Decentralization, Recentralization
Victory Conditions and Surprise Endings

Victory Conditions and Surprise Endings

Narrated by Balaji AI.

Many video games have the concept of good and bad endings, like Shattered Union and Starcraft. We’ll take that approach with the sci-fi scenario we outlined, describing some Victory Conditions for different factions as well as Surprise Endings that give an unexpected twist. Again, this is a way to think through an uncertain future with some scenario analysis, not a hard and fast set of predictions.

The Victory Conditions 

The “Base Rate Fallacy” Fallacy 

This is a scenario where the US establishment wins, and averts American Anarchy.

In 2020, Tyler Cowen wrote about how “base-raters” and “growthers” differ regarding the coronavirus. Growthers looked at the growth rate of the virus, which at the time was exponential. Base-raters start by asking how often something has happened before; they assume things will more or less stay the same.

So, base-raters assume the post-war order remains intact; the dollar remains number one; the USA stays number one; China will collapse like Japan; everybody always says the West is declining, but it’ll always reinvent itself; it’ll be okay; you’re too concerned or worried about this, etc.

If the Base Rate Fallacy is assuming tomorrow will be like today, then the Base Rate Fallacy Fallacy is assuming that the Base Rate Fallacy is always a fallacy. After all, tomorrow often is like today! The growther always thinks that change is going to happen, but it may not.

So what does the establishment win scenario look like? It’s the same thing we’ve already got. The post-war order just keeps on keeping on in a zombified fashion. There’s no dramatic acceleration or collapse. Instead, the West just keeps reinventing itself and all is mostly well.

If you want a faithful rendition of this worldview, this thread by Vuk Vukovic is decent. I disagree with many bits of it, including the idea that discord is our strength. And I think in general that the thread is fairly anti-empirical; the graph of long-run interest rate trends alone shows that something is going to run out of juice eventually. Still, it’s worth a hearing.

China Can Make a Pencil 

This is a scenario where the CCP wins, and Chinese Control triumphs.

How might China become the most prosperous and stable country in the world, even if it’s unpopular in some places abroad, and even if the US attempts to financially or socially sanction it? China would become an autarkic autonomous autocracy.

To understand this, let’s start with a famous libertarian story: “The Pencil.” The idea is that no one person can make a pencil. After all, a seemingly simple pencil is composed of wood, graphite, yellow paint, the metal that contains the eraser, and the eraser rubber itself. But creating each of these things in-house would require running a variety of different agricultural and mining operations. So instead of having one person do all of that, the capitalist system makes a pencil in a “networked” way. We use prices as an API, so that different organizations can spin up, produce components in a cost-effective way, use their profits to grow or maintain themselves, and adapt without coordinating with each other.

But that was then. Maybe Chinese Communism with the digital yuan is different. What happens if you have a computer system which really does know about every vendor, that has every record of every payment, that can actually see the global supply chain, and that knows every single person (or robot) required to make that pencil? It is a large, but finite problem after all. Maybe such a system can solve Hayek’s calculation problem.

We already have proof points for this. If you run a two-sided marketplace, you’ll find contra Hayek that not all knowledge is local. For example, Sidecar lost to Uber because drivers set prices themselves, as opposed to setting them centrally. Hayekians would agree that Sidecar’s approach was optimal: drivers have local knowledge and central planning can’t work. But Uber’s central planning did work. They had a global view of supply & demand. And riders wanted speed, not price shopping.

So, that’s what this win scenario contemplates. If China integrates AI with the digital yuan, and makes their entire economy computable, at their scale they might actually be able to make a pencil. And everything else.

Recall that previous abstractions like “six degrees of separation” or “written history” became very real once social networks digitized decades of interaction and communication by billions of people. So too would previous verbal abstractions like “the economy” or “the supply chain” become actual computable objects when you have every transaction and vendor in the same database. Basically, all the blockchain supply chain concept actually could work, but only if all payments (and hence receipts) are on-chain — or in something like a blockchain, which is what the digital yuan may be.

This is doubly true if AI-driven robots are carrying out many of these functions. China might be able to internalize huge swaths of the economy. It could mean full stack production of everything, hyperdeflation of living costs within China, where labor becomes electricity. In this scenario, no one person can make a pencil, but China can make a pencil, because they can algorithmically coordinate the supply chain of millions of cooperating humans in a way no one has ever been able to do before. They’d still need the raw materials, but their alliances with African countries, Russia, and places like Iran might take care of that.

