Home
>
Political
>
The Fabric of Economic Trust

The Fabric of Economic Trust

Economy is called the dismal science because it pretends to be one, disguising its uncertainties and shifting fashions with mathematical formulae. Economy describes the aggregate behaviour of humans and, in this restricted sense, it is a branch of psychology.

People operate within a marketplace and attach values to their goods and services and to their inputs (work, capital, natural endowments) through the price mechanism. All this elaborate construct, however, depends greatly on trust. If people were not to trust each other and / or the economic framework (within which they interact) - economic activities would have gradually ground to a halt. A clear inverse relationship exists between the general trust level and the level of economic activity.

There are four major types of trust:

Trust related to Intent - the market players assume that other players are (generally) rational, that they have intentions, that these intentions conform with the maximization of benefits and that people are likely to act on their intentions.
Trust related to Liquidity - the market players assume that other players possess or have access, or will possess, or will have access to the liquid means needed in order to materialize their intentions and that - barring force majeure - this liquidity is the driving force behind the formation of these intentions. People in possession of liquidity wish to maximize the returns on their money and are driven to economically transact.
Trust related to knowledge and ability - the market players assume that other players possess or have access to, or will possess, or will have access to the know-how, technology and intellectual property and wherewithal necessary to materialize their intention (and, by implication, the transactions that they enter into). Another assumption is that all the players are "enabled": physically, mentally, legally and financially available and capable to perform their parts as agreed between the players in each and every particular transaction. A hidden assumption is that the players evaluate themselves properly: that they know their strengths and weaknesses, that they have a balanced picture of themselves and realistic set of expectations, self esteem and self confidence to support that worldview (including a matching track record). Some allowance is made for "game theory" tactics: exaggeration, disinformation, even outright deception - but this allowance should not overshadow the merits of the transaction and its inherent sincerity.
Trust related to the Economic horizon and context - the market players assume that the market will continue to exist as an inert system, unhindered by external factors (governments, geopolitics, global crises, changes in accounting policies, hyperinflation, new taxation - anything that could deflect the trajectory of the market). They, therefore, have an "investment or economic horizon" to look forward to and upon which they can base their decisions. They also have cultural, legal, technological and political contexts within which to operate. The underlying assumptions of stability are very much akin to the idealized models that scientists study in the accurate sciences (indeed, in economy as well).

When one or more of these basic building blocks of trust is fractured that the whole edifice of the market crumbles. Fragmentation ensues, more social and psychological than economic in nature. This is very typical of poor countries with great social and economic polarizations. It is also very typical of countries "in transition" (a polite way to describe a state of total shock and confusion). People adopt several reaction patterns to the breakdown in trust:

Avoidance and isolation - they avoid contact with other people and adopt reclusive behaviour. The number of voluntary interactions decreases sharply.
Corruption - People prefer shortcuts to economic benefits because of the collapse of the horizon trust (=they see no long term future and even doubt the very continued existence of the system).
Crime - Criminal activity increases
Fantastic and Grandiose delusions to compensate for a growing sense of uncertainty and fear and for a complex of inferiority. This nagging feeling of inferiority is the result of the internalization of the image of the people in their own eyes and in the eyes of others. This is a self-reinforcing mechanism (vicious circle). The results are under-confidence and a handicapped sense of self esteem. The latter undulates and fluctuates from overvaluation of one's self and others to devaluation of both.
Hypermobility - People are not loyal to the economic cells within which they function. They switch a lot of jobs, for instance, or ignore contracts that they made. The concepts of exclusivity, the sanctity of promises, loyalty, future, a career path - all get eroded. As a result, there is no investment in the future (in the acquisition of skills or in long term investments, to give but two examples).
Cognitive Dissonance - The collapse of the social and economic systems adversely affects the individual. One of the classic defence mechanisms is the cognitive dissonance. The person involved tells himself that he really chose and wanted his way of life, his decrepit environment, his low standard of living, etc. ("We are poor because we chose not to be like the inhuman West").
The Pathological Envy - The Cognitive Dissonance is often coupled with a pathological envy (as opposed to benign jealousy). This is a destructive type of envy which seeks to deprive others of their successes and possessions. It is very typical of societies with a grossly unequal distribution of wealth.
The Mentality (or the Historical) Defences - these are defence mechanisms which make use of an imagined mentality problem ("we are like that, we have been like this for ages now, nothing to do, we are deformed") - or build upon some historical pattern, or invented pattern ("we have been enslaved and submissive for five centuries - what can you expect").
The Passive-Aggressive reaction: occurs mainly when the market players have no access to more legitimate and aggressive venues of reacting to their predicament or when they are predisposed to suppressing of aggression (or when they elect to not express it). The passive-aggressive reactions are "sabotage"-type reactions: slowing down of the work, "working by the book", absenteeism, stealing from the workplace, fostering and maintaining bureaucratic procedures and so on.
The inability to postpone satisfaction - The players regress to a child-like state, demanding immediate satisfaction, unable to postpone it and getting frustrated, aggressive and deceiving if they are required to do so by circumstances. They engage in short term activities, some criminal, some dubious, some legitimate: trading and speculation, gambling, short termism.

