Decentralizing Our Way Out of the Failure Mode: A Provocation

What would a Constitutional Convention for a decentralized economy look like?

That’s the question I was kicking around in my head after submitting an assignment for my public policy class (I’m a privacy researcher at UT Austin). So I figured I’d turn my assignment into a post, given that the topics touch on governance, coordination failures, game theory, and DAOs.

If you squint just so, you can trace an intellectual lineage from the Articles of Confederation to our latter day decentralized dreams.

But where the loosely coupled predecessor to the U.S. Constitution failed due to widespread inefficiencies and transaction costs, the blockchain may yet deliver.

If you’re intrigued by the governance possibilities of the web3 space and/or fed up with status quo civics, I invite you to read my answers. As you read, try to answer the provocation yourself: what would we ratify if we set out to ratify the Constitution anew?

What are three ways that public policy professionals influence policy?

(Feel free to skip this one is a quick primer on civics bores you…)

There are numerous points of entry to influence U.S. public policy aside from the typical “how a bill becomes a law” legislative process that high school students learn in social studies classes.

Some states offer public referenda wherein citizens practice a form of direct democracy. Executive orders made with the advice and consent of the National Security Council affect matters related to defense, classified information, and military response. Professional bureaucrats working for executive agencies enjoy significant discretion to interpret and carry out laws made by Congress. Finally, the judicial system provides an avenue via what is often called a “test case” pursued by actors who believe courts would issue a more lasting or favorable outcome than legislative action, direct referenda, executive decree, or agency efforts.

Almost all these policy strategies emerge out of more upstream activity by special interest groups that lobby lawmakers, public relations practitioners who seek to shape public opinion, and activists who raise public awareness of and demand for certain policy outcomes.

Do you consider these methods ethical?

Answering whether any of these methods is ethical depends on how one defines ethics. Are we looking for a deontological or consequentialist evaluation – or perhaps one based purely on professional ethics? I’ll offer my own views: we need systems rooted in ethical frameworks and shared information ecologies that enable disparate actors to coordinate against civilization-scale, long-term problems and catastrophic risk. (We have no such systems in place today except perhaps in China, which handles the coordination part exceptionally well but drops the whole entire ball when it comes to ethics.)

No governance mechanism can be seen as ethical that invites and rewards influence by overly reductive, ideologically motivated proposals that favor narrowly defined interests at the expense of externalized harms diffused to third parties who did not -- and could not -- participate in stating the problem or formulating its solution. (See my essay on participatory design in Web3.)

“A problem well stated is half solved,” as the saying goes. A political system that does not bias for collective sensemaking – one that by design advantages special interest groups and rent seekers whose fiduciary responsibilities force the exclusion of common consensus in favor of concentrated benefits – cannot possibly be ethical.

To explain why, I’d need a lot more space. Instead, here’s an analogy:

The human body is a system that is multiple orders of magnitude more complex than a political economy of municipalities and sovereign states. Yet its organs are not in competition with one another. Kidneys do not vie for oxygenation at the expense of the liver; lungs do not hoard blood cells and cheat surrounding organs out of vital nutrients. Bodies like this do exist, but we consider them sick and we treat them for their maladies.

But as actors within our current political economy, we do not perceive ourselves as inextricably attached to a larger ecosystem from which we are wholly inseparable and without which we would not survive in the way that kidneys could not filter without a liver and lungs could not aerate without surrounding tissues.

Why? Does that make any sense to you, if you were to step back and think at the macro level for just a second?

We do not survive as individuals outside our interdependent social, biological, and ecological context, so why do we design and incent instructions to respond to narrowly defined interests? I am not alluding to a philosophical dichotomy between the social contract versus “man in the state of nature.” We physically perish without air, water, bacteria, selective pressures, and geological cycles, so any governance system where participants act in ways that maximize individual utility at the expense of the entire organism is maximally inefficient and definitionally unethical whether you’re Kantian, consequentialist, or Catholic.

It’s a prima facie failure. So no, our existing methods of influencing policy are not ethical.

The electoral college is a reflection of the U.S. Senate, in which small states have disproportionate influence. How does the composition of the Senate affect public policy?

