steep decline in stock markets. It's bad enough for the economy when a business can't provide credit to a consumer. No car loan, no sales; no sales, no dealership; no dealership, no factory and so on. But lately even banks are afraid to loan money to one another. There are certainly many reasons why trust has evaporated in the credit markets, but the basic fact is that too many financial institutions were making loans (or trading loans) without having any real assurance that the borrower had the capacity to pay back the debt. The number of borrowers multiplied as the loans were traded, and the crisis of confidence spread like a stomach virus on a college campus. It's hard to tell who has deep exposure to these bad loans, who has tried to make lots of money by trading them before anybody realized they weren't going to get paid back. Uncertainty is a lack of faith, and the lack of faith destroys trust.

It's a cliché that trust is a lot easier to destroy than it is to build. When children tell us that this time they are telling the truth, and that they lie only some of the time, they are about to learn that even one lie destroys the credibility of all your other statements -- even when these other claims are true. One lie creates general uncertainty. We are seeing this everyday on Wall Street and in the banking sector. Governments are desperately trying to restore trust, but as long as there is lingering (and, I might add, reasonable) uncertainty about who is holding the bad debts they once tried to profit from, it will be impossible to have the basic trust that makes our credit systems work.

"Trust" is also a big issue in the political world. Lately, Sarah Palin has been trying to undermine the confidence that many have developed in Barack Obama by insinuating that he has had associations with unsavory, radical characters -- terrorists even. When John McCain calls Obama naïve about foreign leaders, he is saying, "My friends, this young man is likeable enough, but he just doesn't deserve the trust you must place in the Commander in Chief." And of course, when the junior senator from Illinois fires back on McCain's singing about bombing Iran, he is saying: "Hey, you just can't trust this guy. He's too hot-headed and impetuous."

The problem with the politics of attack that the Rovesque McCain-Palin ticket is now employing, and the problem with Obama's defense through recrimination, is that both strategies erode trust in democracy itself. People get fed up with the electoral system and become less likely to participate in it. Sure, attack ads get our attention, but once their manipulations are exposed, we feel less likely to believe anything. And, as in the case of the credit crisis, once we lose trust in the political process, it is very difficult to restore our confidence enough to care about any election at all.

The erosion of trust in our economy and in our leaders is not exactly news. But what can we do about it? Scientists last year reported that oxytocin can retard the erosion of trust, but I don't think mass medication is a path worth exploring here (despite the jump-start it would provide the ailing pharmaceutical industry). After all, we have good reasons for losing trust.

The cure for the erosion of trust is not medicinal; it's social. Participation builds trust. On the university campus where I work, the only ways I've seen trust successfully restored is to involve people once again in whatever activity they'd become uncertain about. From athletics to music, from lab science to poetry workshops, participation reduces uncertainty and builds faith through practice. When you begin again to seek or offer credit in secure ways, when investments can be protected, then you feel prepared to take a few new risks. When you get involved with your fellow-citizens in a political campaign or make your voice heard with your neighbors, you begin to see that democracy isn't only about attack. Democracy is about participating with people who you grow to trust by working together.

Teachers know this. We have to earn the trust of our students everyday so that they can risk making mistakes, so that they can take the chance to open themselves to learning. That's why we encourage the participation of our students.

Our current, acute crisis of confidence will pass. Then we must rebuild trust by participating in our economy and polity rather than just try to tear down others who are doing so.

Comments

[TrustEnabler]

Democracy and capitalism are founded on trust. If confidence is the objective, then the only available strategies are trust and control. For the most part, with the collapse of many dictatorships and communism, the world has largely rejected control-based solutions to politics and business. The simple reason is that trust is that trust scales better, especially when founded on trusted institutions. Unlike some societies where trust is confined to family structures, the United States and much of the Western world has enjoyed superior growth and prosperity precisely because people trust their institutions, which allows them to trust strangers.

The erosion of trust in the institutions in the United States signals a decline of the American empire, and with it the Western world. It's time to start paying close attention to trust issues. For this reason, I have created a Trust Portal. It provides a single point of entry for many resources on trust for business that include web sites, blogs, articles, papers, reports and books from leading trust experts, consultants, researchers and academics, as well as media and business practitioners commenting on trust issues. The information is maintained current with dynamically updating data feeds. It currently covers more than 20 trust-related topics. You can find the Trust Portal at http://www.protopage.com/trustportal.

