"There's lots of evidence that economic inequality makes people suspicious of each other. People in unequal societies trust each other less, and societies that have become more unequal suffer a loss of social capital."
Good. I've always thought so.
"And there's good reason to think that a lack of trust is bad for an economy...It diverts potentially productive resources into keeping an eye on one another; look at how spending on security guards and CCTV has risen. And it makes people less willing to lend and invest. This much, I guess, is pretty well agreed upon by the Left."
Yes indeed. Absolutely. So true.
"But it doesn't fit with this year's big economic story - the subprime crisis."
Shit. How inconvenient - for we economics know-nothings, that is.
"This arose because lenders were way too trusting...So, what's the explanation? Is it that inequality doesn't always reduce trust, even when it should? Or is it that a lack of trust doesn't have the growth-depressing effects which it should in theory - because competitive market forces (the pressure to sell loans) outweigh untrustworthiness?"
Duh...can I phone a friend?
"If so, the subprime crisis - far from being evidence of capitalism's instability - is actually evidence of how healthy the system is; competition can overcome the barriers to growth generated by inequality. Or is it that trustworthiness - and by extension social capital - is not as economically beneficial as thought?"
Two friends, maybe?
You've no idea how comforting that "Or what?" is.