Competitive Governments on the Ocean

Patri Friedman and Brad Taylor make the case for Seasteading in the latest issue of Kyklos.

We argue that those advocating the reform of current political systems in order to promote jurisdictional competition are in a catch-22: jurisdictional competition has the potential to improve policy, but reforms to increase competition must be enacted by currently uncompetitive governments. If such governments could be relied upon to enact such reforms, they would likely not be necessary. Since existing governments are resistant to change, we argue that the only way to overcome the deep problem of reform is by focusing on the bare-metal layer of society – the technological environment in which governments are embedded. Developing the technology to create settlements in international waters, which we refer to as seasteading, changes the technological environment rather than attempting to push against the incentives of existing political systems. As such, it sidesteps the problem of reform and is more likely than more conventional approaches to significantly alter the policy equilibrium.

I love this line of work. Milton Friedman said that good government is best-case thinking; we need to constrain government. David Friedman said that constrained government is best-case thinking; we need market-based anarchy. Patri and Brad say that market-anarchy is best-case thinking; no government will cede territory to let it happen.

They aim a cannon at public choice theory:

Public choice theory tells us that we have bad rules because we have bad meta-rules. This merely shifts the question one level higher, however: why do we have bad meta-rules? This question has received much less attention from public choice theorists.² Constitutionalists generally fail to extend their dispassionate critique of policy choice to the constitutional level (Farrant, 2004), arguing that current decision-making rules tend to produce bad policy outcomes yet expecting the same flawed institutions to produce good constitutional rules (Witt, 1992).

And, they give a solution to Caplan's Tiebout capitalization problem:

... dynamic geography addresses the concern of Caplan (2001b) that Tiebout competition is undermined by the fact that governance quality is capitalized into real estate values. When land is tied to a particular jurisdiction, reductions in the quality of governance will immediately lower land prices. This means that landowners have no incentive to exit bad jurisdictions, since they have the choice between putting up with low-quality governance and taking a capital loss when they try to sell. Fascinatingly, however, this is not the case on the ocean. Since floating real estate can be moved between jurisdictions, its value is not permanently reduced by a property tax increase, because there is the alternate use of moving the real estate to a new jurisdiction. This restores the property of a well-functioning market, where resources go to their highestvalued use. Floating real estate will move to the jurisdiction where it is the most valuable whenever the value difference is greater than the cost of moving it. This cost will be substantial, yet based on the cost of moving oil platforms, is likely to be a small fraction of the value of the real estate. Thus, exit remains a check on government power on the ocean.

Harford argues for experimentation and failure as a way of figuring out what's best. Friedman and Taylor argue Seasteading provides a mechanism for polities to fail gracefully:

Unfortunately, political instability tends to be accompanied by bloodshed, producing a tradeoff between peaceful stability with high levels of rent-seeking and violent instability with low levels of rent-seeking. Seasteading allows us to have political instability without bloodshed (Chamberlain, 2009). If rent-seeking becomes too harmful in an ocean polity, the population will gradually float away. This allows the polity to die without being overthrown violently. Dysfunctional governments would no longer take up valuable land, but would wither and die based on the preferences of citizen-consumers.

Where David Friedman looked to saga-era Iceland as example of anarchist order, Patri and Brad look to the Bajau Laut's pagmunda moorages.

The biggest challenge remains existing territorial governments; should Seasteads prove too successful as competition, we could easily imagine the French sending in dive teams with explosives or the Americans sending in a carrier group. Patri and Brad reckon business models focusing on relatively innocuous applications like innovative medical tourism will not only avoid annoying existing governments but could also build support for Seasteads from within those countries' existing voter bases: would you really support bombing the place that's working out nanobot alternatives to the hip replacement surgery you're going to need in a few years? I still worry this might be a bit of best-case thinking; the Americans can always fabricate an incident whipping up support for a bombing run if they want to.

But I still reckon Seasteading the best value play around. The odds on its all panning out still aren't great. But the upside gains are potentially very very large.

Crypto-optimism

Eli Dourado's excellent discussion of technologies of control and technologies of evasion reminds me of the anarcho-optimism of Cryptonomicon. Eli builds a business cycle story:

Here’s my model. First we need to differentiate between two kinds of innovation and think about their effects. The first kind of innovation is geared toward brute maximization of production. It is typically centralized and makes use of economies of scale. Examples might include an assembly line factory or a big, coal-fired power plant. Because these innovations tend to be centralized, they introduce points of control. The capital is typically fixed and therefore easy to tax and regulate. It’s well known in the development literature that it’s really hard for governments to control rural peasants who live off the grid. Once they move to the cities and plug into centralized services, it is easier to require them to send their children to school, for instance. Because these innovations introduce points of control, I will call them technologies of control.

