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The Christian Science Monitor - CSMonitor.com

The honesty factor in reviving the economy

Lack of honesty helped trigger the economic woes in the US and Europe. Greater honesty willhelp reverse them.

By the Monitor's Editorial Board, posted September 23, 2011 at 2:48 pm EDT

Researchers who study honesty in societies have just found a gold mine of virtue inJapan.

In the seven months since an earthquake and tsunami destroyed entire Japanese communities,some $78 million in cash has been found in the piles of debris. Most was returned to the rightfulowners. In one case, as reported by theLos Angeles Times, a woman found a purse with $26,000in yen notes and turned it in.

Japans culture of honesty is well known and helps account for that countrys past economicsuccess. In Tokyo, experiments are often conducted by leaving wallets filled with cash aroundthe city and then counting how many wallets are returned, along with the money. The numbersare astonishingly high.

Such lessons in honesty are important as America and Europe try to recover from their economicwoes. In large part, those woes were caused by giant lapses in honesty.

In Americas case, the recent housing bubble was driven in part by people who lied about theirfinances to obtain home mortgages or who knew they had little chance of paying them back.Equally bad, these liars loans were then knowingly sold to investors by agents who knew such

mortgages were toxic. Even now, many banks are reluctant to admit the real value of theirmortgage assets a big uncertainty that hangs over financial markets.

In Europe, the great fib occurred inGreece. It cooked its books on its fiscal deficit. When itjoined the euro community over a decade ago, Greece promised to follow the rule of not lettingits deficit exceed 3 percent of its gross domestic product. But it lied to foreign investors, such asFrench banks. Its deficit was three times that amount. Fortunately, when George Papandreou

became prime minister in 2009, he exposed the lie. And he has worked to restore transparency inGreeces accounting.

A similar cleansing is under way in the United States as the 2010 Dodd-Frank Act forces both

homeowners and the mortgage industry to become more open and honest about borrowing.Those liar loans, for example, are disappearing with the laws requirement that agents who

bundle mortgages for investors must retain at least 5 percent of the assets.

Honesty is a key measure of the social capital essential to a healthy economy. Numerousstudies show successful economies rely on people going beyond simply being honest out of fearof being caught or because of incentives to be honest. Unselfish honesty in which people actout of principle is also significant. It leads to more personal cooperation and fewer legalcontracts. It allows greater efficiency and creativity.

**Using the World Values Survey, researchers find a direct link between economic well-being

and a societys level of trust between individuals. In the US, trustworthiness has been in declineover recent decades, according to studies.

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While more regulation may force honest behavior in the economy, it can also burden progress bycreating disincentives for creating new jobs and new businesses. A proper balance is needed.

America and Europe must work harder on their honesty deficit as well as solve the moreobvious economic problems. Japans post-tsunami display of honesty is a reminder of how muchthat virtue is a glue for society as well as a driver for growth.

JB: And this comes down to private virtue and good character of individuals. Society, after all, isnothing more than the sum total of individuals. If the individuals possess good character,truthfulness and honesty in this case, then that society will thrive.

Education must go beyond mere information induction and strive to develop/inculcate goodcharacter. Shaping the individual student, fostering truth telling and cultivating virtuous habits ofheart, makes for good societies.

Accessed September 26, 2011: http://www.csmonitor.com/Commentary/the-

monitors-view/2011/0923/The-honesty-factor-in-reviving-the-economy

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