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Forget the Credit Crunch, the Real Problem Is a 'Trust' Deficit

October 21, 2008

Barber_lg Benjamin Barber, one of my favorite public intellectuals (Jihad vs. McWorld: How Globalism and Tribalism Are Reshaping the World, Consumed: How Markets Corrupt Children, Infantilize Adults, and Swallow Citizens Whole), argues in a new op-ed ("Decades of Eroded Trust and Democracy Did the Damage," The Guardian, 10/20/08) that the roots of our current financial crisis lie in decades of eroded trust and squandered "social capital" and that restoring civic faith will be essential if we hope to repair our badly damaged markets.

Barber writes:

...[T]he secret of the invisible hand is not economic capital but social capital. Adam Smith knew that moral sentiments no less than capital markets undergird the wealth of nations. The liquidity crisis is a political crisis; the credit deficit is a democratic deficit. For trust is the social capital that permits private capital to be exchanged, contracts to be enforced, promises to be kept, expectations to be realised. Democracy is the common sea in which all those competing market boats and bickering fiscal sailors are kept afloat.

So although it was bad loans and greedy bankers and stupid hedge fund managers and ignorant investors who made the mess, it has been four decades of de-democratisation that has done the real damage. A haemorrhaging of social capital that nobody noticed because government was supposed to be the problem and markets the solution. Runaway Thatcherism and exuberant Reaganism railed against government until citizens were literally talked out of their democracy.

Government was allegedly the villain, but government was just democracy's tool -- not always very efficient and often insufficiently accountable, but democracy's tool nonetheless. And democracy's real product was trust. As the war on government became a war on democracy, it drew down the well of social capital and eroded trust, causing citizens to lose faith in each other and their power to govern themselves. Why now should consumers trust banks? Or bankers trust one another? Or investors trust the stock market? Or anyone at all trust the prime minister or the US president or his treasury secretary or the MPs and members of Congress who don't trust their own leadership?...

Read the rest here.

-- Mitch Nauffts

Comments

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I am sure there is a 'trust deficit', but it is not only civic. As far as I know no one has yet revealed the marital status of those in arrears with their mortgage payments. There may be no connection, but the sub prime crisis has coincided with a massive increase in cohabitation. Cohabiting couples break up about 5 times as fast as married couples, and borrowers experiencing a change in marital status are about 4.5 times more likely to be in arrears with payments. It is possible that a major contributor to the toxicity of mortgage backed securities is the toxicity of so many couple relationships. It is also possible that the rating agencies performed their exercises with the numbers based on the financial circumstances of the borrowers rather than their relationship quality. In the UK the research that has been done on this suggests that the difference in family breakdown risk between married and cohabiting couples is sufficient that even the poorest 20% of married couples are more stable than all but the richest 20% of cohabiting couples.

"but government was just democracy's tool -- not always very efficient and often insufficiently accountable, but democracy's tool nonetheless"

Yet "tools are the subtlest of traps" - and the thing to remember is how quickly government can start to see US as the tools (literally and figuratively) instead of the other way around. I'd rather have trust deficit in that direction than the alternative.

" As the war on government became a war on democracy... "

Seems to me the opposite is true - investing more and more power to the govt. is the real war on Democracy.

Guess I suffer a trust deficit :)

As someone who was very young during the Nixon Administration and a self-described B- student of history, I can't help but think that the Americans' distrust of government is based largely on general perceptions that resulted from the Vietnam war and Watergate eras. During the Johnson and Nixon Administrations, Americans lost much of their faith in their leaders. We went from liking Ike and looking to Kennedy to "restore" Camelot to looking fondly on Ford and Carter only after they were out of office. I can't help but wonder whether the majority of Americans are hoping that Barack Obama can restore their faith in American leadership -- which is an exceptionally large burden for anyone to bear. The trust deficit may be growing too large for any American leader to wipe clean during one administration. For government to restore the public's trust, our leaders and ourselves will need to develop a whole lot of faith in each other. As the bartender says, "Time, gentlemen, please."

Hey....maybe this is why mistrust of government is a good thing:

http://www.workforce.com/section/00/article/25/83/58.php

"Powerful House Democrats are eyeing proposals to overhaul the nation’s $3 trillion 401(k) system, including the elimination of most of the $80 billion in annual tax breaks that 401(k) investors receive....."

After reading the whole thing, I'm not so sure that's a great idea. All it looks like is another money grab....and that's not something that can be blamed on "greedy hedge fund managers" or whatever the boogeyman du jour is.

Expect more in this vein.

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