Transaction Cost Economics posits that a lack of trust causes a drag on market exchange that creates the conditions for firms, with lower cost internal transaction monitoring and enforcement, to arise.
The theory is elegant but has been limited in its application to financial exchange. Economic sociologists however, construe exchange more broadly, and see financial transactions as a subset of barter, and barter as a subset of social exchange more generally. The ideas in TCE apply equally to social exchange as financial exchange.
For example, there is a cost to acquiring accurate information and the more accuracy one insists on (i.e. the lower the potential for future unanticipated costs) the higher the price on must pay to ensure the information is accurate. And since we often don't have time to do all the research ourselves, we create and pay for organizations to do it for us. That's institutions like the 'press', government agencies, academic institutions and NGOs.
But when efforts to devalue the effectiveness of this 'outsourcing' of information gathering and checking, we are pushed back to doing more of the legwork ourselves, imposing a considerable cost in time and energy. Without the belief that the entities to which we outsource information gathering are providing reliable data, those who need or want accurate information must redirect energy from other tasks to gather and check it themselves.
In some domains this is completely unrealistic, paralleling the TCE notion of market failure. Particle physics would be one example. None of us has the money (and few the training to) build a super collider like the LHC in our back yards. So once science is no longer trusted, no one can verify claims and counter claims. This appears to be what has happened to climate science.
The problem is however more pervasive. There is a steadily growing lack of trust in government and in the data produced by its agencies. Intelligence reports are summarily dismissed or ignored. Economic data are pulled from a hat rather than from the Bureau of Labor Statistics or the Census Bureau. The Federal Reserve is reviled as part of an evil conspiracy. Law enforcement are assumed by some to be corrupt, biased and self-serving.
The lack of trust goes further still. Immigrants are assumed to be terrorists. Members of the other party as seen as malign and duplicitous.
In this environment, one in which alt-facts and real facts are given equal credence, the ability of those with the greatest reach in terms of messaging, control the narrative, the minds, and ultimately the actions, individual and collective, of society. Franz Kafka wrote about this from the perspective of the individual in "The Prisoner". George Orwell described this at the societal level in 1984. We have seen where this can lead in the Iron Curtain countries. And we see it today in China, Russia and North Korea. People fed a diet of information comprising a carefully crafted mix of facts and alt-facts can be convinced of, and to do pretty much anything. As Milgrom and Zimbardo have shown, people can be easily manipulated.
And when there is resistance from a minority, the majority can be persuaded that authoritarian measures are necessary. Major changes to what we have cone to take for granted as individual and collective rights may well follow. If that's not what we want, we need to pay careful attention.
