Stumbling and Mumbling

Author: chris dillow   |   Latest post: Tue, 26 May 2020, 2:30 PM


Trust cycles in politics

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Opinion polls, for what they are worth, show that support for the Lib Dems has risen. This seems part of a cycle. Support for the party rose from the 70s to mid-80s, then declined to the late 90s, then rose again until 2010 before slumping in 2015 but has risen since.

Coincidentally, something else is also cyclical - trust. You all know somebody who has been repeatedly let down by their partner. You might even be that person. The cycle is familiar. After a betrayal you say you'll never trust her again. But then the memory fades and wishful thinking and horniness take over so you get back with her until she lets you down again. And so the cycle starts again. As Frank sang:

Time and time again I went away
But then would come the time when I would need you
And once again these words I'll have to say
I'm a fool to want you

Minsky cycles (pdf) in financial markets work the same way. In good times, investors gradually build up trust that risky assets will pay off well: Nicola Gennaioli and Andrei Shleifer's A Crisis of Beliefs is a nice description of how this happened in the 00s. This causes increased speculation which leads to a crash. After the crash, everyone is burned and distrustful. But eventually, as with lovers, memories fade and wishful thinking returns and so the cycle begins again. Swinson

Fraudsters exploit this cyclicality. When trust is low, they need to build it. They have several ways of doing so, some of them described in Dan Davies' brilliant Lying for Money.

One thing they do is act honestly for a while. In long firm frauds con men run an apparently legitimate business and build up trust so they can get longer credit lines. And when they've borrowed a lot they suddenly run off with the money.

Such apparent honesty supports something else - the need to wait for memories to fade, or for new marks to arrive who have no memory or knowledge of betrayal. It's now nine years since the Lib Dems voted to triple tuition fees.

They also exploit desperation. The sick person desperate for a cure is easy prey for quacks. The woman desperate for a man will find a wrong 'un. Investors disappointed with returns on conventional pensions might well cash them in and turn to scammers instead. And the voter disillusioned with the two main parties...

Yet another trick is product differentiation. Werner Troesken showed in a magnificent paper (pdf) that snake oil sellers thrived for decades because each took great effort to distinguish himself from his rivals. Millions of women have been cheated on by men who "aren't like the others." And Lib Dems' popularity has for years risen or fallen according to whether they can successfully distinguish themselves from the "discredited two main parties."

And then there's affinity fraud. We trust people who seem like ourselves. Con men know this: Bernie Madoff's victims were fellow Jewish county club members. The man who claims to have been cheated on can lure the vulnerable woman. Similarly, Lib Dems will win votes from Labour if they can successfully claim affinity with Remainers, but will lose them if Labour can instead associate them with austerity.

Of course, some of you might claim that the Lib Dems are not in fact con artists. Maybe not, But it's surprising how many parallels there are.

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