On the other hand, not all innovations are about brute maximization of production. Some are about producing things that we already know how to produce in ways that have ancillary benefits. An important ancillary benefit is evading control. Examples of these innovations include 3D printers and solar power. The evasion of control that is possible with 3D printers is the subject of Cory Doctorow’s short story Printcrime. And portable solar power cells can make people harder to control by supplying electricity without the need to register an address, have a bank account, stay put, and so on. These are obvious examples, but control can be evaded through more subtle innovations as well. I will call innovations that circumvent points of control that can be used by governments or monopolies to exploit, tax, or regulate technologies of resistance.

Now, postulate some background rate of innovation. How many resources will be devoted to technologies of control and how many to technologies or resistance? The answer is that it depends on how invasive the state (or other monopolies) are. When the state is invasive, at the margin the incentive is to find ways to circumvent the points of control; a greater proportion of resources will go into technologies of resistance. When the state is non-invasive, at the margin the incentive is a purer maximization of production; a greater proportion of resources will go into technologies of control, which results higher growth.

Add in time-to-build or other frictions in shifting capital from technologies of control to technologies of resistance, and we get cycles.

I love the story, but I'm not sure how well parts of it match the stylized time path. Here's Eli:

So far, I’ve been pretty general about technologies of resistance, but I want to tie it back into McJolfsson’s story about rapid skill-biased technical change. The key point is that labor is extremely regulated; firms that use labor are subject to intense government control. In part this is because policies that give labor a “bigger piece of the pie” are popular with voters, and in part it is because labor can complain and enforce its rights in a way that machines cannot. If you own a business and you are subject to intense government control, you are going to invest resources in circumventing the points of control. In our economy, that means getting rid of lots of labor as cheaply as possible, which means skill-biased technical change. As Arnold Kling has said, “if a job can be defined, it can be automated or outsourced.” But it’s because there is so much control exercised in the labor market that the incentive to automate and outsource is so high.

Agreed. But surely American labour market regulation has been in decline since the late 1970s. I have a hard time seeing a big labour regulation shock anywhere in the 2000s that would have precipitated a dumping of labour. I suppose the shock has to come from technology reducing the costs of substitution more quickly than labour market deregulation reducing the need for such substitution. Do read Eli's full argument, which brings together Brynjolfsson's techno-optimist story with Cowen's Great Stagnation.

I'm a long term optimist on technologies of evasion. Eventually, something like BitCoin will be successful. Meanwhile, Patri is sparking more real-world hacks around control. The latest one: floating platforms 12 miles off San Francisco where foreign tech entrepreneurs could route around idiotic American immigration laws.

This immigration issue deeply affected the Blueseed team, of which two are immigrants (from Serbia and Romania), and the other is the son of Cuban immigrants. Rather than accepting the current reality, Dan tells us, "If U.S. policy hasn’t kept pace with the changing economic realities of the era, someone needs to find a solution that will help entrepreneurs come to Silicon Valley if they so desire. And that someone might as well be us. In other words, it’s time to stop complaining and start solving the problem."

On their website they state they plan to start accommodation prices off at around $1500 a month, and transportation will be provided to the mainland by a daily ferry. Internet connectivity will be provided via a point-to-point 40Gbps laser link with satellite link backup. They are also looking at additional backup solutions using submarine cable and potentially a series of WiMAX relay buoys. A visa is not required to earn a paycheck on Blueseed, and most residents will be able to travel back and forth to the mainland with a business/pleasure B1 Visa.

I worry that it will be really easy for the government to change a line of regulatory code to make it tough for Blueseed residents to commute back and forth; but, I'm also not sure that they'll face big pressure to do so and regulatory inertia would then work in Blueseed's favour. Until some California Congressman reckons the extra votes he gets from making a stink about platform-dwellers stealing jobs swamps the costs he'd impose on the tech industry.

Freedom's Angel Investor

Peter Thiel gets a nice feature write-up in Details:

Despite the innovations of the past quarter century, some of which have made him very, very wealthy, Thiel is unimpressed by how far we've come—technologically, politically, socially, financially, the works. The last successful American car company, he likes to note, was Jeep, founded in 1941. "And our cars aren't moving any faster," he says. The space-age future, as giddily envisioned in the fifties and sixties, has yet to arrive. Perhaps on the micro level—as in microprocessors—but not in the macro realm of big, audacious, and outlandish ideas where Thiel prefers to operate. He gets less satisfaction out of conventional investments in "cloud music" (Spotify) and Hollywood films (Thank You for Smoking) than he does in pursuing big ideas, which is why Thiel—along with an all-star cast of venture capitalists, including former PayPal cohorts Ken Howery and Luke Nosek, and Sean Parker, the Napster cofounder and onetime Facebook president—established the Founders Fund. Among its quixotic but potentially highly profitable investments are SpaceX, a space-transport company, and Halcyon Molecular, which aspires to use DNA sequencing to extend human life. Privately, however, Thiel is the primary backer for an idea that takes big, audacious, and outlandish to a whole other level. Two hundred miles west of the Golden Gate Bridge, past that hazy-blue horizon where the Pacific meets the sky, is where Thiel foresees his boldest venture of all. Forget start-up companies. The next frontier is start-up countries.

