Optimal Governance
Story on Honest Cash
Story on Cent
Story on Reddit
Story on Twitter
On Twitter, Alex Van de Sande (@avsa) tweeted…
I think @Cent is very cool, but I worry they might just be the next reddit. Here’s how we can prevent that and create a social media community that outlives any particular platform or company: https://beta.cent.co/+u8rqom
Dmitry asked what’s wrong with Reddit, and avsa replied that it’s owned by a single corporation.
I spent my money on avsa’s story. If you scroll down it and look at the replies, the first one you’ll see is by Matthew 吾馬太 (@matthew). Why is his reply at the top? It’s because I spent my money on it.
This is how Cent works. We use our money to rank the content. This really isn’t how Reddit works. It isn’t how Twitter works. It isn’t how Facebook works. It isn’t how Youtube works. It isn’t how Google works. It isn’t how Steemit works. On all those sites the content is ranked by voting. They are all democracies, while Cent is a market.
market <> democracy
If Cent does get as big as Reddit, then it’s going to be because a market is better than a democracy.
market > democracy
Cent’s success would show everybody in the world that spending is better than voting at ranking content. But what about governance?
Whether we’re talking about content or governance, it all boils down to ranking the options. If the market is the best system for ranking content options, then it must also be the best system for ranking governance options. It is impossible for a market’s collective intelligence/knowledge to be useful for ranking content options but useless for ranking governance options.
Currently, in terms of governance, Cent isn’t a democracy, it’s a dictatorship…
We are biased toward the democratic/republican side of the spectrum. That’s what we’re used to from civics classes. But the truth is that startups and founders lean toward the dictatorial side because that structure works better for startups. It is more tyrant than mob because it should be. In some sense, startups can’t be democracies because none are. None are because it doesn’t work. If you try to submit everything to voting processes when you’re trying to do something new, you end up with bad, lowest common denominator type results. — Peter Thiel, Girard in Silicon Valley
We don’t want lowest common denominator type results for governance, but we do want these type of results for content? I sure don’t.
Several times I’ve acknowledged that I’m super ignorant about crypto. Except maybe now I’m marginally less ignorant than I used to be, thanks in part to Jon Creasy (@joncreasy). Shortly before I started following him on Cent, I started following him on Twitter, which is how I saw this tweet by @alexia_maniro. We ended up discussing crypto governance and I learned about Decred, which I had never heard of before.
Later that same day I saw that Creasy liked this tweet by degeri…
@MrHodl blocked me for asking this question.. perfect way to get yourself into an echo chamber.. if he had not heard about decred until about an hour ago how can he pass judgement so quickly.. how is he different from people who call bitcoin a scam cause “I don’t understand it”
Out of curiosity I looked through the replies to MrHodl’s tweet and found this…
It’s a product of butt hurt. Those who can’t change Bitcoin get their feelings hurt and spin up a shitcoin. — Marty Bent
Decred is a product of butthurt?
Let’s review…
Cavemen left Africa because they were butthurt about stupid traditions/customs that severely restricted trade. The pilgrims left England because they were butthurt about religious intolerance. Americans revolted against England because they were butthurt about taxation without representation. The traitorous eight moved to, and essentially founded, Silicon Valley because they were butthurt by Shockley Semiconductor Laboratory. Satoshi Nakamoto created blockchain because he was butthurt by the government’s currency. Vitalik Buterin co-founded Etherium because he was butthurt by Bitcoin. Ryan X. Charles founded Yours.org because he was butthurt by… Reddit? Max Brody and Cameron Hejazi founded Cent because they were butthurt by… Yours.org? Or was it Adrian Barwicki that founded Honest Cash because he was butthurt by Yours.org?
If my review has any problems, go ahead and supply the solutions.
MrHodl’s tweet had a couple more relevant replies…
When children who have not been raised correctly encounter their first taste of social opposition they have no ability to negotiate — they throw a tantrum and storm off with all their lego to build a new castle instead. — Jason_Merrett (tweet deleted)
…
Bitcoin is dogmatic, exclusive and close-minded. Decred is inclusive and open-minded.
It is not the strongest of the species that survives but the most adaptable — Charles Darwin. — Lambo Moon Boy
A couple years ago I read, thanks to Matthew Pirkowski, this…
As with organisms, the most successful blockchains will be those that can best adapt to their environments. Assuming these systems need to evolve to survive, initial design is important, but over a long enough timeline, the mechanisms for change are most important. — Fred Ehrsam, Blockchain Governance: Programming Our Future
He followed with…
As a result, I believe governance is the most vital problem in the space.
His story is so good. He talks about a Cambrian explosion of governance, he cites Exit, Voice, and Loyalty by Albert Hirschman, he discusses Glen Weyl’s Quadratic Voting and Robin Hanson’s Futarchy, and he really gets the importance of governance.
Let’s consider biology. It’s a basic fact that an organism can’t change its combination of traits. If a coyote, for example, is born with brown eyes, then it will die with brown eyes. Recently some coyotes were found with blue eyes, and this is because they were born this way. It isn’t because they one day decided that blue eyes were cooler than brown eyes and voila! Blue eyes!
Coyotes, as a species, evolve because each coyote has a different combination of traits, and nature constantly selects for the most useful combinations. The larger the pool of combinations, the faster that coyotes will evolve/adapt. Progress depends on difference.
Just like a coyote has a unique combination of traits, so does an organization. But unlike a coyote, an organization can change its combination of traits. This means that an organization can continually adapt to ever-changing conditions.
An organization’s optimal evolution is a function of its ability to quickly and correctly discern a trait’s usefulness, which is what optimal governance is all about.
