Posts Tagged ‘trust’
“Our country is now taking so steady a course as to show by what road it will pass to destruction, to wit: by consolidation of power first, and then corruption, its necessary consequence”*…
Scheduling Note: as a consequence of long meetings scheduled to start very early, (Roughly) Daily will be off tomorrow/Monday and Wednesday. There should be a post on Tuesday, and regular service should resume on Thursday…
Corruption in the U.S. has a long and costly history, intertwining both government and corporations. Our current moment is feeling especially “dirty“– and disfunctional— at both levels.
Eric Ries was a founder of the Lean Start-Up movement and the founder of the Long-Term Stock Exchange. His new book, Incorruptible: Why Good Companies Go Bad (highly recommended), tackles the issue head-on. Here, a short excerpt, explaining why…
Not all forms of making money are equal. Some create wealth; others destroy it. Over the centuries, when people have gone searching for the moral logic of capitalism, they always hit this same bedrock principle: Fully informed, uncoerced, voluntary transactions create surplus value because both parties end up better off.
Think about your last genuinely good purchase. You valued the product more than the price you paid, so you are better off. But the seller, too, is better off (otherwise they would not have sold). Both parties are wealthier. When this happens, it’s a bit of a magic trick. In an instant, new value exists that did not a moment before. This wealth was not stolen; it was generated.
But this only works when the exchange is truly voluntary and informed. Remove any of these conditions and the mechanism breaks.
This is why embezzlement, coercion, fraud, bribery, and deception are wrong. It’s not only because they are illegal or even immoral. It’s because they corrupt the fundamental premise of our entire economic system. They transform transactions meant to create value into ones that destroy it.
This trajectory is so common these days that we hardly know what to call it. The answer is simple. Since every version of it shares the same value-destroying logic, regardless of whether the violation is illegal or even immoral, we should use the same word to describe them all: corruption.
Our modern sense of “corruption” has become catastrophically narrow. What I’m talking about is something much broader than bribery or embezzlement. (After all, the Latin corrumpere means “to break completely.”) Corruption breaks the logic of capitalism itself.
Every Ponzi scheme, every hidden externality, every unit of extracted value is a drag on our whole economy’s potential. These corruptions don’t just harm their immediate victim; they erode trust, increase transaction costs, and destroy the civic infrastructure that makes efficient markets possible. The hidden economic costs are staggering. The truth is that capitalism succeeds not because of these widespread violations but despite them…
As the “father of capitalism” himself, Adam Smith, said: “Justice… is the main pillar that upholds the whole edifice. If it is removed, the great, the immense fabric of human society… must in a moment crumble into atoms.” (Theory of Moral Sentiments, Chapter III)
Diagnosing the disease that threatens us: “Corruption, Defined,” from @ericries.bsky.social.
* Thomas Jefferson
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As we grapple with graft, we might recall that on this date in 2002, three days after being found guilty of obstruction of justice for shredding the thousands of documents and deleting emails and company files that tied the firm to its audit of Enron, accounting firm Arthur Andersen was preparing its appeal.
Legal department member Nancy Temple and David Duncan, the lead partner for the Enron account, were cited in the legal action as the responsible managers in the scandal because they ordered subordinates to shred relevant documents. Duncan himself pleaded guilty in federal court in Houston to obstruction of justice on April 10, 2002, saying that he had ordered the destruction of documents and also personally destroyed documents.
The conviction was later overturned by the U.S. Supreme Court (on the grounds that the jury had not been properly instructed on the charge against Andersen). The Supreme Court ruling theoretically left Andersen free to resume operations. However, the damage done to the Andersen name was so great (not just from the Enron scandal but also from others involving Andersen accounting malpractice, such as WorldCom a year after Enron) that it did not return as a viable business even on a limited scale in the years after the ruling.
Although only a small number of Arthur Andersen’s employees were involved with the scandal, the firm was effectively put out of business; the SEC is not allowed to accept audits from convicted felons. The company surrendered its CPA license and 85,000 employees lost their jobs.
“It is mutual trust, even more than mutual interest, that holds human associations together”*…
… and in its absence? Millie Giles on the state of trust in American professions…
When choosing a career, there are several (often contradictory) factors that determine people’s decisions: pay, of course; personal interests; work-life balance; location; public perception; and how a particular job might weigh on their conscience.
But which professions do Americans trust the most?
A recent Gallup poll, [published last Monday], found that 76% of US adults considered nurses to have high or very high honesty and ethical standards, with teachers, military officers, and pharmacists also scoring highly amongst those surveyed.
Conversely, Americans were skeptical about the ethical standards of TV reporters (55% considered low or very low), members of Congress (68%), and lobbyists (68%) — perhaps because the public perception of professionals in political and media-related fields is that many of them have ulterior motives, as is the case with stereotypically mercenary car salespeople and lawyers, which also ranked negatively overall.
Lloyd Blankfein, the former CEO of Goldman Sachs, infamously said in November 2009 — with the impacts of the global financial crisis still reverberating loudly — that he and his fellow bankers were “doing God’s work.” Ridiculed at the time, he might be pleased to see his once vilified profession ranked not far behind the clergy, per Gallup.
Zooming out: the average of high/very high ethical ratings across the core 11 professions sunk to just 30% in 2024, with trust in medical doctors in particular having dropped 14 percentage points since 2021…
“America’s most trusted professions,” from @sherwood.news @Gallup
* H. L. Mencken
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As we contemplate confidence, we might recall that it was on this date in 1980 that news of the FBI’s Abscam operation, targeting corrupt Congress members and other elected officials, broke publicly. The two-year investigation had initially targeted trafficking in stolen property and illicit business people, but later evolved into a corruption investigation; it led to the convictions of six members of the United States House of Representatives and one member of the United States Senate, along with one member of the New Jersey State Senate, members of the Philadelphia City Council, the Mayor of Camden, New Jersey, and an inspector for the Immigration and Naturalization Service.
