The End of Trust: Hawk & Dove

By Razib Khan | May 7, 2011 2:26 am

In the mid-90s in the wake of The End of History and the Last Man Francis Fukuyama wrote Trust: The Social Virtues and The Creation of Prosperity. Trust to some extent has a chicken & egg problem. High trust societies can overcome coordination problems which block social and economic development. A high level of social trust often results in positive spillover effects, which generate economic growth and broad based prosperity, which then boosts the levels of trust even further. In 2008-2009 I suggested that the biggest long term impact of the late great “financial crisis” is that many Americans no longer believe that doing well is an outcome of doing good. More accurately perhaps in many corrupt societies the presumption is that the path to wealth is itself a venal journey where all moral principles must be devoured by the will to power.


As a practical matter I understand and accepted the need to dampen the shocks of the impending financial doom in the wake of the 2008 crisis. But my attitude toward American capital has changed irrevocably. I know others who have experienced the same emotional flip. But it isn’t just a specific lack of trust. I feel personally much more open to conspiracy theories and have a general skepticism of all institutions and authorities. My model of how the world works is that we live by Hobbes in practice and give a nod to Locke on paper. There are no rights, no justice, only “you eat what you kill.” What is best in life? Never be prey, always be the predator! No one is watching.

All this went through my mind as I read this account of the marginality of the Irish working class, After Bust in Ireland, Ordinary People Make Do With Less:

Carless, Mr. Condra spends an hour on the bus each way to and from his job in Dublin; when he sees a politician in a shiny black sedan through the window, he fights back his gall. He has not bought a pair of jeans in a year, and Mrs. Condra has taken the pragmatic step of wearing her flat wedding shoes around the house.

Nearly everyone they know is underwater on their mortgage; one neighbor expects to be foreclosed on in two weeks. And last month, eight homes in their otherwise quiet working-class neighborhood were burgled.

Mrs. Condra agrees that Ireland has to make good on its debts. “But they’re debts from the banks that we didn’t even know we had,” she said. “And the people least able to afford it are paying for everything.”

The prey are for the compost heap. The predators live to hunt another day. I hope one day to be amused by my morbid pessimism!

Image Credit: Steve Jurvetson

CATEGORIZED UNDER: International Affairs
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  • imnobody

    This post is an accurate description of the state of the world.

    I understand that banks are “too big to fail” and that they must be rescued for the good of the economy and, therefore, for the good of the people.

    That is, all citizens (including the poor) must pay for the mistakes of some few bankers. Profits are privatized, losses are made public.

    But, if only we saw this bankers in jail… If you steal $1000 you go to prison. If you steal billions of dollars, put the economy in risk and make millions of people miserable, you get no punishment.

    If these bankers were put in jail, future bankers would think twice before committing these Ponzi schemes. This is the why the law punishes. To discourage future crime.

    But no, these bankers will get away with it. So they can enjoy of their ill-gotten money and live their luxury lives, while scheming the next fraud. After all, there will always be suckers (us) who are here to pay the consequences of their crimes.

  • John Emerson

    In American politics there’s always been a battle between the tough-minded realists and cynics saying “deal with it” on one side, and the populists, reformers, progressives, et. al. who think that wrongs should be made right. Trust is only lost when belief in the possibility of reform is lost; normal honest people expect there to be a certain amount of malfeasance, but they demand that it be punished and stopped.

    What Hofstadter called “The Paranoid Strain in American Politics” (title) arose from reformers who had given up, and believed that fraud was in command. The Populists still had hope; they believed that the monopolies and banks could be driven from power.

    The realistic tendencies in both parties, most openly in the Democratic Party after 1948, basically separated electioneering from government. You do one group of things to get elected, and then you govern as you see fit. While you’re governing, you make certain concessions to the voters, but as few as possible because that’s “pandering”. There’s little attempt to synchronize the two activities and get elected on the basis of what you actually intend to do when in office, and people who judge policy from a normative point of view are regarded as chumps and morons (because science is truth and science is non-normative).

    Both parties do, of course, make moral appeals, but these are just ways of recruiting votes. People like Reagan, Bush, and Cheney don’t care a bit about abortion or gay marriage. Democrats hand out favors here and there for pious reasons, but their real operations are in other areas. (Basically both parties are now errand-boys for finance and big business, and big business is so financialized that it’s really just finance).