Cent and Honest Cash (HC) both use spending to rank content. This is a brand new trait, and it really isn’t a minor one, it’s a major one. Let’s very reasonably assume that this trait is far more useful than using voting to rank content. Clearly it would be optimal for Reddit to quickly replace its voting trait with the spending trait. But what are the chances that Reddit will quickly and correctly discern the usefulness of spending? The chances are slim, given that Reddit is a dictatorship. The chances would be even slimmer if Reddit was governed by a democracy.
We humans tend to have a tribal mentality… so it’s natural for us to be loyal to Cent or HC or Reddit. So if you’re team Cent or HC, then you would be happy for Reddit to fail. Same with Facebook, Twitter and Google.
While the sinking of the Titanic might have benefit its competitors, it certainly didn’t benefit humanity. Obviously this isn’t a perfect comparison because nobody on Facebook would die if it hit an iceberg and sunk. Still, it’s called “creative destruction” for a reason.
But have you ever asked yourselves sufficiently how much the erection of every ideal on earth has cost? How much reality has had to be misunderstood and slandered, how many lies have had to be sanctified, how many consciences disturbed, how much “God” sacrificed every time? If a temple is to be erected a temple must be destroyed: that is the law — let anyone who can show me a case in which it is not fulfilled! — Friedrich Nietzsche, On the Genealogy of Morality
I added that passage to the Wikipedia entry. Let’s juxtapose it with a tweet that I shared earlier…
When children who have not been raised correctly encounter their first taste of social opposition they have no ability to negotiate — they throw a tantrum and storm off with all their lego to build a new castle instead. — Jason_Merrett
Can you imagine Vitalik Buterin throwing a tantrum and storming off with his legos? I did some digging and found this…
I thought [those in the Bitcoin community] weren’t approaching the problem in the right way. I thought they were going after individual applications; they were trying to kind of explicitly support each [use case] in a sort of Swiss Army knife protocol. — Vitalik Buterin
Did some more digging and found…
I submitted the proposal to the Mastercoin team. They were impressed, but elected not to adopt it too quickly out of a desire to be slow and conservative; a philosophy which the project keeps to to this day and which David Johnston mentioned at the recent Tel Aviv conference as Mastercoin’s primary differentiating feature. Thus, I decided to go out on my own and simply build the thing myself. — Vitalik Buterin, Scalability, Part 3: On Metacoin History and Multichain
If he did throw a tantrum and storm out, it isn’t very likely that he would include this in his version of events.
I hadn’t heard of Mastercoin. Does David A. Johnston regret not accepting Buterin’s proposal? What are the chances that he correctly estimated its usefulness?
On Medium I shared with Buterin the idea of Cent and HC. He didn’t say it was a useful idea. He didn’t say it was a useless idea. He didn’t say… anything. What are the chances that he correctly estimated the usefulness of the idea? And no, I didn’t throw a tantrum and storm out.
Did some more digging and found that Buterin did think that futarchy is a pretty useful idea…
I believe futarchy is promising enough to be worth trying, particularly in a blockchain governance context. — Vitalik Buterin, On Silos
Did he try it? Not sure, but I found this…
Enter markets. The key insight behind Hayek’s particular brand of libertarianism in the 1940s, and Robin Hanson’s invention of futarchy half a century later, is the idea that markets exist not just to match buyers and sellers, but also to provide a public service of information. A prediction market on a datum (eg. GDP, unemployment, etc) reveals the information of what the market thinks will be value of that datum at some point in the future, and a market on a good or service or token reveals to interested individuals, policymakers and mechanism designers how much the public values that particular good or service or token. Thus, markets can be thought of as a complement to SchellingCoin in that they, like SchellingCoin, are also a window between the digital world and the “real” world — in this case, a window that reveals just how much the real world cares about something. — Vitalik Buterin, The Subjectivity / Exploitability Tradeoff
The Ethereum blog only has two search results for Hayek.
Recently on Cent, @rhyzom posted some excerpts from Hayek’s essay The Use of Knowledge In Society. Rhyzom’s following post was about prediction markets. I replied…
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X = Will Trump be impeached?
Y = Should Trump be impeached?
Y > X
Decision markets are more important than prediction markets.
Cent is a decision market. You can ask Y and we can all spend our money on the best answer. Obviously in this case, if the most valuable answer was “yes”, it’s not like Trump would be impeached. But the entire world would know Cent’s answer to Y.
Should we combat climate change?
Should children be vaccinated?
Should prostitution be legalized?
Should the minimum wage be abolished?
Should borders be open?
If any non-members disagreed with Cent’s answers to these questions, they would certainly be welcome to sign up and put their money where their mouth is.
Larger markets are certainly smarter than smaller ones. Right now Cent is a really small market, so far I’m the only person to spend money on your post about Hayek’s essay.
Hayek’s essay was partly the inspiration for Wikipedia. But Jimmy Wales somehow missed the point about costly signals, just like how Hayek missed the point that prices aren’t the only costly signals, which is why it’s taken nearly 75 years for there to be a market where people have the opportunity to spend their money on his essay.
Right now we are the only two members of Cent who value Hayek’s essay, but since you posted it, you aren’t given the opportunity to spend your money on it.
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Cent’s founders didn’t spend any money on rhyzom’s post about Hayek’s essay. I guess that they don’t value it. Wikipedia’s founder probably does value it quite highly, except he founded Wikipedia instead of Cent, which is funny because Cent is actually so much closer to Hayek’s essay.
What about Adrian… the founder of HC? Does he value Hayek’s essay? What about Buterin?
