Belmont Club

In God We Trust -- and who else?

Peggy Noonan expresses her admiration — and distrust — of Newt Gingrich. “Had a friend once who amused herself thinking up bumper stickers for states. The one she made up for California was brilliant. “California: It’s All True.” It is so vast and sprawling a place, so rich and various, that whatever you’ve heard about its wildness, weirdness and wonders, it’s true. That’s the problem with Newt Gingrich: It’s all true.” He’s brilliant; but also “inconsistent, erratic, untrustworthy and unprincipled.”

The pundits are trying to warn the voters of this, but she says they’re not listening. “The reservations and criticisms of the politico-journalistic establishment are having zero effect on Gingrich’s support.” Why can’t they hear the warnings? Maybe in part because of the example she herself has set. In the last election, Noonan gave the nod to Barack Obama and after all, the public might be forgiven for thinking that if Noonan was willing to give Barack Obama the benefit of the doubt, then Gingrich should get at least as much slack. Having set the bar that low then, how can you raise it now?

The counterargument is that two wrongs don’t make a right. That you don’t need a double tragedy act. But in the current election maybe the issue is no longer who’s the best man for the job as much as who’s least bad hombre for the Presidency. Perhaps American politics has now become a “low-trust” game, a world where Noonan doesn’t trust Gingrich and readers don’t trust Noonan; where others don’t trust Romney.

Robert D. Putnam had a theory that well-functioning societies required a certain amount of social capital. A willingness among its members to trust and work with each other. But he concluded that over the years, that social capital had eroded to the point where people relied increasingly on legalistic rules and procedures to ensure safety while working with each other. One of his culprits was the rise of diversity.

He claimed that ‘diversity’ had the peculiar effect of dividing people from each other, even when they belonged to the same race. “His conclusion based on over 40 cases and 30 000 people within the United States is that, other things being equal, more diversity in a community is associated with less trust both between and within ethnic groups.” Somehow people wound up with less confidence in their goverment, themselves, in the vote and in their friends.

To set against Putnam’s hypothesis are the conclusions of Francis Fukuyama, who found that the most low-trust societies on earth were among the least diverse. “In his 1995 work ‘Trust: The Social Virtues and the Creation of Prosperity,’ U.S. scholar Francis Fukuyama placed Korea in the group of low-trust societies along with China, France and Italy, which are family-oriented and have relatively low levels of trust among strangers.”

Indeed Korea appears to have among the “the highest rate of people punished for making false accusations or giving false testimonies. In 2007, Koreans indicted for perjury or calumny totaled 1,544 and 2,171, respectively, compared to only nine and 10 in Japan. Taking into account Japan’s population is about 2.5 times Korea’s, experts said the figures indicate that Koreans commit perjury and make false accusations about 420 times and 540 times the rate of the Japanese.”

Why is this bad? Cost.

Fukuyama hypothesized that low-trust societies would be far less flexible and ultimately higher-cost places to do business than those in which trust was still a bulwark of society. “Low-trust societies need to negotiate and often litigate rule and regulations while high-trust societies like those in Germany and Japan are able to develop innovative organizations and hold down the cost of doing business. According to him, the level of trust based upon shared norms is the most pervasive cultural characteristic influencing a nation’s prosperity and global competitiveness.” Paranoid societies, in this view, are poor societies.

Megan McArdle, in her prediction of Italy’s economic prospects within the new, more tightly integrated Eurozone concludes that no one should expect any miracles from a place which is designed to be inefficient, a weakness mitigated only by their ability to adjust the exchange rate, in the days when they had their own currency.

Italy and Greece, especially, used to rely on serial devaluation to keep their relatively low-productivity tradeable sectors competitive. Do we have a way to dramatically increase productivity in their small, family-owned farms and firms? Keep in mind that a preponderance of such firms is not simply a historical accident; it’s generally thought to be a symptom of fairly low trust levels which make it problematic to hire strangers or invest your money in them.

In her view Italy isn’t going to become like Germany overnight because it is — well — like Italy.

But to return to Peggy Noonan, the problem she raises — although she doesn’t raise it explicitly — is an interesting one. What happens in a society, which in addition to declining trust levels in the community, begins to lose trust in their institutions? The obvious answer is that it starts asking for higher and higher price to conclude a transaction. You can think of it is a risk premium. Thus Gingrich looks to be like a high-performing but risky instrument; while Romney looks a safer but perhaps lower yielding proposition. Maybe the risk/return ratios are about to same. Or are they? We have no way of measuring these metrics directly. But we do have the Press.

Noonan says, “what is striking is the extraordinary divide in opinion between those who know Gingrich and those who don’t. Those who do are mostly not for him, and they were burning up the phone lines this week in Washington.” She adds:

Those who’ve known and worked with Mitt Romney mostly seem to support him, but when they don’t they don’t say the reason is that his character and emotional soundness are off. Those who know Ron Paul and oppose him do so on the basis of his stands, they don’t say his temperament forecloses the possibility of his presidency. But that’s pretty much what a lot of those who’ve worked with Newt say.

And we know this because? 1) we’re one of the people in Washington who knows these people personally; 2) we’re one of the people who’ve received these burning phone calls; 3) we’re one of the people who’ve read Peggy Noonan’s article. Since most are in category 3, what is likely to happen is that many voters are going to seek collateral confirmation for Noonan’s claims, or maybe call their cousin Henry in DC to ask him for the inside dope. They’ll diversify their information portfolio and by proxy make the decision of whom to vote for. The electoral college will bundle the votes in November 2012, there will be a new President.

The financial parallel was drawn intentionally, because the financial crisis is at one level nothing more than a crisis of trust. When we no longer give institutions the automatic benefit of the doubt, “brand names” cease to convey reliable information. The labels “Republican” and “Democratic” are no longer guarantees of anything. Household banking names which would once have been considered automatically worthy of trust now have no complete assurance of being around the same time next year. Taken to the limit you get a trust crisis; which in political terms is called gridlock and in financial terms is a credit crunch.

How does one rebuild trust? Since few people are about to become angels any time soon, the answer must be through either narrowing our circle of trust or improving our sources of information. A large part of the reason why calls to ‘return governance to lower levels’ and ‘simplify things’ have an appeal is because it partially solves the trust problem. People at lower levels are not any more morally sound; simply that being nearer at hand they can be watched more carefully. Trust increases because verification increases. Ronald Reagan, who coined the phrase, was really on to something. But he’s not running next year.

Storming the Castle at Amazon Kindle for $3.99
No Way In at Amazon Kindle $3.99, print $9.99
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