    Tough-minded cynical realism was OK as long as it worked (delivered the goods, brought prosperity) but when it stops working, and when most people stop thinking that they’re in on the action, you get tremendous anger.

    The tough-minded value-free realists were realists in that they got what they wanted for themselves, but their political theory was destructive on the whole. Without public trust, not much good can happen.

  • Robert

    “I understand and accepted the need to dampen the shocks of the impending financial doom in the wake of the 2008 crisis.”

    I’m not sure that letting AIG and their ilk go bankrupt would not have been the best way out. Despite the hysterical corespondent bank, house of cards, financial collapse to 1930’s levels propaganda there was enough bondholder capital in most of the financial institutions to cover those losses. TARP et. al. was government protection of the fat cats from bankruptcy, pure and simple.

    “Mrs. Condra agrees that Ireland has to make good on its debts.”

    Why? The people who are least able to afford it will be better off if the government repudiates its debts. Even counting losses in retirement accounts, there would still be enough tax revenue still available for basic needs even after a default and the new currency would actually be sounder than the old one without carrying the existing millstone of debt to corrupt foreign bankers that both Iceland and Eire have.

    And anyway, the government’s desperate attempt to inflate us out of our debt mess is resulting in horrible stagflation while the action in (30+ to 1 leveraged) swaps is at higher levels than 2008.

  • dufu

    For me the most important question is what’s the best way to not be consumed by envy, ressentiment and pessimism upon this realization. And how to avoid being one of the sheep without becoming a wolf.

    For those who never had the chance or the temperament to become one of the wolves the answer, I think, is to find a niche that is as insulated as possible from the inevitable crises they bring upon us. To secure a livelihood that will allow the cultivation of one’s own garden to use Voltaire’s metaphor.

    Ideally, for me at least, would be to obtain a secure position in a scientific or technical field where one could mainly focus on the advancement of knowledge and rationalism. Second best (or third or fourth) is to find a career secure from the vagaries of the economy and that doesn’t demand the devotion of one’s every waking moment merely to keep one’s head above water. The least desirable version of this is an unimportant government bureaucrat, numbed to the stultifying nature of his duties, who gets to clock out at 5 pm every day to live his real life and pursue his real interests.

    I think philosophies of living similar to Stoicism or Epicureanism will grow more popular with people of an intellectual bent, as will nihilistic hedonism. I believe the popularity of those attitudes in the late Roman Republic and early Empire were a reaction to the fact that amoral careerism became the best way to secure one’s advancement in society. For those who couldn’t stomach that kind of life, disengagement, either actual or emotional, was the best option. Life in Western Civilization seems to be heading in a similar direction.

  • John Emerson

    Argentina defaulted and after a rough patch it did pretty well.

    So far there is little inflation compared to almost any other era and the US’s credit is good. Unemployment and the result of the weakness of the economy are the problems, and the weakness of the economy plus the emergency measures taken by Bush and Obama are the main reasons for the present deficit.

  • Jamie_NYC

    Razib… the life is much, much too complicated for either Polyanish or cynical views to be anywhere close to the truth. One small fact that 99% of people don’t know: US government made money on its bailout of banks. It will not be able to recoup the money it lent to Fannie and Freddie, who were for years effectively lending it to “ordinary folks”. Not a pleasant piece of information to consider.

    To me, a very powerful insight on who really holds power in the American society came years ago from reading about the bankruptcy of Orange county. To summarize the plot in two sentences: OC entered into risky derivatives trades that were going for them for a while, and when the tide turned, a sophisticated law firm advised them that they can exercise their “sovereign rights”, and simply refuse to pay, i.e. declare bankruptcy although they were not even illiquid, let alone insolvent. OC promptly ceased all payments, including to teachers and garbage collectors, so, when the media descended and saw the mess (garbage piling up, children not attending school), the Wall St. firm was or course forced, under pressure from public opinion and politicians, to swallow the loss on the contract, although it nominally had the law clearly on its side. The rich and powerful… lawyers (or politicians; or media, or ordinary folks?). Complicated, ain’t it?

  • dufu

    Jaime_NYC,

    Whether or not the gov’t profited from the bailout is not the issue I think. Rather it’s the moral hazard created when the “too big to fail” banks know that no matter how recklessly they go about their business the gov’t will always be there to save them.