[sticksnstones]

I just knew that this election cycle would be held culpable for the lack of trust in government and financial institutions in general. Like this is a new pervasive phenomenon. Here in the neighborhood behind Main Street, we feel justified in our distrust, as events have shown. But, the election rhetoric really has nothing to do with it. We know in our heart of hearts that the ( lets call it what it is ) bailout is about the weathiest 5% of our population. It's not about us. And my neighbors will benefit not a bit from it.
Trust? Try earning it. Re-regulate Wall Street, punish the scam artist, toxic securities peddling thugs, and demand congress do their jobs as representatives if their constituents for a refreshing change. If they don't ( and I'm looking at you, Rep. Pelosi ) then we need to vote them out of office regardless of the party to which they may belong.

[jeanrenoir]

It is the white Rust Belt American mob which has eroded trust in Democracy, by electing Nixon twice, Reagan twice, and Bush II twice. These morons have destroyed this country by electing these incredibly destructive leaders. It is entirely the fault of THIS cohort of stupid white voters that we have had such terrible government, and economic policies, in America for the past forty years. They are like the Athenian mob who not only destroyed Periclean democracy by applauding foolish and corrupt demagogues--just like ours--but also gave democracy itself a bad name in the political theory of both Plato and Aristotle, and thus the great tradition of Western political thought, right down to the Enlightenment. For good reason! Remember Ben Franklin's remark that he and the other Founding Fathers, all quite skeptical of the stupidities of the mob, had given America a republic, if the Americans had it in them to "keep it." Well, now we've seen how the mob is so stupid and ignorant and racist that is has done all it could to elect fools bent on destroying our economy, our standing in the world, and our future itself.

[demfriend]

A funny thing about trust is that we as humans usually will give it freely to those we have around who have not done anything "bad" to us yet. It would be nice in the world to think we "build" it but we usually don't take the time and assume the other guy is doing the right thing by us. Otherwise not much would happen as we now see as the real deal. We have lost "faith" also known as "trust" in the economy and so we have backed off from spending when we might not have been spending so much before had we known the truth about the economy instead of trusting the gov to watch the hen house. The house loans we all watched go crazy as the bubble expanded and thought "how far can this go". we watched way over priced houses being sold to people we couldn't understand getting the loans for them and asked "how are they getting the loan". We trusted the gov to have safegaurds in place as to not go the way we went in the depression but guess what? They betrayed us and the trust. McCain is in bed witht he same people who built and brought this mess down upon us and I have heard him lie repeatedly so I do not trust him. Do you?

[johnwinner]

Look, here's the news - after eight years of Bush - twice NOT elected to the Presidency - and with our major sources of information now under almost complete control by rightist corporations, representative democracy in America is all but dead. The only question we have in this election is, do we allow it to be buried it with McCain in yet another stolen election, or try to resuscitate it with Obama and hope our numbers are large enough to overwhelm rigged ballots. My love of America's history is such that I am wlling to take a chance with Obama.
But let's not kid ourselves - democracy, as we knew it before Reagan, FAILED. Resuscitating some form of democratic government will require massive reconstruction which, given American politics, can only be accomplished by tinkering, and 'back-room' diplomacy, over a long period of time.
What to teach our children? That if McCain wins and the end of the Constitution is at hand, one day they will need to arm themselves to prepare for civil war. And if you haven't the stomach for it, it's probably time to retire.
America was born in revolution, not in some high-school civics class (which at the time would have taught loyalty to the British Crown). Americans may need to learn, once again, that the only real means of keeping tyrants at bay is the threat of a good thrashing. And sometimes the thrashing itself.

[LeeroyFDermit]

It’s Confidence Stupid

By all accounts, the overall problem in the market that has suddenly turned the problems of a few banks and home owners into another Great Depression – is a loss of confidence.

Just a few months ago, most businesses were still having record profits, but if consumers and businesses lose confidence and fear a recession, then they will spend less and pay down debt - which will cause a recession!

Country Last

Maybe businesses need regulation to protect them from a drop in confidence. After all, hasn’t an unethical minority nearly caused another Great Depression by reducing American confidence, which thus allowed speculators, short sellers , etc. to further hurt the economy more than they ever could have alone, which then allowed the unethical minority to further reduce confidence – in a self reinforcing downward spiral?

The motivation of this unethical minority was political gain at the expense of the whole nation - Country Last.

Now we know that Obama is one of the most guilty among the Democrats and the leftist media who together comprise this unethical minority who would destroy their country to win an election.

We can't solve this crisis if we don't understand what caused such a crisis. to learn the whole story, go here:
http://www.leeroyfdermit.com/2008/09/great-depression-of-2008.html

[MatoSka]

Participation builds trust.

