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Comment by imtringued | Hacker News Reader

Markets only exist within the context of a political system. They are just a tool to reach a certain policy outcome. The idea of using the free market to replace poor governance is laughable. It's the opposite. You have to set the right policies and incentives and only then will the free market show its true beauty. Markets fail or succeed because of improper or proper governance.

It's like a genetic/ML algorithm that is optimizing for a cost function. If your cost function is awful your algorithm will be awful but that's not an argument in favor of getting rid of cost functions entirely.

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Suppose you've got two political systems each vying for legitimacy. They each have their own currency, and their own set of policy outcomes.

Is it so laughable that whichever one achieves the best results for its users will be the one to establish both market and political dominance? Is letting such a competition play out via the value of their respective currencies any better than traditional means of resolving this kind of conflict (i.e. war)?

I'm not saying I have ultimate faith in the market to do the right thing--it frequently doesn't. But it sounds like you're saying that it can't.

Granted, BTC's political system involves allocating power based on who can waste the most energy--so it's a pretty laughable alternative to existing governments--but in principle I don't see why markets can't mediate the rise and fall political systems in a way that roughly mirrors the way that political systems mediate the rise and fall of companies.

There's that saying: - Those who make peaceful revolution impossible make violent revolution inevitable.

It seems to me that collectively changing whose currency we use based on their capacity for sound governance is the kind of peaceful revolution that we ought to strive for.

A market doesn’t work in countries without a strong government, since for a market to work, there needs to be faith that the other party isn’t going to break the rules of the market. If you’re trying to sell your goods and someone comes in with a gun, then you have to hope that either you have a gun or can call police. If you have to resort to using a gun, then that leads to huge costs and lots of dead people.

I'm not gonna say that that doesn't happen, but it's surely not the only thing that happens in places without an authority. People want to exchange goods, and they're typically willing to be clever in order to make that happen.

Already cryptocurrencies are implementing webs of trust to guard against this kind of thing (CirclesUBI). There are also things like MAD escrow (particl). And there's the old fashioned way, which is to get the community together and set up your own impromptu government.

I'm not saying that markets function well without readily available trust. But to say that they cease to exist in those contexts is surely taking it too far.

That's precisely the main innovation of Bitcoin. