Monday, December 23, 2013

Joe Stiglitz On a People Stripped of Trust

Nobel laureate economist Joe Stiglitz has a thoughtful op-ed in today's New York Times about the collapse of trust in contemporary America.  Stiglitz paints this as the undoing of social cohesion, the destruction of the collective will.   In an "every man for himself" world, money is all that matters and those who have it can have their way with those who don't.

As the trust deficit persists, a deeper rot takes hold: Attitudes and norms begin to change. When no one is trustworthy, it will be only fools who trust. The concept of fairness itself is eroded. A study published last year by the National Academy of Sciences suggests that the upper classes are more likely to engage in what has traditionally been considered unethical behavior. Perhaps this is the only way for some to reconcile their worldview with their outlandish financial success, often achieved through actions that reveal a kind of moral deprivation.

It’s hard to know just how far we’ve gone down the path toward complete trust disintegration, but the evidence is not encouraging.

...Economic inequality, political inequality, and an inequality-promoting legal system all mutually reinforce one another. We get a legal system that provides privileges to the rich and powerful. 
As always, it is the poor and the unconnected who suffer most from this, and who are the most repeatedly deceived. Nowhere was this more evident than in the foreclosure crisis. The subprime mortgage hawkers, putting themselves forward as experts in finance, assured unqualified borrowers that repayment would be no problem. Later millions would lose their homes. The banks figured out how to get court affidavits signed by the thousands (in what came to be called robo-signing), certifying that they had examined their records and that these particular individuals owed money — and so should be booted out of their homes. The banks were lying on a grand scale, but they knew that if they didn’t get caught, they would walk off with huge profits, their officials’ pockets stuffed with bonuses. And if they did get caught, their shareholders would be left paying the tab. The ordinary homeowner simply didn’t have the resources to fight them. It was just one example among many in the wake of the crisis where banks were seemingly immune to the rule of law.

I’ve written about many dimensions of inequality in our society — inequality of wealth, of income, of access to education and health, of opportunity. But perhaps even more than opportunity, Americans cherish equality before the law. Here, inequality has infected the heart of our ideals.

I suspect there is only one way to really get trust back. We need to pass strong regulations, embodying norms of good behavior, and appoint bold regulators to enforce them. We did just that after the roaring ’20s crashed; our efforts since 2007 have been sputtering and incomplete. Firms also need to do better than skirt the edges of regulations. We need higher norms for what constitutes acceptable behavior, like those embodied in the United Nations’ Guiding Principles on Business and Human Rights. But we also need regulations to enforce these norms — a new version of trust but verify. No rules will be strong enough to prevent every abuse, yet good, strong regulations can stop the worst of it.

Strong values enable us to live in harmony with one another. Without trust, there can be no harmony, nor can there be a strong economy. Inequality in America is degrading our trust. For our own sake, and for the sake of future generations, it’s time to start rebuilding it. That this even requires pointing out shows how far we have to go.

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