Did more digging in the Ethereum blog and found this…
I consider economics and game theory to be a key part of cryptoeconomic protocol analysis, and consider the primary academic deficit of the cryptocurrency community to be not ignorance of advanced computer science, but rather economics and philosophy. We should reach out to http://lesswrong.com/ more. — Vitalik Buterin, On Silos
This made me laugh because, speaking of butthurt… my rating on LessWrong is -229. The democratic community downvoted me so much that I lost posting privileges. On HC, OrangeJuice brought up the idea of adding a downvote button. At least in that case it would cost money to downvote something.
More Buterin…
Fortunately, cryptocurrency is all about democratic consensus, and every cryptocurrency already has at least two forms of consensus baked in: proof of work and proof of stake. — Vitalik Buterin, On Transaction Fees, And The Fallacy of Market-Based Solutions
Fortunately?
Getting back to futarchy, if Buterin did experiment with it, I’m guessing that perhaps it didn’t work very well, given that last year he teamed up with Glen Weyl and his quadratic voting…
One-person-one-vote democracy tends to oppress minorities, who then seek protection from the judicial system or international authorities, thus subverting democracy. A more creative democratic forms that give power to minorities to protect their own most deeply valued interests can restore the legitimacy of government. A leading candidate is “Quadratic Voting” (QV), in which citizens can use a (possibly artificial) currency to buy votes at the cost of the square of the votes bought on the issues that are most important to them. — Vitalik Buterin and Glen Weyl, Liberation Through Radical Decentralization
Anything that gives more power to minorities is inherently undemocratic. Democracy is all about equal influence, which is really dumb because people aren’t equally intelligent or informed.
Next month there’s going to be a conference in Detroit based on Weyl’s book Radical Markets. Did he use QV to decide the date? No. Did he use QV to decide the location? No. Did he use QV to decide the speakers? No. Perhaps these decisions were made by a committee. There’s nothing at all radical about a committee making decisions.
What would have been radical is if a market had made the decisions. A couple years ago the Libertarian Party (LP) used donations to rank possible convention themes…
$6,327.00 — I’m That Libertarian!
$5,200.00 — Building Bridges, Not Walls
$1,620.00 — Pro Choice on Everything
$1,377.77 — Empowering the Individual
$395.00 — The Power of Principle
$150.00 — Future of Freedom
$135.00 — Life, Liberty and the Pursuit of Happiness
$105.00 — Rise of the Libertarians
$75.00 — Free Lives Matter
$42.00 — Be Me, Be Free
$17.76 — Make Taxation Theft Again
$15.42 — Taxation is Theft
$15.00 — Jazzed About Liberty
$15.00 — All of Your Freedoms, All of the Time
$5.00 — Am I Being Detained!
$5.00 — Liberty Here and Now
The LP should have, and could have, also used the market to decide the convention’s date, location and speakers.
A year later, on Medium, I shared this idea with Max, one of the founders of Cent. That was almost a year ago, and now the order of the replies on Cent can be improved by tipping the best ones. This is truly epic. I think it’s the first time ever that replies/comments can be sorted by value.
Unfortunately, on Cent we still can’t sort categorized posts (ie #art) by value. It’s the opposite over at HC… we can sort categorized posts (#art) by value but we can’t yet sort replies to a post by value. For me the biggest priority though is having the opportunity to spend money on our own posts.
Adrian is planning to implement this idea on HC, which is awesome. Last week on Twitter he asked for thoughts about what to do with the money that people spend on their own posts. It’s great to hear people’s thoughts, but it would be incredibly beneficial to determine the usefulness of the different options. I posted my thoughts, which other people could spend their money on, but I don’t yet have the opportunity to spend money on my posts. It seems like there’s a bit of a catch 22.
So far neither HC or Cent has used the market to make a decision. Which one will be the first to do so?
Ever heard of Moloch DAO? I first heard about it not too long ago on Medium. It’s the subject of Simon de la Rouviere’s (@simondlr) latest story… The Moloch DAO: Collapsing The Firm. I started following him on Medium after I read his story Radical Markets In The Arts.
While I was looking through avsa’s tweets I stumbled upon this tweet by the founder of Moloch…
Should the Moloch DAO admit:
1. All ERC20 (most flexible, least secure)
2. Just ETH/DAI
3. Just ETH (least flexible, most secure)
Rather than use Twitter to make an informal opinion poll, Ameen Soleimani should have used HC and/or Cent to make a value poll. The market, rather than democracy, would have ranked the options.
The thing is, if he had done so, then this would have effectively “collapsed” the firm. Every organization in the world can easily and intelligently decentralize simply by using HC and/or Cent to make decisions.
Let’s review. If you’re on the Titanic and you see it heading for an iceberg, then of course you should be able to abandon ship, but only as a last resort. Your first resort should be to use your money to try and steer the ship away from the iceberg.
Just like society did not benefit from the destruction of the Titanic, society would not benefit from the destruction of Twitter.
Same with Youtube. I just watched iSpy feat. Lil Yachty by KYLE. It has 287,365,389 views, 2 million thumbs up, and 124,000 thumbs down.
Democracy is terrible at allocating attention…
…male Australian jewel beetles are more attracted to brightly coloured, stubby beer bottles than to their female counterparts. In fact, the males find the bottles so attractive that they ignore the females altogether and keep trying to copulate with stubbies until they die in the hot sun or are eaten by ants. — Caspar Henderson, The Attention Trap
Do you want to have sex with inanimate objects? Don’t answer that question.
My comment on Henderson’s article…
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It’s important to appreciate that on Twitter the content is ranked by voting. This means that, in terms of content, Twitter is a democracy. Cheap signals are used to allocate attention.
In a market though attention is allocated by costly signals. Farmers pay attention to the crops that people spend their money on… like avocados. When you buy avocados you essentially say, “Avocados are worth paying attention to! You know that I’m telling the truth because I just sacrificed my money for some.”
