As Goes Trust, So Goes the World

What happens when trust erodes?

This installment is continued from this week’s earlier entry “The Desolation of Trust.”

Probably the stupidest thing I ever did in my life that didn’t involve actually risking death happened when I was sixteen or seventeen. A cop had gotten a report of some yahoo spinning donuts in a school yard and asked if it was me. I said yes, and I did not lawyer up, and I talked my head off. I figured I’d done what they got me for, and it was fair play, and they’d treat me as I deserved. With the exception of some time in the barrio, I’d lived in very quiet suburbs most of my life, and the cops in those places were a cross between Andy Griffith and petty tyrants.

Here’s the crazy part: I wasn’t disappointed. It was a small town by the standards of the area, and a small police department, and the fact that my crime was minor and I wasn’t going to give them a problem (and that I was a minor) meant that they were inclined to treat me with kid gloves. I paid restitution for the damaged lawn, spent several months doing community service, and at the end of it my record got expunged.

Now, I would never recommend interacting with cops this way. Outside of certain very specific contexts, it’s a good way to get you railroaded into the hoosegow. I got very very lucky that my delusions happened to line up with that exact context. This dynamic between cops and suspects only happens in small, high-trust context...and those are thin on the ground these days.

In the previous installment I talked about what trust is (how it’s based on predictability and confidence) but I did not talk much about how trust is inspired, and that is important to the rest of our exploration of trust.

Trust, though complex in its effects and subtle in its machinations, is—like most of the fundamental parts of the human experience—refreshingly straightforward. Trust is inspired by one thing: fate.

Specifically, if you become convinced that your fate is either shared by or important to another person, you will trust them.

It is possible to trust in limited contexts, when aided by scaffolding. Trade and social intercourse between strangers is mediated by scaffolding that goes by names like “contracts,” “formality,” “manners,” is lubricated by the exchange of goods (gifts, money, services), is sometimes governed by law, but always proceeds on the grounds of “trust-but-verify” (in other words, don’t trust except when you can prove by other means that they’re not fucking you over at the moment).

If you’re screwed over or lied to by a stranger, it makes you angry. But if a friend, lover, family member, or tribe member behave in a fashion that indicates to you that their fate and interests are not yours, that trust breaks.

When large swaths people who previously saw themselves as sharing a fate begin to shift from being sub-tribes of the same people to being separate tribes who see their own survival as tied to the other group’s degradation, you’ve entered a period of serious trust decay.

Power and Legitimacy

In the last installment I explored how trust and authority are tied to the exercise of soft power, and how the exercise of hard power erodes both trust and authority.

The transition from high-trust soft-power governance to low-trust, hard-power governance was gradual for the first several decades of the modern progressive world order. But over the last couple decades, the loss of authority and trust across the board has accelerated to breakneck speed.

Traditional sources of authority (such as parents, entrepreneurs, community leaders, skilled tradesmen, ministers, and politicians) have all found their authority eroded as their power has been transferred upwards (to, respectively, family services professionals, human resources professionals, managers, technologists, academics, and political appointees).

This, in turn, has created an ingroup/outgroup split between those who distrust the establishment and those who—trust or no—see their fate as wedded to the establishment.

The former group is populated by laborers, small business owners, those long on the political and cultural fringes, the working poor, the rural, and the traditionally religious.

The latter group consists of those in the expert class, academics, administrators, those in the financial industry and big business, government contractors, lobbyists, and other political clients of various sorts (activist groups, NGOs, military contractors, political operatives, government employees, etc.).

There is, of course, the third group present in any society: the outsiders. These are players who do not fit comfortably in either group, and who sometimes make considerable hay from their outsider status. Artists, renegade (but tenured) academics, and drop-outs. In normal times they add spice to the social stew, but the waves they make—while sometimes commercially impressive—are strictly surface-level.

This kind of division is more-or-less what one would expect from any patronage-based governmental system (feudalism, spoils democracy, fascism, communism, dynastic monarchism, etc.), many of which are extraordinarily stable. In and of itself should not be a cause for concern. In normal times, these groups are separate, but their shared sense of identity and fate is enough to keep them involved in the shared project of civilization.

However, when trust erodes—if, for example, experts make trade deals that hollow out entire swaths of the domestic economy, or they censor debate on a world-endangering public health issue, or they mismanage a financial crisis in a way that transfers wealth from the hoi polloi to the elite, or it is revealed that they have sold the public on wars using a tissue of lies, or that they have turned the country into a perpetual surveillance state in contravention of law and custom, or laws are made to target the out-group specifically, or laws are selectively enforced based on factional loyalty, or they announce that they now consider parental involvement in schooling a form of domestic terrorism—the sense of shared fate erodes with it, and these groups are prone to turn on each other. “The loyal opposition” and “the other team in the league” becomes “the enemy,” “treasonous,” “immoral,” and “evil.” When this kind of talk becomes common, it signals a tectonic shift in the way civilization functions—not because one group is about to be wiped out by the other (thought this does sometimes happen), but because it creates an opportunity for another incredibly dangerous (but often necessary) force to shake the ground upon which the foundations of civilization are built.

This force comes courtesy of a fourth group that does not easily align with any of the above groups. This group is one that well-functioning social systems do not develop in significant numbers: disaffected elites.

This group consists of wealthy families barred from the corridors of power, academics out of step with a narrowing ideological paradigm, over-educated middle-achievers, those trained for elite positions which were overstaffed and left the institutions for greener pastures, highly trained independent thinkers, and former insiders who now find themselves on the outs. All of these players have become convinced (often through direct insider knowledge) that the system-as-constituted cannot be salvaged. Perhaps they think the dogmas are too rigid and will not adapt to the changing facts of the world. Perhaps they believe that power is too narrowly vested and too many ladders have been pulled up behind the current governing elite.

