In this paper, Betsy Stevenson and Justin Wolfers report that trust in public institutions, particularly in banks, businesses, and government, has declined in recent years. Time series evidence from the US suggests that this partly reflects the procyclical nature of trust in financial institutions. Comparing countries reveals a clear legacy of the Great Recession, with the countries where unemployment increased the most suffering the greatest losses in trust in institutions, particularly in government and the financial sector. Finally, repeated analyzes of trust within U.S. states across multiple cross-sections yield similar qualitative patterns, but the magnitude of the response to state-specific shocks is much smaller.
introduction
This paper investigates the link between two coincidental events: the Great Recession and the current high levels of distrust that Americans have toward public institutions. We begin by documenting the recent sharp decline in trust Americans have in government, the financial and business sectors, and to a lesser extent the media and courts. We are motivated by our own casual empiricism that widespread mistrust is an important constraint for policymakers seeking to pass expansionary macroeconomic policies after the Great Recession. Masu. We then assess whether this decline in confidence is a standard cyclical response, reflects other factors, or is due to the unique nature of the current economic downturn. Few studies have documented whether trust varies over the business cycle, and in fact, Robert Z. Lawrence (1997, p. 132) argues that “our understanding of the relationship between economic performance and trust remains inadequate.'' There are many things left to be desired.” Our contribution is therefore to demonstrate how trust changes over the business cycle, using both data for the United States and comparisons between countries.