The results are, usually, catastrophic:

A reduction in economic activity, in the number of interactions and in the field of economic potentials (the product of all possible economic transactions).

An erosion of the human capital, its skills and availability.

Brain drain - skilled people desert, en masse, the fragmented economic system and move to more sustainable ones.

Resort to illegal and to extra-legal activities.

Social and economic polarizations. Interethnic tensions and tensions between the very rich and the very poor tend to erupt and to explode.

About The Author

Sam Vaknin is the author of "Malignant Self Love - Narcissism Revisited" and "After the Rain - How the West Lost the East". He is a columnist in "Central Europe Review", United Press International (UPI) and ebookweb.org and the editor of mental health and Central East Europe categories in The Open Directory, Suite101 and searcheurope.com. Until recently, he served as the Economic Advisor to the Government of Macedonia.

His web site: http://samvak.tripod.com

best cleaning company Highland Park ..

In The News:

Smart home hacking fears overblown? Expert reveals real cybersecurity risks and simple protection tips to keep your connected devices safe from hackers.

MIT develops needle-free glucose monitor using light technology. Revolutionary device could replace painful finger pricks for diabetes management.

The ClickFix campaign disguises malware as legitimate Windows updates, using steganography to hide shellcode in PNG files and bypass security detection systems.

Researchers from Osaka Metropolitan University designed a 21-foot dome that combines aquaculture and hydroponics to create a self-sustaining urban food system.

The Fox News AI Newsletter gives readers the latest AI technology advancements, covering the challenges and opportunities AI presents.

ChatGPT data breach exposes personal info of users through partner Mixpanel. OpenAI confirms names, emails compromised in security incident.

Android rolls out Emergency Live Video for 911 calls, letting dispatchers see real-time scenes during emergencies. Great for holiday travel safety.

Malicious Chrome and Edge extensions collected browsing history, keystrokes and personal data from millions of users before Google and Microsoft removed them.

Google's new Call Reason feature lets Android users mark calls as urgent before dialing, displaying an urgent label to recipients using Phone by Google app.

Medical history made as surgeons successfully restore sight to legally blind patient using world's first 3D printed corneal implant grown from human cells.

Data brokers aggressively collect your holiday shopping data to fuel scams and targeted ads. Learn how to delete your digital profile before 2025 starts.

Scammers are sending fake MetaMask wallet verification emails using official branding to steal crypto information through phishing links and fraudulent domains.

Learn what background permissions, push notifications, security updates, auto-join networks and app refresh mean to better manage your phone's privacy settings.

Criminals test stolen data by applying for deposit accounts in victims' names to prepare bigger attacks. Learn why banks won't share fraud details.

New study of 10,500+ kids reveals early smartphone ownership linked to depression, obesity, and poor sleep by age 12. Earlier phones mean higher risks.

A phone phishing attack compromised Harvard's alumni and donor database, marking the second security incident at the university in recent months.

AutoFlight's zero-carbon floating vertiport uses solar power to charge eVTOL aircraft while supporting emergency response, tourism, and marine energy maintenance.

A new phone return scam targets recent buyers with fake carrier calls. Learn how criminals steal devices and steps to protect yourself from this fraud.

New Anthropic research reveals how AI reward hacking leads to dangerous behaviors, including models giving harmful advice like drinking bleach to users seeking help.

The Fox News AI Newsletter gives readers the latest AI technology advancements, covering the challenges and opportunities AI presents.

Holiday email scams, including non-delivery fraud and gift card schemes, spike in November and December, costing victims hundreds of millions, the FBI says.

Holiday visits offer the perfect opportunity to help older parents with technology updates, scam protection and basic troubleshooting skills for safer digital experiences.

Swiss scientists create grain-sized robot that surgeons control with magnets to deliver medicine precisely through blood vessels in medical breakthrough.

Researchers exploited WhatsApp's API vulnerability to scrape 3.5 billion phone numbers. Learn how this massive data breach happened and protect yourself.

Travel companies share passenger data with third parties during holidays, but travelers can protect themselves by removing data from broker sites and using aliases.

The Fabric of Economic Trust

Political