From The Hill
While trust in government around the world has been trending downward for decades, trust in the U.S. government now appears to be in freefall as a host of half-truths and downright lies become entrenched in our political system. Playing fast and loose with the facts has long been a hallmark of politicians, so why be concerned with the counterfactual and scientifically dubious logic flowing from Washington these days?
When the leader of the free world cannot be trusted as an authoritative source of information on critically important topics, the world, already a dangerous place where bad things can and do happen, becomes riskier. Consider what would happen if any of the following were to occur: pandemics, financial crises, natural disasters, nuclear accidents, cyberattacks and/or military conflicts. Economists study the likelihood and impacts of these highly consequential but low probability events, called tail risks. Although unlikely, it’s bad, really bad, when one of these extreme, end-of-the-bell-curve events occurs.
A homophonic new form of risk known as “tale” risk (whether government officials are telling the truth) appears to be taking hold at a time when the potential severity of actual tail risks is growing. From a supply and demand perspective, there should not be much demand for lies, although voters seem to tolerate and perhaps even demand some. For that reason, there always seems to be an ample supply of lies in the political realm. But it would appear that we’re now experiencing a large surplus in falsehoods that are being used to amplify fear and manipulate facts.
So how do we, as a nation, prepare for tail risk events in the current context? How will we respond the next time we’re told we’re in the midst of one of these unlikely, but seriously bad and dangerous events? Will citizens have faith in the government when there’s a deadly infectious disease spreading like wildfire, but vaccines are being rationed and distributed as the government sees fit?
Will taxpayers stand for more Wall Street bailouts during the next financial crisis, particularly as some regulatory safeguards have been relaxed? What about a major cyberattack with the potential to disrupt, if not shut down, whole sectors of the economy? Would we listen to government directives and trust public officials to get us through it? Rallying the public for military conflict presently seems almost inconceivable. All this before even beginning to think about the impact of climate change.
Read the full post at The Hill.
Doug Criscitello is a Senior Lecturer at the MIT Sloan School of Management and the Executive Director of MIT’s Center for Finance and Policy.