"Big ideas start as weird ideas." That's Patri Friedman, a former Google engineer, the grandson of the Nobel Prize-winning economist Milton Friedman, and, as of 2008, when Thiel seeded him with the same initial investment sum he'd given Mark Zuckerberg four years earlier, the world's most prominent micro-nation entrepreneur. Friedman, a short, kinetic 35-year-old with a wife and two children, maintains an energetic online presence that ranges from blogging about libertarian theory to tweeted dispatches such as "Explored BDSM in SF w/big group of friends tonight." Four years ago, a Clarium Capital employee came across a piece Friedman had written about an idea he called "seasteading." Friedman was soon pitching to Thiel, a staunch libertarian himself, the big, weird idea.

I'd love to spend a sabbatical year on a Seastead.
I'm extraordinarily pleased that my former Masters student and co-author Brad Taylor is working with Patri to make Seasteads happen.

Copyright shakedown: Friedman edition

A year ago, I wrote that we might expect pornography producers to start seeing copyright lawsuits as a profit center.

A month ago, Camelot Distribution Group started sending out infringement notices alleging that the recipient had downloaded "Nude Nuns with Big Guns" and that he would be publicly named in a lawsuit as having downloaded the film unless he settled out of court. They seemed to reckon on most folks paying up quietly rather than have their names associated with such titles.

And yesterday Patri Friedman received his letter in the mail. If Camelot's litigation strategy relies on accused folks being too embarrassed to want to fight the charges, they might have picked the wrong guy.

Update: time constraints are more binding than shame constraints. Prediction: Camelot won't pursue things further with Patri.

Folk activism

Patri writes, if not eloquently, then at least graphically about the perils of folk activism:

She’s complaining about a policy that does exactly what we expect democratic policies to do, and advocating for a different policy that would be against the goals of special interests (“Want to get corporate money out of politics?”) and better for society as a whole. As I said in a Students For Liberty talk this past weekend, for all the good this approach does, McArdle might as well have called a press conference and farted into the microphone.

My metaphor is deliberately provocative because I find this pattern so appalling, and it seems absurd that economists so often ignore these basic results in their own field. It moves me to shout: We do not live in a world that mainly suffers bad policies due to lack of ideas about better ones, or lack of elegant explanations supporting good policies, but one that suffers bad policies due to system and meta-system level incentives. In the real world, if you want to have any chance at any effect on changing bad policies, you must take this into account, frustrating and difficult though it is. Vaguely assuming that the problem is not enough eloquent blog posts or op eds is like finance professors actively investing in individual stocks (ignoring both efficient markets & diversification), or nutrition experts living on Twinkies – experts behaving directly contrary to the most basic results in their own fields.

Ouch.

Here's my best counterargument to Patri, coloured by that I spend a reasonable amount of time arguing about stupid policy and dishonest statistics.

First, policy outcomes, on the whole, reflect voter preferences. All the special interest stuff matters, but in the details of policy rather than in its broad sweep. Why do we have lots of transfers to the middle class? Because the median voter likes that. Why do we get crazy ag support programs (at least in the US, EU, Canada... everywhere but NZ)? Because the median voter has vague fears about losing control of "our food" and has some idea of the programmes' supporting bucolic countrysides. How much goes to dairy and how much goes to peanuts? That's special interest lobbying.

Why are we getting all this nanny state nonsense? I'd argue it's because voters are reckoning that costs of others' behaviour are now being borne by them, via public health systems. And they've overestimated those costs due to biased cost studies. And so I reckon it worthwhile to spend time punching holes in dishonest cost studies. It might not move the median voter a lot, but we're all part of the equilibrium.

Second, we'd also want to worry about excessive optimism about the prospects for institutional change. If public choice says we need to change the incentives to change political outcomes, why would we expect those who profit by current arrangements not to fight against such changes? Is it more futile to argue against policy X or against the institution that generates policy X?

Big picture, Patri's right: the only way to get transformative change is by increasing competition in government. Seasteading. But isn't a division of labour optimal? If Patri's work pans out, the whole world gets a lot better in the long run. The rest of us help make the current world a little less sucky by making it incrementally harder to pass bad legislation.

Again, we're all part of the equilibrium. Efficient markets hold because some finance profs (and others) do go in and correct prices when their research identifies a firm the valuation of which is out of whack.  Voter opinion gets further out of step with reality when public choice folks withdraw from policy debate.

And sometimes the nutrition experts do eat Twinkies.