According to historian Peter Turchin, this final group represents the pendulum of history. Every civilization has its marginal classes and discontents, but when the proportion of disaffected elites among the discontents grows too large, civilizations shift. Established orders topple. Economies collapse. Nations fail. Empires fall. Wars break out. What comes after is unlike what existed before.

Trust and Economy

Current events are quickly catching me up. I started writing this post two months ago, and the intervening two months have demolished and rebuilt it a couple of times. The hour is much later than I expected, and events are moving fast, which means I have to write fast to keep this series in the realm of “a look ahead” instead of a commentary on current events.

As I was writing the conclusion of this post, news came down that Nigeria will no longer be accepting dollars for tax payments (as had previously been the norm), India is now buying oil from Russia in rupees, and Saudi Arabia will begin accepting payment for oil shipments in currencies other than the US Dollar.

Why does this matter?

It’s been long enough since we lived in a world of hard money that a bit of explanation is in order (if you’re an econ wonk, please forgive the digression). When a currency is “backed” by something, it means that the government issuing the currency guarantees that each of its bank notes is basically a gift certificate that can be redeemed for a given amount of that commodity. If the dollar was backed by gold at the price of $100 per Troy ounce, then one could walk a $100 bill into any US mint and redeem that $100 bill for one ounce of gold.

Until 1971, the US Dollar was backed by gold, and the value of the US Dollar was set by a treaty worked out at the Bretton Woods conference. Foreign governments deposited their gold reserves into the Federal Reserve Bank in New York City, and when one government bought, say, an arms shipment from another government, literal dudes with fork lifts would move gold bars from one country’s area of the floor to another. It was a cumbersome system, but it was one that everyone trusted.

Unfortunately, a few things put this system in jeopardy. The tremendous economic growth in the post-war period stretched the world supply of gold very thin, which made the dollar very valuable, which in turn made it difficult for allied countries to export profitably into the US market. This represented a strategic vulnerability that Washington feared that the USSR might exploit, to drive a wedge between members of the Cold War alliance.

In the Cold War period, the US government also found it impossible to exercise fiscal restraint. Various factions of the political consensus had to be bought off (for reasons both good and bad) in order to maintain the consensus. The alliance obligated the Americans to fight wars it couldn’t afford without deficit spending. Over time the US found itself printing more and more money in order to cover its debts.

When the Boomers entered the labor market en masse during the late 60s and early 70s, their sheer numbers drove up demand for everything well in advance of supply, and inflation of everything-but-wages resulted (the size of the Boomer generation drove the price of labor through the floor). America was in a financial crisis, and the Nixon administration decided that the most expedient way out was to...steal everyone’s gold. Literally. The move actually resulted in the first time since 1812 that foreign warships (the French, this time) sailed into New York harbor with instructions to fire if the French gold reserves were not returned.

Not everybody, it turns out, is French. The other members of the alliance were placated by the promise of the “full faith and credit” of the US government (which officially replaced the gold standard) and by the fact that, due to a defense pact, the US had gained control of the planet’s oil supply: In return for guaranteeing the defense of Saudi Arabia, the US secured a guarantee that Saudi Arabia would accept payment for oil not in gold or other commodity swaps, not in other currencies, but only in US Dollars.

Thus was the Petrodollar born. This new currency, instead of being backed by gold, the US Dollar was backed by two things:
The “full faith and credit” of the US Government (and its military)
and
The world’s most in-demand energy source, without which industrial civilization would collapse.

Fast-forward to the present day.

In the last few weeks, the US government deployed hard economic power against Russia—both its government and citizens—in retaliation for Russia’s invasion of Ukraine. As a result of being cut off from the SWIFT system (the international clearing house for bank drafts), Russia and her citizens are no longer allowed to do business, transfer money, etc. with the rest of the dollar-speaking world. The dollars and other currencies that the Russian state holds as strategic financial reserves in banks outside their own borders are now frozen. Any dollar-denominated (or other non-ruble monetary) assets Russia owns that are not in actual physical cash have, for all intents and purposes, ceased to exist.

In doing this, the US hoped that it would scare Russia into re-thinking its invasion. Instead, what it did was prove to the nations of the world that to trust in the dollar means that your entire foreign and domestic policy exists at the whim of the US President and his allies. In the last few days, as a result of this proof that the “full faith and credit” promise is as valueless as was the promise “we will produce your gold on demand,” the US Dollar is no longer backed by petroleum.

This represents a fundamental shift in the world order.

The desolation of trust has come for the world reserve currency.

Without trust, economies cease to function properly.

Without trust, hierarchies of expertise crumble.

Without trust, currencies hyperinflate, then collapse.

The ground beneath our feet buckles.

International relations break down.

War between nations erupts.

Civil order collapses.

Civil wars erupt.

And that’s just the beginning.

But we have, in some senses, been here before. The worst is not guaranteed.

Our civilization now stands at a fork in the road.

It will either collapse, or it will reboot.

Next time, we’ll look into some of the cards in the reboot deck.

In the meantime, I invite you to post any corrections or arguments in the comments, or send them directly to me at feedback@jdsawyer.net.
These installments are coming faster now, and I have a number of other projects ramping up. If you are reading this for free, please consider supporting either with a one-time donation or with a subscription, or buy picking up some of my books and audiobooks (which you can find at all fashionable retailers).