Suspicious Minds – make everyone poorer

An Elvis tune came to mind on the 4oth anniversary of his passing.  People have recently said to me that I am way too optimistic and that I trust people far too much. They are saying that to a lawyer, of all people, someone whose training in protecting clients’ interests teaches that one should be suspicious of everyone’s motives.

Apparently, the numbers of trusting souls is declining.  A recent book review in The Economist  stated “People increasingly view institutions as corrupt, strangers as suspicious, rivals as illegitimate and facts as negotiable.”  Edward Luce, a commentator for the Financial Times in Washington, argues “that distrust will contribute to America’s decline and eventually, even, to autocracy“.

While the political fallout from lack of trust can be debated, the economic fallout from lack of trust will almost surely make Americans poorer.

The Economist article argues that consolidation of companies has allowed them to obtain economic benefits simply by gaming government to regulate away their would-be competitors.  This has led to industries dominated by increasingly rigid, inept, and “shifty” monopolies.

Besides raising transaction costs – need for evermore written contracts with ever increasing numbers of provisions – companies that cannot trust their supply chains will become vertically integrated.  That means outsourcing, which has been the engine of growth for many entrepreneurs, will dry up.

So, besides settling down and trying to trust each other on a personal level, The Economist argues that governments need to enforce competition rules – antitrust – as another way of rebuilding trust.

The Economist article is worth a read.  Don’t miss it.