Truer words were never spoken. In te bailout passed by Congress, we have witnessed a new version of Hoover's Reconstruction Finance Corporation that failed to get the economy out of the Depression. It is long overdue for local communities and institutions to be empowered to disburse Federal aid.

Those same irate folks at McCain rallies who have been disempowered by the domination of the economy by corporations and marginalization of their voice in decisions can play a role if, and only if, they become incorporated into the decision-making process. This is not just a matter of Democrats getting elected or Congress reviewing Paulson's actions. It is a matter of restructuring our poitical and economic institutions.

[Martee]

Trust should be earned. If there are valid reasons to caution against trusting one candidate or the other -- the opposition has a duty to point that out. However, there is a big difference between McCain drawing flimsy, hate-mongering connections between Obama and Ayers -- and Obama illuminating McCain's erratic hawkishness when he wants to be our Commander and Chief. As others have said, people don't trust the system -- not because candidates are drawing their attention to legitimate concerns -- but precisely because these candidates have been untrustworthy -- playing up completely invalid concerns that they don't even believe. The sort of "anything to win" mentality is what is corroding our democracy -- and to try to compare honest concerns to lies is just as corrosive.

[sandrarita]

Americans see through the outrageous machinations of the Republican Party. We are a forgiving people and it took a few dirty campaigns to demonstrate how an empty party filled with empty people won elections, but now we know.

If McCain had chosen an appropriate VP and handled his campaign seriously, issues would have been discussed, debates would have been held and the population would not have been so polarized. Instead he chose to follow the Republican sleeze machine spearheaded trolls such as Gingrich, Rove and the right wing media, and went for expediency rather than integrity; with a win at all costs attitude rather than win based on merit.

Inn 2000, over halt the populaton sat helplesly by while their candidate was Bushwhacked by a packed Supreme Court, and despite warnings of his character, Bush steered my country into the icebergs of the Titanic. With a Republican Congress, and executive privilege, he had free rein to turn my government into his own private business and third world junta by using the resources of my country to payback his supporters, to place his inept friends into positions they were not qualified for, to start a war based on lies, and in general, to use my government and the White House as a platform to create a greed machine unparalled in American history.

No sir, we the people are more inclined now to participate in the electoral process to ensure that this will not happen again. Our lives depend on it.

[bearcck]

Ahhhhhh! We did this to ourselves! Very few of us have a goal of solvency. Very few of us have credit cards with the intention of paying off every month. Very few of us have a plan for the future that would depend on social security. Some of us even have a plan to take care of ourselves, our parents and our childrens future and we are not rich!

Buy a car and make it last 12 - 14 years. Save for your childrens college. Pay off your house. Take care of your Mother who only makes $800/mo on social security AND thank god one is able to do it!!!

Pay no attention to Paris Hilton, Donald Trump, Goofy Hedge Fund Managers, Soccer Moms, American Idol, Survivor, Gossipy neighbors and the latest self help prescription.

Get up. Do what you need to do. Make your idols those people who have made a genuine contribution to this planet.

Mother Theresa's quote (whether you subscribe to religion or not): "Someone thirsts...­.someone took too much." Always make sure you give more than you take!

[LewDan]

You conveniently ignore the simple truth that the erosion of trust is due to people proving untrustworthy. Blame home buyers for purchasing homes they could not afford. Somehow the man on the street is always to blame. Especially if the man is poor or minority. Somehow the professionals, executives and corporations who created subprime loans, teaser rates, balloon payments, mortgage backed securities and derivatives are not responsible.

The home buyer should have independently uncovered the inflated assessments (hire an appraiser!), the artificially low teaser rates (hire a banker!), the bait and switch balloon payments (hire a lawyer!), the variable interest rate (hire an economist!), the brokers deceptions (hire another broker!?) Caveat emptor! Its just business when brokers, accountants, lawyers and account managers fleece some poor sucker. Caveat emptor! So what if some bought and paid for politician repeals the regulations protecting consumers? Caveat emptor!

But people need to be more trusting. Caveat emptor? Just because the people we elect to represent us lie to us legislate against our interests, the people we hire to represent us betray us because they get "points" as commission, the people we vote to boards bankrupt us because speculation results in paper profits that trigger "bonuses."

Right, our lack of trust can be alleviated by more participation. Caveat emptor!! We don't need no stink'n accountability! Caveat emptor!! The free market will cure any problems. Caveat emptor!! Trust me. CAVEAT EMPTOR!!!

