Trust as a Foundation for Prosperity

Trust as a Foundation for Prosperity

The economy is derided as a "dismal science" because it poses as a "hard science," hiding its inherent uncertainty and cyclical nature behind formulas. In this narrow sense, economics is a subfield of psychology since it describes how people act in groups.

In a market economy, people use prices to assign relative worth to their outputs (goods and services) and their inputs (labor, capital, and natural resources). However, trust is crucial to the success of this complex system. Economic activity would have slowed to a halt if individuals didn't trust each other and the economic framework within which they engaged. There is an obvious adverse correlation between widespread public trust and economic activity.

The four main varieties of trust are as follows:

Market participants trust each other to be (roughly) reasonable and to act in accordance with their stated intentions, which they believe to be consistent with the maximum benefits.

It is widely accepted among market participants that liquidity is a key factor in the formation of market participants' intentions and that, barring unforeseen circumstances, liquidity is the driving force behind the formation of these intentions. Those in a position to do so are motivated to engage in economic exchange in order to increase their wealth-generating potential.

Market participants have faith that one another possesses or can obtain the knowledge, technology, intellectual property, and resources necessary to carry out their plan (and, by extension, the transactions they engage in). Another presumption is that all parties are "enabled" to carry out their obligations in each transaction in accordance with the terms agreed upon by them. There's an unspoken assumption that the players are honest with themselves when assessing their own abilities, that they have a well-rounded vision of who they are and what they're capable of, and that their expectations, self-worth, and confidence are grounded in reality. While "game theory" strategies such as exaggeration, misinformation, and outright lies are tolerated, they should not overshadow the merits of the transaction or the sincerity of the parties involved.

Market participants have faith in the stability of the economy as a whole and in the long-term outlook for the market, assuming that no outside forces (such as governments, geopolitical tensions, global crises, shifts in accounting policies, hyperinflation, and new taxation) will disrupt the market's natural course. This gives them something to plan for in the future—an "investment or economic horizon"—and acts as a foundation for their choices. Culture, law, technology, and politics all play a role in how they function. The stability assumptions are similar to those studied by scientists in the exact sciences (and, yes, in economics as well).

The market as a whole collapses when trust in any of its foundational elements is compromised. Social and psychological fragmentation follow, rather than economic. This is commonplace in economically and socially stratified low-income nations. In countries "in transition" (a nice term for a state of utter shock and disorientation), this is also fairly common. When trust is broken, people often respond in one of several ways:

They withdraw from social situations and become withdrawn as a result. The frequency of voluntarily occurring contacts plummets.

Corruption People choose short cuts over long-term economic rewards because they have lost faith in the future and question the very survival of the system.

Increase in criminal activities

Delusions of grandeur and fantastical thinking offset the author's mounting anxiety, insecurity, and sense of self-inferiority. Internalizing one's own and other people's perceptions of one's appearance can lead to a persistent sense of inadequacy. It's a vicious spiral since the cycle keeps feeding on itself. The end result is a lowered sense of self-worth and confidence. The latter wavers and swings between inflated self-esteem and diminished regard for others.

People are not committed to the economic cells in which they work; they are hypermobile. They may frequently change occupations or just refuse to honor agreements established with others. Everything from devotion to the very idea of a future or a specific path in one's professional life is threatened. Therefore, no money is being put aside for the future (either in the form of skill development or long-term investments).

Dissonance between thoughts and reality results from the breakdown of social and economic structures. Cognitive dissonance is a common defense strategy. The affected individual convinces himself that he made the right decision in choosing to live in such squalor and with such a poor standard of living. "We're poor because we rejected the inhuman ways of the West."

Cognitive dissonance is frequently accompanied by pathological envy (as opposed to healthy jealousy). This poisonous form of envy aims to steal other people's good fortune and their assets. It's typical of countries where wealth is extremely unequally distributed.

Mentality (or historical) defenses are defense mechanisms that rely on an imagined mentality problem ("we are like that; we have been like this for ages now; nothing to do; we are deformed") or that build upon some historical pattern or invented pattern ("we have been enslaved and submissive for five centuries; what do you expect?").

Market participants are more likely to engage in passive-aggressive behavior when they are either genetically predisposed to suppress hostility (or consciously choose not to exhibit it) or when they lack access to more legitimate and aggressive venues for reacting to their position. "Sabotage" is a good way to describe the passive-aggressive responses such as taking longer to complete tasks, "working by the book," not showing up to work, stealing from the company, and promoting and sustaining bureaucratic procedures.

Players' inability to delay gratification causes them to act like immature children who, when forced to wait, resort to aggression, deception, and other negative coping mechanisms. They engage in trading and speculating, gambling, and other short-term activities, some of which are illegal, questionable, or even legitimate.

The typical end result is disaster.

A narrowing of the economic potential field (the sum of all possible economic transactions) and a slowing of economic activity and interaction.

A decline in the quality and availability of human capital.

Brain drain occurs when highly educated people leave the unsustainable, fragmented economic system in search of better opportunities elsewhere.

Engage in illegal or extralegal behavior.

Economic and social divides Both racial and socioeconomic tensions have a propensity to boil over and become violent.