The fact of the matter is that the internet was invented before society recognized the huge difference between costly signals and cheap signals. Of course it’s entirely possible that I’m overestimating the usefulness of costly signals. The proof is in the pudding. Here are two new websites where costly signals are used, at least to some degree, to allocate attention…
With the first site you can see the posts in each category sorted by value, but you can’t see the replies to a post sorted by value. It’s the opposite with the second website.
What are your thoughts?
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Recently on Twitter a mob of offended people pressured an author, Amélie Wen Zhao, to cancel the publication of her first book. Maybe the problem with Twitter is that it doesn’t have any “brakes”? This is the theory proposed by Brian David Earp, and shared and discussed by Jesse Singal… Toward A Grand Unified Theory Of Social-Media Sociopathy. I emailed Singal…
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You and Brian Earp are correct that brakes are needed, but you’re essentially trying to reinvent the wheel. We already have a great braking system… spending money.
Having to spend your money forces you to stop and consider whether something that you want is truly worth the (opportunity) cost. Naturally, when people spend their money they make more intelligent choices…
This idea is consistent with the finding that when consumers use more cognitive resources they tend to prefer goods that are superior on cognitive (utilitarian) dimensions (Shiv & Fedorikhin, 1999). — Ellen Evers and Michael O’Donnell, Preference Reversals in Willingness-to-Pay and Choice
The problem is that humanity still hasn’t gotten the memo…
Expressions of malice and/or envy no less than expressions of altruism are cheaper in the voting booth than in the market. A German voter who in 1933 cast a ballot for Hitler was able to indulge his antisemitic sentiments at much less cost than she would have borne by organizing a pogrom. — Loren Lomasky, Democracy and Decision
On the off-chance that Twitter does see the benefit of a frowny emoji, it would certainly help, but not nearly as much as users having to pay a reasonable amount of money to retweet or *heart* something.
Admittedly, it’s entirely possible that I’m overestimating the usefulness of markets. The proof is in the pudding. I’m currently testing out a couple market social websites (MSWs)…
With the first site you can see the posts in each category sorted by value, but you can’t see the replies to a post sorted by value. It’s the opposite with the second website.
I highly recommend giving both sites a try…
You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete. — Buckminster Fuller
Please let me know if you have any questions.
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It should be painfully obvious that democracy is just as dumb for content as it is for governance.
More Buterin….
Why has fragmentation been happening, and why should we continue to let it happen? To the first question, and also simultaneously to the second, the answer is simple: we fragment because we disagree. — Vitalik Buterin, On Silos
Yes, and we disagree because we have different information. Cain, on HC, thinks that paywalls are important. I responded that it’s more important for “upvotes” to be displayed on profile pages. So far his post has been “upvoted” 5 times while my post hasn’t been “upvoted” once. Cain’s story received two “upvotes” from Majamalu, but if you click that link you won’t see any stories, or responses, and of course you won’t see any “upvoted” posts. What else is important to Majamalu besides paywalls? What is most important to Majamalu? Does it matter? Yeah, definitely, which is why not seeing “upvotes” on profile pages is, from my perspective, a much bigger problem than not being able to put content behind a paywall. So I should have the opportunity to use my money to communicate the size of this problem. Just like Cain should have the opportunity to use his money to communicate the size of the no-paywall problem.
With markets people are still going to disagree, but being able to communicate with our cash allows us to credibly quantify the value of our information, which is the most useful thing to know about it. Therefore, with market governance we will far more effectively put our heads together, which will minimize the chances of ships hitting icebergs.
What about Decred’s governance? A few days ago Creasy tweeted…
If you want proof that #decentralization works, stroll on over to https://proposals.decred.org/ and feast your eyes on active, approved, and rejected proposals.
These are all real-life projects that are being funded through a real decentralized treasury.
At first glance it seems like a democracy. After some digging though I learned that, as far as approving the proposals is concerned, it isn’t “one person one vote”.
Imagine if, in the US, the only way that you could vote is if you voluntarily performed the civic service of patrolling your neighborhood to try and spot any suspicious activity. Given enough eyeballs, all bugs are shallow (Linus’s Law). The more time that you spent patrolling, the more votes you would be given. Essentially, the people who cared the most about their neighborhoods would have the most influence on the government. But what if the people who patrolled their neighborhoods were monetarily rewarded?
On Decred, in order to vote on proposals you first need to perform the civic service of helping to secure the protocol, which is something that you’re monetarily rewarded for doing. And the more you perform this civic service, the more votes you are given.
Securing the protocol essentially has two perks…
- money
- votes
What would happen if the first perk was eliminated? If 80% fewer people helped to secure the protocol it would mean that, right now, it really isn’t the most civically minded people who have the most influence over Decred’s direction.
A few years ago I wrote about a system that would give more votes to the more civically minded people. With “razotarianism”, which I named after its inventor, Luis Razo Bravo, civicness is measured by donations to the government. The more money that you donate to the government, the more votes that you would receive. This wouldn’t necessarily give too much influence to the wealthy though because it would be proportional. If you and Gates both donate 1% of your money to the government, then you would both receive the same number of votes. Taxation would still be compulsory, but the more money voluntarily given to the government, the less money that the government would need to take by force.
The next year, inspired by Robin Hanson, I wrote about the idea of a civic currency. For example, if you’re awarded the Medal of Honor, you’d be given 10 million “quarks”, which could be used for things like getting out of jury duty, paying parking tickets and voting. Of course you would be able to exchange your quarks for dollars.
Getting back to Decred’s governance… is it optimal? No. It really isn’t a market.
