Our entire economy is built on trust.  In fact, Capitalism is built on trust.  “Look past today’s scandals and you’ll find that capitalism has always been founded on trust, honesty and decency. That’s the only way it works.” – James Surowiecki, Forbes Magazine

The Quakers, who were banned from the professions for having shunned the Church of England, gravitated to the trades and became traders.  Actually, the fact that they trusted no-one except others of their faith led to them trading among themselves and literally starting capitalistic endeavor in England.  Prior to Quaker Capitalism, there was almost no trade even between feudal villages.  Might was right and if you went to the neighboring village to sell the fruits of your labor, you were as likely to be beaten and have your goods stolen as you were to sell anything. Forget the thought of sending goods to the neighboring village and expecting to be paid.   The quakers all but started the concept of credit that is key to capitalism.  They, and at the time no-one else, trusted that if they shipped goods to another Quaker in another area that they would be paid.

Who would ever sell on credit if they did not trust that they would be paid what is due?

Who would ever accept a small piece of paper worth maybe a penny in exchange for valuable goods and services if they did not believe the government would stand behind the value printed on the piece of paper?

Those questions are not being answered today like they were as little as three years ago.  Today, many people wonder if they will be paid back, should they grant credit.  As a result, it is much more difficult for individuals and businesses to get credit.  Is it as easy to get a home loan today as it was three to five years ago?  Is it as easy for a business to get an expansion loan as it was then?  Why not?  As trust goes down, qualifications go up.  You are not trusted as you once were, so now you must prove, more than before, that your lender will not suffer at your hands.  And our government has stepped in and added dozens of new rules and restrictions based on lack of trust and faith in borrowers.

So if business is built on trust, is lack of trust the reason business is suffering today?  I think it is a definite contributor.  The foundation of business (trust) is shaky so businesses are more cautious, less likely to take the risks needed to succeed.

Why is there less trust?  I think there are many factors, but much of it starts at the top.  Our government doesn’t want us to overreact to our economic reality so it changes the facts.  When government is constantly changing numbers to hide problems, it is hard for businesses to trust that government will not change other things that will impact the success of an investment.  This uncertainty and lack of trust is a real damper to investment.

If you are a politician and you want to be reelected, you don’t tell the people that 20% of the population is unemployed.  So when you report unemployment, you take those who have been out of work and are no longer looking (“discouraged workers”) out of the equation.  Then you report everyone who works 15 hours or more a week as being employed regardless the fact that most want to and are capable of working full time.   Employing these tactics and changing the facts,  our government/politicians can report that less than 10% are unemployed.  When you change the facts, they don’t sound so bad.

If you want to be reelected, you don’t want voters to think that we have serious inflation.  Double digit inflation was the downfall of Jimmy Carter.  He just wasn’t smart like today’s politicians.  Since Carter’s time we have decided that when we report inflation, we should not report food costs or fuel costs since both are so volatile.  So most of the Consumer Price index reports you see are less Food and Energy costs.  That’s pretty handy, since food has risen 2.3% in the first four months of this year (a 6.9% annual rate) and energy commodities (gas, heating oil, etc.) have risen 17.4% in the first four months of this year (an over 50% annual rate). Distorting the truth in this way allows politicians to report much more favorable numbers like 1.3% inflation over the past year (less food and energy, of course).

Politicians want to be reelected so they often do the bidding of big business or big non-profits.  The result is economic hurdles for small and medium sized businesses who are the job creators in our economy.    Where economic barriers are raised, small and medium sized businesses spend money to scale the barriers, not to invest in new plant, machinery, and personnel.  Examples?

A few major wine and beer distributors want to monopolize the market so they have been pushing legislation that would require all alcohol that crosses state lines to do so only through a distributor.  The effect would be that the big distributors would no longer have to compete with the thousands of wineries and micro breweries who self distribute.  The fact is that 90%+ of breweries, wineries and distillers want no part of this legislation.  But, there are Senators and Members of Congress (mostly from areas where there are few if any small wineries or breweries) who are more than willing to accept lobby money for their next reelection in exchange for moving forward this ill-conceived and unpopular legislation.

How can you trust a government that is willing to sell favors to those with the money to buy the favors?

The President and his party want the continued support of Big Labor so they are pushing for legislation that would clearly violate the constitutional rights of laborers but would benefit labor leaders by certifying more union shops thereby making more laborers join unions.  It is cynically called the “Employee Free Choice Act” and would strip from laborers the right to a secret ballot in union certification elections  –  Good for Union bosses and good for the politicians they support (pay) but a disaster for working folks.

How can you trust a government that is willing to take constitutional rights from most people to make their wealthy “Labor Leader” friends still wealthier?

Where there is no trust, there is no investment.  Where there is no investment, there is no job growth.

If we want to bring down unemployment, we would go a long way by just honestly reporting what is going on in the economy and by not changing regulations, taxes, and fees at every turn.  In my opinion, honesty, stability and trust would greatly improve the business climate and lead to job growth.  What do you think?