[tedeger]

As I recently explained to an executive of the Bank of America, "Only an idiot or a gullible patsy would EVER accept a variable rate loan. Since "Variable" means "Slowly increasing," it is simply a recipe for insolvency, and is responsible for much of the mess the Nation finds itself in today." If greed were punishable by law, as it once was, instead of having been legitimized by Act of Congress, we'd be in much better shape.

[kevinmcd]

It is smug to suggest that everyone who took out a variable rate mortgage is an idiot. Alot of people relied on the "experts" who assured the buyers that they could afford it-or else they would not have done it. Your analysis is also inconsistent in that at first you blame idiocy and then suggest it was greed. Anyway, it is not greed to agree to pay to live in an expensive house. It is greed when a person hoards possessions. Finally, Congress never passed any laws encouraging mortgage companies and other lenders to lend to unqualified buyers-it was the corporations which decided to take the risk-Congress merely did not stop them. If you are suggesting that the law prohibiting banks from redlining--refusing to lend to anyone in a particular neighborhood no matter how qualified-that is right wing bunk--the loans at issue that caused this mess were in no way related to the law that needed to be past to stop the illegal practice. It is outrageous that people on the right are pulling this stuff out of the sky -i want to see the raw data that shows that the loans in default were given only or mostly to minorities, or to lower incom people. The fact is that many (and I would venture to say most ) of these loans were given to middle to upper middle income people, not to poor minorites.

[jofle]

Of what value is a leader who does not have his country's trust? McCain has now forfeited the most valuable assets a leader could possibly have: honor and trust.

Ironically McCain began his campaign arguing honor and trust were the two most important reasons America should elect him President.

[wayoutleft]

that neither bush, nor the two candidates have given any reason for confidence in their economic leadership is the elephant in the crumbling economic room

[sandrarita]

I will vote for Obama, not because he is the lesser of two evils, but because he shown courage, determination, integrity and leadership, and I have more confidence that he will do what is 'right' not what is expedient. It will not be easy for any president to guide us through the icebergs in this Republican-made crisis, but I have confidence in Obama, myself and my countrymen to live up to the task by following decent human values and civility; something not shown by Republicans since the Reagan years.

[Sagantech]

I saw this statement by another on a different blog and while sarcastic it seems quite pertinent here

"When every bank is able to lie an infinite amount about their cash reserves, and the value of their assets, then you can, by definition, trust everyone."

http://money.cnn.com/2008/10/10/news/economy/accounting_rules.ap/index.htm?postversion=2008101012

[NABNYC]

When businesses are allowed to divorce themselves from the consequences of their own actions, they always act badly. For example, the drug sellers in this country used TV to manufacture illnesses in the minds of the public then sell them a drug to cure the illness, but which often ends up causing other health problems. Drug companies bribe the government to pass laws saying drug companies are never responsible for anything they do -- if they hurt you or kill you, they get a pass. No wonder they keep pushing drugs that cause 12 hour erections and heart attacks: they make money, and they are never held accountable. In those rare occasions when someone actually gets to a jury, the courts are packed with right wingers who overturn every verdict in favor of an injured consumer.

It's really very simple. Honest businesses are trusted in their communities. The criminals are eventually found out. To be "not trusted" is a small price to pay given how much these people have stolen from our country. If you want to be respected, act respectful.

This isn't a question of people who got confused, made a bad call -- these are deliberate acts by savvy businesses to defraud the public, loot the country, enrich themselves, set up offshore P.O. boxes to avoid taxes. They have no conscience. They are traitors to our country. Let's not mince words about trust issues: they're criminals, and they should be in prison.

[Martee]

We should get rid of corporations and make people individually culpable for their actions. Corporations can do the cruelest things because everyone involved is able to say to themselves "it's not me -- it's the company." And they can sleep at night -- knowing that "keeping people employed" is somehow better than all that toxic dumping they're doing in the poor neighborhood. Things might be a lot different if individuals had to make those decisions -- instead of hiding behind the the name and legal protections of a corporation.

[syllepsis]

What an absurd and wrongheaded post. The Republicans, and GWB foremost among them, have spent the last eight years lying continuously to us.
The proper thing to do was impeach Bush and then Cheney for his own, even more egregious lies (see the report that he lied to House Minority Leader Richard Armey to change Armey's vote on the invasion of Iraq).
If you wish to blame Democrats for anything, blame them for not removing these liars by the means prescribed by our Constitution from their positions of public power.

[sandrarita]

Amen to that.

[bascombe]

I could not agree more. additionally, the false equivalence of the actions by the two camps is mind-numbing.

truth does not equal lies and false innuendo.