James Madison was rightfully concerned about majoritarian factions who exert outsize influence and tyrannize minorities. He devised the U.S. Senate to protect institutions from yielding to “sudden and violent passions” and from being “seduced by factious leaders into intemperate and pernicious resolutions,” as he put in Federalist 62.

The impulse to guard against populist passions was directionally correct, if ineffectual in practice: the U.S. Code is almost exclusively an artifact of loud and visible groups who place their own self-interest above any collective idea of a nation – precisely because they are incentivized to do so, so who can even blame them for playing to the game’s design? Meanwhile, policymakers are stuck in a perverse balancing act between logrolling, posturing, and capitulating to electoral pressures over long-term problem solving.

Is this good for the country?

Far more than Madison’s feared tyranny of the majority, ours is a tyranny of balkanized special interest minorities with intense preferences and powerful lobbies to whom we dole out concentrated outcomes while diffusing costs across unaccounted populations and future generations. When systems abstract away costs, literally everyone else except the transacting parties gets stuck footing the bill (which is one of the reasons the blockchain is an interesting experiment in human coordination, but more on that below).

Plus, we get the perplexing bonus of general election outcomes that defy rank-ordered preferences. No, it’s not good for the country.

Summation of readings and lectures

Hokay, so, I understood the assignment, but one does not simply do the assignment.

Me, when I do the assignment.
Me, when I do the assignment.

I adapt these to my own needs, because I’m the one paying for this degree. A summation to prove I did the work does nothing to advance anyone’s thinking anyway, so instead I reflected on how the concepts relate to my own Web3 research.

It feels odd to say, but I enjoyed reading this textbook. It was a satisfying refresher of public policy concepts I had studied as a political science major in undergrad. Early in my career, I worked for a variety of libertarian and right-of-center offices and organizations, spending my time in circles where Ronald Coase and Gary Becker enjoyed mythical status and quipping casually about externalities, incentives, rational choice, and behavioral economics was a form of social capital. You could win the day – and the girl – if you could work out how to turn Pareto efficiency into a Halloween costume. It was a weird and wonderful time.

I mellowed out a lot since. Perhaps it was the six years I spent working in Rwanda (but on market-based solutions, nonetheless!), perhaps it is the humility that comes with age, or perhaps I am now firmly on what David Brooks calls my Second Mountain, but I am far less attached to politics and ideology, and far more obsessed with optimizing empirical outcomes than extolling the a priori virtues of the Austrian School.

Today, I focus much on my time and energy on the blockchain space because many of the people in it share a grounding in political economy and are similarly committed to civic progress. Like me, many are exasperated by the current state of game theoretic ideological capture and see the custodial web and centralized intermediaries as particularly pernicious variants of principal-agent problems that excel at exacerbating all of humanity’s underlying follies.

Many of us powerfully wish to advance civilization to positive sum thinking and – dare I say it – evolve, if only we could moderate the hype and ebullience of this moment in technological innovation by leaning on the lessons of history to keep us from repeating the same tired mistakes. We might sit around blithely quoting de Tocqueville while ruminating on the perils of DAOs and direct democracy, but we’re eschewing the status quo bias that dictates that we already have the best system of governance available given all the other ones. Instead, we search for Schelling Points that might increase systemic trust just enough to align rational self-interest with the common good.

Perhaps the difference between then and now is that Elinor Ostrom hadn’t yet won a Nobel Prize for her collective action theory, so the only framework I had was a game theoretic one. And whereas I had been firmly convinced that the best way to moderate the excesses of our lesser angels was to let them duke it out on the open market, I now think that leads to a self-terminating arms race that ends in species extinction, and we’re lazy if we’re satisfied to throw our hands up and declare, “Welp, that’s the best we’ve got!”

Stewarding the commons in a game theoretic world is the most inscrutable problem humanity has ever faced, but the unique affordances of decentralized finance and governance provide an intriguing opportunity to test some of Ostrom’s ideas. As Jared Diamond put it Collapse, “We…have a detailed chronicle of human successes and failures at our disposal. Will we choose to use it?”

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