Our economy relies equally on rational economic transactions and mutually felt trust in the trustworthiness of the system. In this current economic downturn there have been many parallels made to the New Deal and its Keynesian simulative effect which was the palliative for social improvement before the Great War, which was the "real" engine of our recovery. The narrative has embedded in it a deep cynicism which implies that in order to break out of our current malaise we may have to wait for a war to provide the focus, and spending we need. But I don't think it was the economics of the war alone that helped the economy, but rather the non-economics of the war - the great sacrifices, the common cause, and the individual commitment to the group good - not in a "communist manner" of sharing the spoils but in the personal manner of bravery and sacrifice to our collective benefit, which lent support to the economic recovery in a way not measured by monetary, tax, or fiscal policy.
It takes a spirit of common sacrifice and a "gift" culture to create a store of trust which is as multiplicative as any Keynesian monetary policy. Put another way, when people see those in power acting in a gift culture, with the spirit of common cause and generosity, it creates a tangible asset of trust which underpins credit, money, and markets. This idea has been well documented in micro economics by Dan Ariely, in his paper "A Tale of Two Markets" which shows how gift transactions like helping someone move a couch, are fluid and make both parties feel good. Paying a meager amount for the same "help" actually profanes the gift culture and lowers effort. As Dan says, imagine if at the end of Thanksgiving dinner, I asked my mother-in-law how much the meal cost?
So what? Well, when President Obama limited cash pay of the senior executives of the major financial services institutions to $500,000 he aimed too low. He should have asked them to work for $100,000 and said it was a service to the nation. He should have made their sacrifice and gift explicit. At $500,000 he profaned the potential gift culture by bringing the whole effort into the money culture - while "limiting" it. In effect, he asked his mother in law how much he should pay for Thanksgiving dinner.
I believe there are many extremely capable executives who would be willing to help, if they were asked to give a gift of their time. Their gift, like the great sacrifices by individuals in WW II (which were vastly greater), would help rebuild the trust bank. After all, this was at the core of Kennedy's brilliant notion, "Ask not what your country can do for you, but ask what you can do for your country." This administration wants to tap into this vein of common good, and has often said we must "sacrifice" - but they have not engaged the gift culture directly, and thereby the sacrifices that people do make will be which could help build the common store of trust will be blunted at best, and at worst spilled entirely.
So, our bold President has to improve his ask - and create a gift culture at the top - from which we can all benefit, and which, strangely, will help underpin the rapacious markets whose mantra of self interest reigns supreme.