A Broad Crisis of Public Distrust that we Need to Resolve

Context: Declining trust in the State and its ability to handle crises could yield behaviours that could delay an economic recovery.

Reasons for contracting growth

• Prolonged shutdowns 
• Weak demand
• Supply-side disruptions
• Continuing upsurge in coronavirus cases

Impact of low public confidence on the State

• Irrational responses:   due to erosion of confidence in the state-citizen contract.

• Compulsive need to save more and spend less :(or buy more gold) among households due to the volatile nature of commodity prices (oil and gold).

• Reduction of investment by firms (or avoidance of long-term commitments) 

• Credit wariness exercised by financial institutions.

• Weakens the "confidence multiplier" effect: Decrease in consumer confidence could have a negative multiplier effect that hurts consumption, investment and production. 

• This affects other macroeconomic aggregates like unemployment and export performance

• Deepen populist majoritarian tendencies and widen democratic deficits:

• The reluctance in taking vaccine: Even if a vaccine emerges as a projected way out of the COVID crisis, more than 60% of people across the US may not trust and take the vaccine

• Economic situation not getting better despite all spending: Many governments injected massive doses of fiscal stimulus to keep their economies afloat, but the distrust seems to be growing.

Way Forward:

• Build public trust: 

• A serious rethink is required to restore public trust and induce the multiplier of confidence among people.

• It takes time and effort to make people understand and adopt reason and science.

• Tackle misinformation: With news, cycles spread misinformation and rhetorical lies for vested interests and political aims, concerted efforts are needed by leaders to empower—and not confuse—people with information.

Conclusion: If nations hope to institute economic and socio-political reforms to establish a progressive order and combat climate change, this long-term exercise of building public confidence must start today.