  • Difference Maker

    ^ Yes, they live high on the hog while the country goes to shit.

    Why is the economy in the dumps? Because of the tricksters and their schemes to profit off the backs of the nation.

  • http://www.parhasard.net/ Aidan Kehoe

    This (from Morgan Kelly, who has good form on predictions) is one of the best things written on Ireland since 2007. The sane thing is to let the banks go bust, and get on with things. Now, wouldn’t it be great if there were any prospect of the politicians doing that.

  • chris w

    To what degree do you think technological innovation is dependent upon high levels of trust within a society? Large enterprises are contingent upon a world where strangers are willing to cooperate with each other. Yet, there were periods of history, such as the so-called “Dark Ages”, that weren’t known for high levels of trust which nonetheless oversaw numerous new innovations. However, the production technologies like the stirrup and waterwheel doesn’t require an economic scale of the same magnitude as that required by the production of an iPhone. I don’t know the answer — it’s an open question.

  • jtg

    Do you think large scale immigration to the west has lowered the level of trust society-wide? Both among average people being more likely to cheat each other, and the elite feeling fewer restraints on their behavior? The data I’ve seen suggest so, that a more diverse society is a society with less trust and more abuse.

  • http://blogs.discovermagazine.com/gnxp Razib Khan

    1) re: bailouts. i don’t fixate on that too much. the fed policy of cheap money for large banks is probably more of a big deal. there’s a financial-government complex.

    2) i’m not that interested in the macroeconomy in the short/medium term. the key for me is is capitalism defined by google or goldman? (to personify and oversimplify) i root for google, but the needle is pointing to goldman IMO. economics needs a moral/ethical framework to make sense. it has been taken for granted. i don’t think we should.

    3) i will be OK, as will my friends. we are all cynics now, but we have human capital to avoid being eaten & crushed. but is better for the mental health of all for there to be the idea that people can get a “fair go” if they stick to the rules IMO. that’s my vision for a good society and good life. but i think it’s probably a joke at this point.

    4) innovation is an interesting issue. i’m not sure large corporations do generate innovation. rather, they generate efficiencies. but perhaps the low hanging fruit is gone? i’m probably more worried though about that great sucking sound which is the human capital influx being driven by the demands of the financial-government complex. fundamentally my pessimism will continue if that doesn’t change in the future. if it is easier for the median smart person to make money fucking morons over (sorry, i don’t accept the importance of efficient allocation of capital on the margin we’ve long been up against) rather than giving morons awesome products, that’s what will happen.

    most of human history has been at the malthusian margin. the powerful have fucked over the weak, and made the weak pay taxes for being fucked over. it’s been worse. it may get worse.

  • http://blogs.discovermagazine.com/gnxp Razib Khan

    Do you think large scale immigration to the west has lowered the level of trust society-wide? Both among average people being more likely to cheat each other, and the elite feeling fewer restraints on their behavior? The data I’ve seen suggest so, that a more diverse society is a society with less trust and more abuse.

    sure. but this phenomenon happened in iceland too, which has hardly any immigrants. and though ireland has many more immigrants than it did in the past, i don’t think you can compare it to england, let alone the USA. in contrast, canada maintained banking solvency despite being a very immigrant heavy society.

  • John Emerson

    Philosophies of living similar to Stoicism or Epicureanism will grow more popular with people of an intellectual bent, as will nihilistic hedonism.

    Nihilistic hedonism is well-entrenched already.

  • chris w

    Immigration just adds one additional layer of distrust to a society to complement the distrust that already exists between and within social classes. It doesn’t help, but is probably not necessary to create the phenomenon.

    Fukuyama apparently identified China as a low-trust society, which is 95 percent Han, although I understand that it’s problem to regard the Han culture as a single culture, as it encompasses a diversity of conquered groups that were once not Han.

    I also am not sure to what degree corporations are responsible for innovation. The most noteworthy technological breakthroughs (e.g, airplanes, automobiles, personal computers, etc) were pioneered by enterprises that were initially quite small, but corporations do a lot of fine tuning and incremental improvements. Just off the top of my head, I can think of an article about improvements being made to the freight rail network in this country, that involved taking advantage of many new signaling technologies. Also, as you pointed out to me once before, a sufficient number of incremental improvements can yield a technology that appears qualitatively different than what preceded it. Smartphones are a good example of that, all of which that I can think of were developed by established consumer electronics companies.