If you’re interested in reading more about Decred’s governance…
- Politeia For Dummies Please (my post in the Decred subreddit)
- Governance of the Decred project subsidy through Politeia by Richard Red
- On the launch of Decred’s Politeia by Richard Red
- 3 Things You Need to Know About Decred by Jon Creasy
- Decred Investment Thesis by Chris Burniske and Joel Monegro
From that last one…
Decred’s killer feature is good governance, and with good governance, you can have any feature you want.
In my Reddit post I asked what makes Decred’s governance better than quadratic voting or futarchy, so far nobody has answered the question. Evidently they haven’t seriously studied governance. What about Will Wilkinson?
You may think you can imagine how anarcho-capitalism or economic democracy would work, but you can’t. You’re really just guessing — extrapolating way beyond your evidence. You can’t just stipulate that it works the way you want it to work. Rationally speaking, you probably shouldn’t even suspect that your favorite system comes out better than an actual system. Rationally speaking, your favorite probably shouldn’t be your favorite. Utopia is a guess. — Will Wilkinson, Public Policy After Utopia
…
If your favorite system is quite a bit different from any system that has existed, then even if it were true that it would rank numero uno in terms of your favorite normative standard, you’re not in a position to rationally believe it. Clearly then, it’s not actually useful to aim toward a distant ideal when you don’t really have a good reason to believe that it’s better than actually existing systems in terms of liberty or equality or nationalist solidarity or whatever it is you care about. — Will Wilkinson, Public Policy After Utopia
Wilkinson has spent far more time studying governance than Jake Yocom-Piatt or any of the other Decred founders. Yet, these founders have essentially created their own type of functioning, albeit very suboptimally, system of governance, which is an option that Wilkinson seems entirely oblivious to.
It really feels like there’s a… paradox… or something here. Admittedly, Wilkinson wrote that piece in 2017. Has he since seen the monumental benefit of teaming up with founders to safely test different systems of governance? Here’s what he tweeted on the first day of this year…
I think @glenweyl is terrific. I’ve learned a ton from him. I don’t think we disagree much about basic economic facts/theory, but have different models of politics & policy change. To us, ours is realistic, his abtract and apolitical. To him, ours looks blinkered and unambitious.
Ugh, Will Wilkinson, ugh. Then again, I doubt that any of the Decred founders reached out to the Niskanen Center. Neither organization was probably aware of the other’s existence.
Putting our heads together makes it less likely that we will overlook important things, which is really useful when it comes to steering ships.
Richard Feynman believed that ships are better steered by democracies than by dictatorships…
The communist views are the antithesis of the scientific, in the sense that in communism the answers are given to all the questions — political questions as well as moral ones — without discussion and without doubt. The scientific viewpoint is the exact opposite of this; that is, all questions must be doubted and discussed; we must argue everything out — observe things, check them, and so change them. The democratic government is much closer to this idea, because there is discussion and a chance of modification. One doesn’t launch the ship in a definite direction. It is true that if you have a tyranny of ideas, so that you know exactly what has to be true, you act very decisively, and it looks good — for a while. But soon the ship is heading in the wrong direction, and no one can modify the direction anymore. So the uncertainties of life in a democracy are, I think, much more consistent with science. — Richard Feynman, The Relation Of Science And Religion
Whether a dictator or a democracy is steering a ship, its direction can always be changed, but chances are slim that the new direction will be the best one, since democracies and dictatorships are both defective at putting people’s heads together.
Admittedly it isn’t very easy to imagine a market literally steering a ship. What about a bus?
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You are about to take a bus from Zurich to Milan, right over the Alps. You have three buses to choose from:
1. Bus A is a self-driving machine, fitted with a rear-mounted camera and the latest automatic steering mechanism, designed by noted Swiss engineer Johan Taylor. When the camera sees that the bus has deviated too far to the right of the road, it automatically steers the bus to the left, and vice versa.
2. Bus B is driven by Johanna Yellen, widely regarded as one of Switzerland’s best bus drivers.
3. Bus C is a complicated human/machine hybrid. It has forward looking cameras, that feed road images into a large building, in real time. About 10,000 bus drivers sit at the controls of a simulator, and steer the bus as they think is appropriate. The average of all of their steering decisions is fed back to the bus in real time, in order to adjust the steering mechanism. To motivate good steering decisions, the 10,000 bus drivers are rewarded according to whether their individual steering decisions would have led, ex post, to a smoother and safer drive than that produced by the consensus.
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In another entry… Robots, committees, or markets? … Scott Sumner wrote…
But 12,000 humans is much better than 12. Two days after Lehman failed the FOMC met and refused to cut rates from 2%, seeing a roughly equal risk of recession and inflation. The markets were already seeing the oncoming disaster, and indeed the 5 year TIPS spread was only 1.23% on the day of the meeting. The markets aren’t always right, but when events are moving very rapidly they will tend to outperform a committee of 12. In fairness, this “recognition lag” was not the biggest problem; two far bigger problems included a failure to “do whatever it takes” to “target the forecast.” That is, the Fed should move aggressively enough so that their own internal forecast remained at the policy goal. And the second failure was not engaging in “level targeting”, which would have helped stabilize asset prices in late 2008, and made the crisis less severe.
Bernanke once said there is nothing magical about 2% inflation. Nor is there anything magical about 12 members on the FOMC. The wisdom of crowds literature suggests you want a large number of voters, with monetary incentives to “vote” wisely. So there are actually three approaches. The Friedman/Taylor “robot” approach. The Bernanke “wise bureaucrats” approach. And the market monetarist “wisdom of the crowds” approach.
Out of the three approaches, his is the best, but I’m pretty sure that it isn’t as good as my preferred approach… people simply using their money to rank the options.
