Thread by @interfluidity

This essay by @VitalikButerin, in dialog with @nathanairplane, is very good. I'll highlight two points I already agreed with, and a third which is new to me, interesting and creative. vitalik.ca/general/2021/0… via @KlingBlog 1/

So often people tell me that, sigh, the root of human suffering is coordination problems, that if only we could overcome our prisoners' dilemmas, what a better world we'd have of it. This misses a crucial point @VitalikButerin makes. 2/

The bones of nearly all functional social institutions are coordination problems. We rely upon them. No government wld be stable if incumbency + existing procedure weren't a hard-to-reroute Schelling point. Market competition depends on diverse producers failing to coordinate. 3/

Here's @VitalikButerin. Blockchains are often touted as means of overcoming coordination problems, but as he points out, security via "decentralization" is precisely the construction of a coordination problem (which may sometimes alas be not so difficult to overcome!) 4/

Next in the points I already agreed with is this bit, re intrinsic vs extrinsic incentives. I increasingly think the most important part of "mechanism design" lies in finding ways to anchor mechanisms outside of payoffs, in virtues that can't be bought or sold. 5/

Turtles of economic incentive can't go all the way down. When you try, things go awry. Which brings us to the provocative, very creative observation. 6/

Coordination we don't like we call collusion. It's odd to say that finance is the result of tolerance of collusion. Modern financial markets are full of regulatory forms that are devoted to enforcing rules, ostensibly neutrally adjudicated in order to ensure "fairness". 7/

@VitalikButerin even shouts out the legal traditions protecting minority interest in firms as an anticollusive device essential to mainstream, contemporary finance. So did he just not read his own essay? 8/

There are these anticollusive elements in what we call finance. But are they persuasive? We have rules against insider trading and market manipulation, but the sophisticated we know that lots of stuff hedge funds and "BSDs" do amount to that, in substance if not quite in law. 9/

When we lament "financialization", we're not upset about useful coordination in positive sum games whereby well-arranged monetary incentives make everyone better off. 10/

That's the theory, but we perceive in practice devolution to strategic games that are extremely difficult to regulate for any external purpose whatsoever, because cash flows elude accountable identities and risks can be cleverly reallocated and defeased. 11/

This escape, suggests @VitalikButerin, is the je-ne-sais-quoi that distinguishes finance from other kinds of institutions. It's not necessarily bad, exactly, but it's not bakers and wheat farmers mutually hedging risks in a clearly pro-social handshake either. 12/

For system designers and political reformers, finance in this view is not a toolkit, but a skein, a site of unpredictability and hazard, but also energy and action, possibilities of construction and destruction. Maybe some good can come of it. 13/

But if so, something else, some anchor with whom or which "players" are unable to resolve coordination problems, despite serious mutual profit if they could, must somehow be constructed and sustained. 14/

The trouble with the world isn't (just) how hard it is to solve coordination problems. Much of our trouble derives from how hard it is to stage problems motivated actors cannot coordinate around and undermine. 15/

In a financialized era, we no longer believe the judge is immune from elaborate, often tacit, strategic coordination in service of mutual profit. In blockchains and real life, coordination problems aren't the problem, but rather how clever we have become in overcoming them. /fin