The Abscam operation wass dramatized in the 2013 feature film American Hustle, directed by David O. Russell, which received ten Academy Award nominations.
“We hear all this talk about integrating the world economically, but there is an argument to be made for not integrating the world economically”*…
… and indeed, those arguments seem to be holding increasing sway. Tyler Cowan ponders the possible economic implications of a future in which global economic interdependence recedes– a future in which globe’s economies, freer of each other, don’t rise and fall with each other (as they largely have for decades) to the same extent…
Will we see less co-movement in global economic growth?
That is the question behind my latest Bloomberg column (soft pay wall). China is now, and looking forward, less of a common growth driver around the world. Oil price shocks may not be less important for humanitarian outcomes, but they matter less for many of the largest economies. America is now an oil exporter, and the EU just made some major adjustments in response to the Russia shock. More renewable energy is coming on-line, most of all solar.
The column closes with this:
In this new world, with these major common shocks neutered, a country’s prosperity will be more dependent on national policies than on global trends. Culture and social trust will matter more too, as will openness to innovation — and, as fertility rates remain low or decline, so will a country’s ability to handle immigration. A country that cannot repopulate itself with peaceful and productive immigrants is going to see its economy shrink in relative terms, and probably experience a lot of bumps on the way down.
At the same time, excuses for a lack of prosperity will be harder to come by. The world will not be deglobalized, but it will be somewhat de-risked.
Dare we hope that these new arrangements will produce better results than the old?
Or perhaps a more general rising tide was the only way many countries were going to make progress?
Marginal Revolution
Byrne Hobart reflects further…
When economies were tightly linked, growth in the US led to more demand for manufactured goods from China, which created more demand for raw materials from other parts of the developing world. But if that link is weaker, it’s entirely possible for there to be a boom in some places and a bust elsewhere. That probably increases the personal returns from global macro investing while decreasing its social return: when the world is closely-linked, there are massive positive externalities in predicting recessions, because there are so few places to hide. It’s comparatively less essential for the world to know that German is slowing down but growth in Indonesia is picking up, but it also means that macro questions are more tractable.
The Diff
* Arundhati Roy
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As we think tectonically, we might recall that it was on this date in 1865 that the U.S. first issued Gold Certificates.
Americans began to move out west in the first half of the 19th century. Banks started printing their own money to fund land purchases, and that quickly led to two problems: loose money-printing had a volatile effect on prices, and it became increasingly hard to tell what was counterfeit from what wasn’t.
To tackle these problems, the government decreed in the 1830s that it would only accept transactions in gold and silver. But of course, lugging metals around is nobody’s idea of fun. So in 1863, Congress paved the way for the first “gold certificates” to be printed two years later, in November 1865.
A gold certificate was, in effect, a form of paper currency backed by gold – although not entirely. The Treasury was allowed to issue $120 in gold certificates for every $100-worth of gold it held in its vaults…
MoneyWeek
“All the world is made of faith, and trust, and pixie dust”*…
Beyond the Prisoner’s Dilemma— an interactive guide to game theory and why we trust each other: The Evolution of Trust, from Nicky Case (@ncasenmare), via @frauenfelder@mastodon.cloud in @Recomendo6.
* J. M. Barrie, Peter Pan
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As we rethink reciprocal reliance, we might send far-sighted birthday greetings to Michel de Nostredame; he was born on this date in 1503. Better known as Nostradamus, he was an astrologer, apothecary, physician, and reputed seer, who is best known for his book Les Prophéties (published in 1555), a collection of 942 poetic quatrains allegedly predicting future events.
In the years since the publication of his Les Prophéties, Nostradamus has attracted many supporters, who, along with some of the popular press, credit him with having accurately predicted many major world events. Other, more critical, observers note that many of his supposed correct calls were the result of “generous” (or plainly incorrect) translations/interpretations; and more generally, that Nostradamus’ genius for vagueness allows– indeed encourages– enthusiasts to “find” connections where they may or may not exist.
“Oh, down in Mexico / I never really been so I don’t really know”*…
In this moment of altogether appropriate attention to the autocratic threat to Ukraine, it’s too easy to forget that genuine democracy is under threat all around the world. Nathan Gardels cites two examples close to home: Mexico and California…
The core crisis of governance in open societies today is the distrust that has grown between the public and its institutions of self-government. The response to this breach of trust has largely been unfolding in two directions — the autocratic tendency toward decisive strongmen who fashion themselves as tribunes of the people, or seeking to re-legitimize democracy through greater citizen engagement and participation.
Now, a new and concerning hybrid is emerging that exploits the tools of citizen engagement and participation (such as the recall of elected officials, the referendum, and ballot initiative) either to affirm autocratic leanings or to protect and promote the very special interests these tools were meant to challenge…
…
Participatory democracy unmediated by impartial institutions of deliberation or guarded against manipulation by the powers that be poses as significant a risk to citizen control of government as unchecked executive power or rule by those with the most gold. When plebiscitary practices are deployed from the top down to affirm the rule of a present regime, or hijacked by the most monied, instead of initiated from the bottom up, the very notion of citizen empowerment is nullified.
Top-down direct democracy is a wolf in sheep’s clothing: “Mexico: On The Path To A Perfect Autocracy?“, from @NoemaMag.
* James Taylor, “Mexico”
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As we watch our backs, we might note that not all exercises of direct democracy (even when they are structurally flawed) end badly: on this date in 1992 a referendum to end apartheid in South Africa passed by a vote of 69% to 31%… a margin that would surely had been larger had the election not been restricted to white voters. (Universal suffrage was established two years later.)
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