It’s essentially the vision of Red Plenty, Soviet-style central planning made feasible with superior computation and robotics — so that the robots actually did what you said they’d do, and didn’t have that pesky self-interest getting in the way like humans did. It’d be a riff on Aaron Bastani’s fully automated luxury communism, where the communistic parts would be the robotic parts — as they would lack any economic interests of their own, and move as one.

In this win scenario, the Chinese Communists might have the highest standard of living on the planet, as much higher than the US as the US was relative to the USSR, not only because they actually make physical things, but because they could see the full stack, have data on everything, track every transaction, and deploy AI and robotics in the physical world.

Of course, that standard of living would be achieved in an ethnonationalist society with a bone to pick with the US in particular. And it might result in a Greater East Asian Co-Prosperity Sphere 2.0, this time under Chinese rather than Japanese terms. Everyone would have to bend to Chinese hard power to get the benefit of their robotic economy.

In this scenario, the Chinese might even choose to copy the tactics America used in the Russo-Ukrainian war: namely, physically sanction any group or state that opposes them, thereby cutting them off from the supply of goods from an increasingly physically autarkic China.

I don’t like this world, because it cuts against the convenient outcome of the late 20th century, in which the system that produced freedom also produced prosperity. But the experience of two-sided marketplaces shows it is a possibility.

The Surprise Endings 

Duopoly of Digital Despotism 

In this surprise ending, the U.S. establishment and the CCP work together to stop the global Bitcoin and web3 insurgents. It would be like the US and the USSR aligning against the Third World.

Now, there was actually one example where that happened, when the US and the Soviet Union were on the same side, and that was the first Iraq War in 1990. The Soviet Union actually voted with the US in the UN Security Council to condemn Iraq. That was a huge moment, because normally they were reflexively oppositional.

The explicit version would be something like this, where the otherwise hostile US establishment and CCP both decide that BTC and/or web3 are a threat to their power, and try to denounce it at the level of the UN, a bit like their quasi-cooperation on non-political issues.

There’s also an implicit version of it, where they team up without teaming up. The US establishment on many levels admires the CCP crackdown on speech. For example, in The Atlantic they said China took the right course on internet speech, and in the NYT they noted that Free Speech Is Killing Us. The US establishment did copy Chinese lockdown, without admitting it.

And so you could imagine them teaming up without teaming up, where China does something, then the US establishment copies it, maybe without acknowledging it, and they thereby perform an unacknowledged pincer attack against technologies that oppose them, a bit like the Molotov-Ribbentrop Pact.

We call that scenario the duopoly of digital despotism.

Bitcoin Ends Human War, but not Robot War 

A key thesis of The Sovereign Individual – and an important argument for Bitcoin and cryptocurrencies more generally – is that if a government cannot seize money, then it cannot start wars.

Why? If a state can’t coerce, it can’t pay to enforce conscription, or pay the conscripts themselves, or seize the money to pay for all the equipment needed to prosecute the expensive industrialized wars of the 20th and early 21st century.

There’s a book called Gold, Blood, and Power: Finance and War Through the Ages that describes how finance was a weapon of war, and that the 20th century was one of the first times where huge wars have been fought without any country running out of money. The only thing the countries ran out of were bodies, because they were giant centralized states that could seize everything in their territory, and could propagandize everyone in their territory, and could just drive total war. So the Nazis, Soviets, and Americans just grabbed everything in their territory to fight these wars, like enormous ghosts that commanded millions of bodies in these titanic ideological combats.

How did they command those bodies? If you think about The Tripolar Triangle, the lower left corner of NYT is voice, and it’s convincing people with words. The lower right corner of BTC is choice or exit, and it’s convincing people with money. You can think of these as left and right democracy respectively.

But there’s a third pole. The top pole is loyalty. It’s CCP. Today, it’s AI. And it’s convincing people without convincing people at all. Because they’re all literally one. It’s harmony. And robots fit at that pole. Why? Because unlike a human soldier, a robot can’t be propagandized. And unlike a human soldier, a robot doesn’t need to be paid, just charged.

So: the problem is that Bitcoin could end human war, but not robot War. There would still be the question of funding the industrial capacity to manufacture the robots in the first place. But if you could get past that bootstrap problem…then there’s a scenario where CCP’s AI beats both BTC and NYT, and war keeps going. And now the only reliable soldiers are robot soldiers that can’t be propagandized by NYT and don’t need to be paid in BTC.

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