I just checked Cent and saw a notification that a blockchain project, Harmony One (story on Medium), had answered my question about their governance…
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Heya @Xerographica!
Great question. Saw your tweet — thanks :)
@nickw may want to add to this, but I’m going to lift what he wrote on our forum:
“As of now we don’t have a fully formed story on governance yet, but we recognize governance as one of the most crucial aspects of any blockchain project. Good governance can give a blockchain long-term sustainability and adaptability, while bad governance can tear the ecosystem apart.
It appears that with many blockchain projects there is a natural and gradual transition from governance by the founding team to governance by the community and stakeholders. I find the on-chain governance mechanism of projects like Polkadot to be very interesting, but I also recognize that not everything can be achieved on-chain.
Let’s all work together to move beyond our broad ideas and form a stronger vision of governance for Harmony. Do you guys have any good ideas or places to start?”
https://talk.harmony.one/t/governance-in-harmony/161/4?u=gavin
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The post has received 42 responses, which are currently ranked by tips. The market ranked the options! Except for the part where we can’t spend money on our own responses/questions.
Using the market to rank content and governance options will maximize an organization’s ability to adapt as quickly and correctly as possible to conditions that are constantly changing.
More Buterin…
At the same time, however, if the original developers of a protocol start taking development in an undesirable direction (eg. introducing backdoors, introducing excessively intrusive monetization vehicles, or even just being too plain slow), then the moral effect can rapidly turn on its head and even support the first credible effort to try to wrest away a project from its creators; following the prior example, the pertinent example here is the media success of the Pirate Bay and Popcorn Time. Thus, moral pressure can work both for and against a decentralized protocol, and it is the protocol developers’ responsibility to ensure that the community opinion of their project remains positive, and serves as an important check-and-balance to make sure that the core team behind a project continues to move the project forward at a solid pace and in an agreeable direction. — Vitalik Buterin, Decentralized Protocol Monetization and Forks
This is community opinion…
The direction might be agreeable, but it certainly isn’t intelligent.
More Buterin…
However, we probably can, and certainly must at least try, to be more imaginative. Parliaments and voting are only the simplest and crudest form of having a decentralized organization; there are almost certainly better alternatives based on principles such as holarchy, liquid democracy, futarchy and various combinations of these and other ideas that we have not thought of but that will become possible because of the much higher degree of both interconnectedness and information processing efficiency provided by modern technology. Ideally, as much of the process as possible would be in some fashion automated — the process should function as a DAO, not a DO, and the position of highest power, or the closest philosophical analog of such a thing, should be held by an algorithm and not a set of people — perhaps a sacrifice from the point of view of optimality at any particular time, but, one might argue, a boon for long-term stability, and an especially appropriate choice for a cryptographic platform that intends to claim some concept of neutrality. — Vitalik Buterin, On Long-Term Cryptocurrency Distribution Models
The position of highest power should be the market, not an algorithm. Right now the market ranks Etherium, Decred, Harmony One, Cent, Honest Cash, and a gazillion other options (organizations) in the private sector. Can an AI do a better job than the market at ranking options? Not now. When Seldon exists he will be god-like, but this means that it will be hard to tell where he ends and the market begins.
More Buterin…
In fact, in the case of Bitcoin an entire quasi-religion has formed around supporting the protocol and helping it grow and gain wider adoption; it’s hard to imagine every corporation having anything close to such a fervent following. — Vitalik Buterin, Bootstrapping An Autonomous Decentralized Corporation, Part 2: Interacting With the World
If the market steers a corporation, then it will invariably have a fervent following.
More Buterin…
There is room for many projects that are currently in the crypto 2.0 space to succeed, and so having a winner-take-all mentality at this point is completely unnecessary and harmful. All that we need to do right now to set off the journey on a better road is to live with the assumption that we are all building our own platforms, tuned to our own particular set of preferences and parameters, but at the end of the day a plurality of networks will succeed and we will need to live with that reality, so might as well start preparing for it now. — Vitalik Buterin, On Silos
Our own particular set of preferences, parameters and priorities are best revealed by the market.
More Buterin…
But experiments are what cryptocurrency is all about. — Vitalik Buterin, An Introduction to Futarchy
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The true cryptoeconomy of the future may have not even begun to take shape. — Vitalik Buterin, The Search for a Stable Cryptocurrency
Last month on Cent, avsa posted… 2019: the year of governance experiments in ethereum. Each of those experiments is ranked by the market, yet none of them use the market to rank their governance options. It’s crazy.
Given that virtually everybody greatly underestimates the usefulness of markets, it means that markets aren’t perfect at estimating the usefulness of things. But are markets vastly superior to the alternatives? The answer to this question is going to become clearer and clearer, thanks to Honest Cash, Cent and any other organizations which experiment with using the market to rank options.
Looking over this story it feels like there’s a severe shortage of… economists. I’d feel silly if I didn’t at least mention Ronald Coase, and even sillier if I didn’t mention James Buchanan and Adam Smith.
Here’s the most useful passage from the most useful book…
It is thus that the private interests and passions of individuals naturally dispose them to turn their stocks towards the employments which in ordinary cases are most advantageous to the society. But if from this natural preference they should turn too much of it towards those employments, the fall of profit in them and the rise of it in all others immediately dispose them to alter this faulty distribution. Without any intervention of law, therefore, the private interests and passions of men naturally lead them to divide and distribute the stock of every society among all the different employments carried on in it as nearly as possible in the proportion which is most agreeable to the interest of the whole society. — Adam Smith, Wealth of Nations
Contrary to popular belief, the Invisible Hand isn’t about self-interest, it’s about consumers using their cash to credibly communicate their interests to producers. The supply is optimally balanced because it’s constantly being regulated by the spending signals of countless consumers.