    Nihilistic hedonism (of an intelligent Epicurean variety, not of a short term get drunk-as-fuck and eat junk food type, of course) seems to be my mode of operation these days, and cynical realism my way of perceiving the world.

  • http://blogs.discovermagazine.com/gnxp Razib Khan

    Fukuyama apparently identified China as a low-trust society, which is 95 percent Han, although I understand that it’s problem to regard the Han culture as a single culture, as it encompasses a diversity of conquered groups that were once not Han.

    he talks about taiwan too. 90% fujianese. but different from japan re: trust.

  • chris w

    “but is better for the mental health of all for there to be the idea that people can get a “fair go” if they stick to the rules IMO.”

    Yeah, even from a completely self-interested perspective, it’s rational to treat others fairly, as people will then have less of a reason to kill you. Latin American and Middle Eastern political leaders — and increasingly North American political leaders — don’t seem to have acknowledged the importance of this lesson. Status should be instrumental to security, but at some point in our past, the desire for status as an end-in-itself appears to have been selected for amongst humans (and maybe non-human animals too?). In a more primitive setting, I can see it being conducive to higher levels of reproduction. In a modern setting, that drive leads to much more self-destructive consequences (e.g., the World of Warcraft player who doesn’t care that he’s broke and unemployed because he’s a high ranking member of his online guild), but considering that it’s not selected against, the human species is stuck with it. The elites would be better off if they were the upper class in a society that made upward mobility possible — if the masses have a stake in society, they have less of an incentive to destroy it by means of either criminality or revolution. I’m sure there are members of the elite who recognize this, but the culture that they are a member of is too intractable to change and they still rely upon it to survive. To the same degree, once you have an anti-intellectual under-class with a low time preference in place, you can’t expect throwing money at the problem to solve anything, so I have no answers.

  • John Emerson

    Yeah, even from a completely self-interested perspective, it’s rational to treat others fairly, as people will then have less of a reason to kill you. Latin American and Middle Eastern political leaders — and increasingly North American political leaders — don’t seem to have acknowledged the importance of this lesson.

    They’re on the high-risk / high-return track, and they don’t necessarily have the option of being nice guys. They’re playing the game they way it is played in those places.

  • http://blogs.discovermagazine.com/gnxp Razib Khan

    re: ‘rational self-interest’, i think there are probably different ‘equilibrium states’ which human societies can attain.

  • http://entitledtoanopinion.wordpress.com TGGP

    You can add Iceland to Argentina to the list of countries that did alright after saying to hell with creditors.

    To add to the point about big banks paying back the government, here’s Scott Sumner on where the bank failures were. I’ve heard some claim that the banks were able to pay back loans because they sold their toxic assets to Fannie/Freddie (making some circular flow of public debt), but I haven’t seen numbers for that yet.

  • Pingback: The slow decline of trust over time | Gene Expression | Discover Magazine()

  • John Emerson

    Iceland isn’t out of the woods yet.

  • Paul Ó Duḃṫaiġ

    Regarding property market in Ireland. In general there is an obsession with owning property in Ireland. We have the highest rates of home-ownership in Europe. I’ve heard it often described as due to folk-memory of dispossession. This combined with unnaturally low interest rates (from Frankfurt) and Irish banks been able to lend money they had borrowed from other Eurozone banks resulted in a disaster. I’m just happy I didn’t drink the Kool Aid as I couldn’t afford to get on the “property ladder” (with exchange rates I earn $70-$75k dollars a year).

    The average 3 bedroom semi-detached house in Dublin was selling for north of $450k dollars at the peak! (House prices increased by over 330% from 1995 to 2006!)

    As for immigration, in general it’s only in the last 10 years that you saw substantial immigration into Ireland most of it from Eastern European EU states due to common labour market. (Poland, Lithuania, Czech Republic etc.)

  • Robert

    “the fed policy of cheap money for large banks is probably more of a big deal. there’s a financial-government complex.”

    And it has been explicit for the last 100 years since the creation of the Federal Reserve Bank. Our fractional reserve banking system, unanchored either from gold reserves or fixed exchange rates has inflated the dollar to 1/20th of its value in that same century. And it was done all in the name of keeping the action going, through thick and thin, for profitable bank lending and corporate borrowing.

