Trust, Staelin and Macroeconomics

Dave Staelin was a prominent Professor at MIT who I had the good fortune to know since my first days as a Grad student in the early 60s. In fact I believe I was in his first class as a Faculty member, Radio Astronomy if I recall. Towards the end of his life, unbeknownst to me at the time, we had many long conversations regarding the economy, economics, and what the problems were. Dave was a great thinker, a big thinker, and at the time I was just coming up the ramp of understanding what was afoot. It was 2009 and 2010, just before he passed away, we would have lunch and trade papers.

In one of his papers he wrote:

To summarize, today’s dilemma arose from the dramatic successes of modern technology in spreading knowledge and capital across the globe.  Rich nations built plants and exported both knowledge and aspirations around the globe, generously enabling poor nations that organized properly to bootstrap themselves into the restricted capital-rich sector of the global economy.  These same rich nations failed to recognize that such open exports of capital would weaken their own ability to produce and retain liquidity.  As such rich nations became dependent on others to provide goods, they first paid with other valued goods and then increasingly with credit based on trust—credit and trust that became overextended.  But loss of trust is a two-edged sword affecting both creditor and debtor, for the creditor also needs liquidity, and liquidity losses due to reductions in local or national exports propagate across the entire global trust and credit network.  Such losses force both creditors and debtors to reorganize, and if they must reorganize rapidly the resulting human displacements can further erode trust in government and self, which are the fountainheads of trust.

        Trust is key to both economic and social liquidity, for trust alone binds us locally and nationally in both our economic and social structures.  Absent trust, both are in jeopardy.

At the time I did not fully understand what was being said. Now I believe I do have a better grasp and feel it is worth sharing. You see, for Dave, Trust was what was Quality to Pirsig. Trust was the underlying element of a stable economy. Trust was what created the AD and AS that we see the macroeconomists talking about, the basis of arguments between nations. Trust is engendered by a good leader. Mis-Trust is a bad leader. A growing economy is based on Trusting the leader, or leaders, a collapsing economy is based upon mistrust.

Dave had hist upon a true piece of insight. He was fundamentally and engineer, an engineer in the true sense of the word. He believed in facts, in modelling and demonstrating the results, which is why perhaps my missing what he was saying on Trust was so easy to do, I was looking for the quantitative answer, instead he laid out an existential answer. Now as I have read and watched some of these macroeconomists I have a deepened grasp of what Dave meant. Too bad we could not continue the conversations.