Take avocados for example…
In 2017, Kenya overtook South Africa as Africa’s largest avocado exporter. Before the leap, South Africa was fourth after Peru, Chile and California as the world’s exporters of the popular Hass avocados. Kenya’s coffee farmers caught on, and switched to avocados, making 10 times as much as they did from coffee. Avocados now make up 17% of Kenya’s horticultural exports, according to the International Trade Center. — Lynsey Chutel, Thanks to the world’s love of avocados, Africa’s coffee producers are pivoting
Countless consumers used their cash to increase the ranking of avocados, and producers responded accordingly. Naturally, if too many avocados end up being produced, they will drop in the rankings, which will motivate producers to pivot to more highly ranked crops. The market is self-correcting.
How consumers divide their money among all the different crops communicates how they want society’s resources (ie land, labor) to be divided between them.
In a market economy, consumers use their cash to guide production. This guidance doesn’t exist in a command economy…
The management of a socialist community would be in a position like that of a ship captain who had to cross the ocean with the stars shrouded by a fog and without the aid of a compass or other equipment of nautical orientation. — Ludwig von Mises, Omnipotent Government
What’s tricky is that virtually every firm in a market economy is essentially a command economy. This was of particular interest to Ronald Coase…
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Russ Roberts: Let’s talk about your 1937 paper, “The Nature of the Firm.” You were trying to answer a question — an interesting question, remains a good question; it was a good question in 1937, it’s still a good question, which is: If capitalism and markets and prices, the Hayekian system of communicating information via price signals, if it works so well, why do firms exist? Because firms are almost by definition top down rather than bottom up. They use command and control rather than purchases within the firm, although there are exceptions to that. Some firms do use price signals for their decision-making inside the firm. But many firms do not. Their decisions are made not by prices but by fiat, by decisions on the top. Now, you wrote that paper when you were very, very young, the first part of it, correct?
Ronald Coase: That’s right. I wrote it while I was an undergraduate. It seems obvious to me. If you go into a firm and you say to someone: Why did you do this? He’d say: Because I was told to do it. He doesn’t talk about pricing at all. Almost of all the things you do within a firm are not controlled directly by prices at all. Your boss tells you what to do and you do it.
Russ Roberts: How did you come to write that paper as an undergraduate.
Ronald Coase: Oh, I was interested in how firms actually operate, and if you start studying how firms actually operate you find that they are not concerned with prices directly at all. A person who is working in a firm does what he’s told. That’s the way it operates.
Russ Roberts: So, a firm is an island of socialism in a capitalist world.
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The market economy allocates labor between firms, but within a firm labor is allocated by a command economy. Coase’s explanation had to do with transaction costs.
Think about unicellular organisms. It is naturally very beneficial for them to cooperate with each other, but this requires communication, which is costly. By grouping closer together, unicellular organisms reduced the cost of communication and… voila! Multicellular organisms! This innovation minimized the cost of communication by putting all the cells in the same boat.
Bacteria possess chemical signaling systems, and many researchers now see their colonies — which can stretch for centimeters, numbering millions of individuals — as collective organisms, with different individuals having specialized body types and tasks.
Growth patterns seen in the new fossils fit with those found in multicellular organisms capable of complex signaling and coordinated responses. Earth’s suddenly fluctuating climate would have favored communication.
“When bacteria are under stress, it triggers their cooperation,” said biophysicist Eshel Ben-Jacob of Tel Aviv University. “Those that have to cope with a more complex environment show higher complexity.” — Brandon Keim, 2-Billion-Year-Old Fossils May Be Earliest Known Multicellular Life
Multicellularity is a puzzle to biologists just like firms are a puzzle to economists… but it’s the same exact puzzle. Uniting a bunch of multicellular organisms has the same exact logic and benefit as uniting a bunch of unicellular organisms. Putting heads together facilitates adaptation.
Nassim Nicholas Taleb wrote a story based on Coase’s theory of the firm…
You start thinking: well, you know, if Bob were a slave, someone you own, you know, these kind of things would not be possible. Slave? But wait… what Bob just did isn’t something that employees who are in the business of being employees do! People who are employees for a living don’t have such opportunistic behavior. Contractors are too free; they fear only the law. But employees have a reputation to protect. And they can be fired. People who like employment like it for a reason. They like the paycheck! — Nassim Nicholas Taleb, How To Legally Own Another Person
Slavery obviously results in less heads being combined.
What about taxes? Taxation is a major trait of every significant government… but just how useful is it? Here’s the justification…
…it is in the selfish interest of each person to give false signals, to pretend to have less interest in a given collective consumption activity than he really has… — Paul Samuelson, The Pure Theory of Public Expenditure
In the movie “When Harry Met Sally”, she loudly faked an orgasm in a restaurant. Afterwards, the lady at another table told the waitress, “I’ll have what she’s having”. This lady would of course be very disappointed with her dish. She was tricked by Sally pretending that the dish was a lot better than it truly was.
Whenever a system of communication evolves, there is always the danger that some will exploit the system for their own ends. Brought up as we have been on the ‘good of the species’ view of evolution, we naturally think first of liars and deceivers as belonging to different species: predators, prey, parasites, and so on. However, we must expect lies and deceit, and selfish exploitation of communication to arise whenever the interests of the genes of different individuals diverge. This will include individuals of the same species. As we shall see, we must even expect that children will deceive their parents, that husbands will cheat on wives, and that brother will lie to brother. — Richard Dawkins, The Selfish Gene
Humans are good at pretending. We’re good at faking pain and pleasure. Well, we aren’t equally good at faking.