Seasteading sabbatical someday...

Seasteading nicely covered in Prospect:

How about a seastead-based university? It could start as a boarding school but quickly add undergraduate courses in, say, engineering, aquafarming and oceanography. Later it could become a fully fledged global brand—the nucleus for a Stanford-like university town, complete with high-tech spin offs and sea-related enterprises. The venture could perhaps cater to a particular developing nation and be staffed by teachers from that country, or from nations sharing a similar culture. The unapologetic intention would be to create an elite network whose members, by virtue of a shared education, could effectively lead their home country towards a better future.

So, the only question then is whether the Seastead will be running 7, 14 or 21 years from now? I'd love a Seasteading sabbatical. Patri, make it happen!

Lifeboat situations: Ephemerisle Edition

The one event closest to an “incident” was a perfect fable of libertarian communalism (trying to run an improvised society without lots of rules) versus libertarian propertarianism. A swing-set boat was drifting in the waterway and had to be dragged in. The boat that volunteered to do so was sinking; the people stuck on the swing set were shouting for help, the last thing any of us wanted to hear.

So the nearest boat, a rented speed boat, was taken out by a Samaritan, against the wishes of the people who had rented it. I witnessed a tense, repetitive, and ultimately inconclusive debate between the boat owners and Rinaldi, as they took the stance of paying customers wondering why the event didn’t have a better plan for such eventualities than just grabbing the nearest boat. Rinaldi argued that they did have a designated rescue boat, it was just blocked by the complainers' boat. So this ruleless community had to improvise the best solution to the emergency that arose. In Rinaldi's view, the boat renters were really demanding that Ephemerisle have a government to take care of them. But if they were unwilling to pitch in and help, maybe they’d be better off not participating in a ruleless community. No one budged; the conversation wound down with Rinaldi assuring them that, even as they complained to him, if he heard someone shouting “help” and their boat was still the quickest means at hand, he’d temporarily commandeer it again.

Brian Doherty, Building Ephemerisle, Reason

Lifeboat situations at Ephemerisle....

At next year's Ephemerisle, I expect they'll construct a situation in which a sinking ship with ten people on it can be saved by someone throwing a lever that causes a ship with two people on it to sink instead, and another where they can only save the ten people by pulling the lifejackets off of two non-swimmers in the water to aid the ship's buoyancy. What will they do? Stay tuned....

Update: yes, I am just jealous...

Patri Friedman on National Radio

Patri Friedman featured on Afternoons with Jim Mora on National Radio on Tuesday last week. The audio is available here, but I'm not sure for how many more days the link will work. I'd held off on blogging this one because Patri's interview aired about an hour before I sent out the take-home final exam for my public choice undergraduate class. The last question on that exam asked students to evaluate the prospects for Friedman's Seasteading as compared to Paul Romer's Charter Cities.

Unfortunately, Patri's audio feed isn't as good as it could have been. But still well worth a listen. Mora's done his background research and gives a friendly, albeit somewhat bemused, interview.

Motorcycles

Patri Friedman will think less of you if you drive a motorbike: they're just too risky. He cites stats of fatality rates twenty times those of automobiles, corrected for miles driven.

But those numbers don't correct for agent type. What he really needs, and what I don't think exists, is data on relative fatality rates for risk-averse drivers in both types of vehicles. I'm sure motorcycles are still riskier, but twenty-times riskier, correcting for agent type?

Specify that there's an underlying distribution of risk-aversion running from highly risk averse to highly risk/thrill seeking. And, suppose agents sort across vehicle class by underlying risk aversion. So the most risk-averse agents buy a Volvo, the median agent buys a Toyota, and the most risk-preferring agent buys a motorbike. If we then find that motorcycles have higher fatality rates than cars, I don't know what portion of the difference comes from agent heterogeneity and how much comes from motorcycles being more dangerous.

How could you tell? Well, one way would be to check the proportion of motorcycle riders with health insurance as compared to car drivers. David Hemenway's propitious selection story suggests that risk preference is correlated across different types of behaviour, so adverse selection stories in insurance are overstated: he finds that motorcycle riders in accidents without helmets are more likely to be uninsured than those who wore helmets. In other words, folks who like risk take more risks. So, get some measure of risk preference derived from health insurance status (or life insurance, or credit rating, etc), use it in probit estimation for the likelihood of being in accident, then adjust the motorcycle stats for underlying agent type. It would be a big job, and I'm not going to do it, but it would be a cool paper for somebody who had ready access to the data.

So, to the extent that Patri is right to cast aspersions on motorcycle riders, it's because it might be an efficient signal of underlying agent type. But Patri, if you already have all kinds of other signals about somebody's underlying type, perhaps don't downgrade an otherwise risk-averse person quite as much as you otherwise would: it's highly unlikely that they're facing a 20X average risk.