August 13, 2016
Sir, Tim Harford writes: Steve Knack, an economist at the World Bank with a long-standing interest in trust, once told me that if one takes a broad enough view of trust, “it would explain basically all the difference between the per capita income of the United States and Somalia”. In other words, without trust – and its vital complement, trustworthiness – there is no prospect of economic development.”, “The meaning of trust in the age of Airbnb” August 13.
And that would also mean that distrust must equally be dangerous for the development; like when regulators distrusted bankers to adjust for the risks they perceived by means of the size of exposure and interest rates, and told them to also adjust, for that same perceived risk, in the capital account.
And because any risk, even if perfectly perceived, causes the wrong action if excessively considered, our economies are suffering from an inefficient allocation of bank credit. Much too much credit for the safe havens that risk becoming dangerously overpopulated, and much too little for the exploration of the riskier bays populated by SMEs and entrepreneurs. This mother of distrusts, is a real tragedy!