Being good at faking hunger is advantageous for an individual, but disadvantageous for the group. No group benefits from the suboptimal distribution of its limited resources. Therefore it was advantageous for the group to correctly discern when an individual was genuinely hungry.
Years afterward, when I’d be sitting on a log, observing somebody else, Benjamin was always the most likely baboon in the troop to come over and sit down, not quite next to me, maybe four or five feet away. Being close enough to hear a baboon’s stomach rumbling is an amazing experience, but he was the only one that would do that consistently. — Robert Sapolsky, A Bozo Of A Baboon
Sure, there’s a physiological explanation for why empty stomachs growl, but it can’t be a coincidence that this credibly signals hunger. If you do think that it is a coincidence then you greatly underestimate the problem of misinformation.
A somewhat more reliable way to credibly signal genuine interest in food is to trade for it. Trade helped to accurately rank goods by usefulness, which facilitated a group’s adaptation.
Where it gets tricky is that there are some goods, known as public goods, that you can benefit from even if you don’t pay for them. Examples include Wikipedia and national defense. People have an obvious natural incentive to pretend to not value these goods very highly. As a result, the supply of public goods would be a lot smaller than everybody truly wants.
In order for public goods to be ranked higher, everybody is forced to pay taxes. The problem is that this on its own really doesn’t reveal our true preferences for public goods.
Whereas the income received for providing a private good conveys information about the demand for that good, taxes collected under the threat of coercion say little about the demand for a public good or service. Payment of taxes indicates only that taxpayers prefer paying taxes to going to jail. Little or no information is revealed about user preferences for goods procured with tax-supported expenditures. As a consequence, the organization of collective consumption units will need to create alternative mechanisms to prices for articulating and aggregating demands into collective choices reflecting individuals’ preferences for a quantity and/or quality of public goods or services. — Vincent Ostrom and Elinor Ostrom, Public Goods and Public Choices
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We have no idea how much the taxpayers would value these services, if indeed they valued them at all. For example, suppose that the government levies a tax of X dollars on A, B, C, and so on, for police protection — for protection, that is, against irregular, competing looters and not against itself. The fact that A is forced to pay $1,000 is no indication that $1,000 in any sense gauges the value to A of police protection. It is possible that he values it very little, and would value it less if he could turn to competing defense agencies. Moreover, A may be a pacifist; so he may consider the State’s police protection a net harm rather than a benefit. But one thing we do know: If these payments to government were voluntary, we can be sure that they would be substantially less than present total tax revenue. — Murray Rothbard, The Myth of Neutral Taxation
Either the public perceives that it’s unnecessary to discern the demand for public goods, or it perceives that the demand is adequately revealed by voting.
What’s important to appreciate is that the incentive to be dishonest about the valuation of a public good (ie Wikipedia) only exists when people have the option to spend their money on a private good (ie steak) instead. If this option is eliminated, then so is the incentive to be dishonest.
Under most real-world taxing institutions, the tax price per unit at which collective goods are made available to the individual will depend, at least to some degree, on his own behavior. This element is not, however, important under the major tax institutions such as the personal income tax, the general sales tax, or the real property tax. With such structures, the individual may, by changing his private behavior, modify the tax base (and thus the tax price per unit of collective goods he utilizes), but he need not have any incentive to conceal his “true” preferences for public goods. — James M. Buchanan, The Economics of Earmarked Taxes
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One strand of this approach-initiated in Buchanan’s (1963) seminal paper-argues that the voter who might have approved a tax increase if it were earmarked for, say, environmental protection would oppose it under general fund financing because he or she may expect the increment to be allocated to an unfavored expenditure such as defense. Earmarked taxation then permits a more satisfactory expression of individual preferences. — Ranjit S. Teja, The Case for Earmarked Taxes
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Individuals who have particularly negative feelings concerning a publicly provided good (e.g. Quakers on military expenditures, Prolifers on publicly funded abortions) have also at times suggested that they should be allowed to dissent by earmarking their taxes toward other public uses. — Marc Bilodeau, Tax-earmarking and separate school financing
If people could choose where their taxes go, they wouldn’t have the option to spend their taxes on private goods, so they wouldn’t have any incentive to hide their true valuations of public goods.
Where things get interesting is that, with this system, consumers would actually be more honest in the public sector than in the private sector. Unlike in the private sector, in the public sector there wouldn’t be any prices, so it would be impossible to get a “deal” on anything. You could spend $0 dollars on defense if you wanted. But it’s not like you could take the money that you “saved” and spend it on a new car. You could only spend it on other public goods.
As a result of consumers being more honest in the public sector, producers of public goods would make better decisions, so consumers would want to spend more and more money in the public sector. The tax rate would go up and up… the private sector would shrink and shrink …until it was completely gone.
The tax rate would be 100%, but it would be ok because everybody could choose where their taxes go.
I think it’s inevitable that “pragmatarianism” will lead to “pragma-socialism”. People will be more honest in the public sector, which means that they will more effectively put their heads together. If this theory is correct, then right now the members of Honest Cash and Cent are putting their heads together more effectively than the members of Reddit, Facebook, Twitter and all the other sites where options are ranked by voting.
Life is all about prioritization, which is why everything boils down to ranking options. If it is truly the case that the market is the best at ranking content options, then it is also truly the case that the market is the best at ranking governance options.
Moreover, men’s desires when left to achieve their own satisfactions, follow the order of decreasing intensity and importance: the essential ones being satisfied first. But when, instead of aggregates of desires spontaneously working for their ends, we get the judgments of governments, there is no guarantee that the order of relative importance will be followed, and there is abundant proof that it is not followed. — Herbert Spencer, An Autobiography