  • John Emerson

    Hopefully we won’t get into the goldbug argument here. Robert’s point is only significant for someone who buried his money in the back yard in 1910 and dug it up again in 2010. That kind of inflation is a good guard against hoarders, among other things.

    The (flawed) public-private* federal reserve was put into effect because the earlier system had led to frequent “panics”. During the depression the nations who left the gold standard recovered more quickly than the ones who stayed on it.

    *In 1916 the state of North Dakota, then under quasi-socialist rule, established a state bank which still survives and has been highly beneficial to the state.

  • http://washparkprophet.blogspot.com ohwilleke

    * Fukuyama’s book is well written and persausive, but it suffers from a serious problem. It basically used Japan’s record of success as an important point supporting the thesis that trust built prosperity, only to come to press just shortly before Japan’s economy fell into a profound and sustained recession from which it has yet to fully recover.

    Fukuyama’s book also acknowledges that face to face non-state negotiation based on trust is only one way to get things done; low trust societies compensate with different kinds of institutions (often better than in high trust societies) to adjudicate disputes. Thus, his premise that trust fosters prosperity relies to a great extent on the unstated premise that non-state solutions are more effective than state solutions, something that is less well established than one would expect. States with a more third party regulatory, less trust based approach suffered less from the finanical crisis.

    * Another issue with trust is the extent to which it is an intimate bedfellow with “social capital” as expounded by Robert Putnam. Social capital can improve your quality of life, but it can suppress economic prosperity because a focus on high quality networks means that people tend to have deep, small social networks, instead of broad, shallow networks that are more likely to cause the connections necessary for economic innovation to take place. Innovation requires dealing with strangers who may not be as trustworthy.

    * One way to think about trust is in a prey-predator cycle. This is a more or less deterministic system (you learn to model them in differential equations) that is naturally prone to booms and busts. As trust rises, so does vulnerability to fraud. As trust plummets, fewer people are taken for fools but more opportunities are lost. Places where religious or other cultural bonds promote long sustained trust (e.g. Utah or immigrant communities) are also notorious for some of the most over the top frauds. More opportunities looks like the better course until people start to get burned.

  • http://washparkprophet.blogspot.com ohwilleke

    “In 1916 the state of North Dakota, then under quasi-socialist rule, established a state bank which still survives and has been highly beneficial to the state.”

    It also has a near monpoly health insurer arising from the same ethos that turns out to have some of the best cost control and widest availability of health insurance in the nation.

  • Clark

    Seems to me the US was founded on distrust. Our rather difficult government system was made the way it is because no one trusted politicians. So they made it very difficult to accomplish anything. (Contrast it to a parliamentary system where if you get a sufficient majority you can do nearly anything you want for four years or so) Even movements like libertarianism which form an important constituent of the right wing have that trust element. And there are similar movements within the liberal wing of American politics (see 1968 or much of the period under Bush II)

    Ohwilleke (26) makes a good point too. Too much trust is bad. Living here in Utah it’s pretty easy for a sociopath to make hay simply because most people are far too trusting.

    I suspect the real question is the tension between trust and distrust. A lot of American business is possible simply because we trust the other person will do what they say so we don’t have to go to court or the like. If that kind of trust dissipates then business interchange grinds to a halt or at least gets saddled with all sorts of extra expenses that reduces our efficiencies. I don’t see any indication that’s the case.

    The place I do see distrust is the old conservative canard about regulation. When you have regulation those most interested and powerful are the most likely to have influence on regulation. Which means that regulation gets coerced into supporting the status quo. I think the recent finance regulation passed by congress will end up being an example of that. So you have two kinds of distrust – distrust of business and distrust of government colliding.

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Gene Expression

This blog is about evolution, genetics, genomics and their interstices. Please beware that comments are aggressively moderated. Uncivil or churlish comments will likely get you banned immediately, so make any contribution count!

About Razib Khan

I have degrees in biology and biochemistry, a passion for genetics, history, and philosophy, and shrimp is my favorite food. In relation to nationality I'm a American Northwesterner, in politics I'm a reactionary, and as for religion I have none (I'm an atheist). If you want to know more, see the links at http://www.razib.com

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