For a long time, I’ve thought that capitalism would not work if people screwed each over as much as was economically and self-interestedly rational, and Matt Yglesias just pointed out that Donald Trump is basically living proof that most people are far too generous in that they actually pay their suppliers instead of just cheating them.
“Reputation“ don’t do jack shit, and whenever people propose make economic arguments using reputation, I’m gonna be very doubtful.
“Reputation” is more of an honor culture thing. If it works, it works because of a fairly small market and good communication.
It’s not that “reputation does work because if you don’t pay them it will bite you in some way eventually” or “reputation doesn’t work because you can still get elected goddamn President even if you never pay them” but rather reputation is a bad pillar to rely on because you will never know how effective reputation is. It’s not like if Hillary had gotten a few thousand more votes in midwestern swing states, the entire mechanism of capitalism would have shifted from effective to ineffective. There’s just uncertainty.
Suppliers can also adapt to more uncertain markets where payment is less guaranteed, either by raising rates, charging halfway through completion, having the money put in a mediator’s account, or through other methods.
All of these options are less efficient than if the purchaser pays the vendor like they are supposed to, because security spending preserves value rather than creating it. However, the word is that companies working with Trump started to charge more money as a risk premium for this sort of thing.
When I was working on projects, I charged payment in stages. The goods were transferred following a live demonstration for the client.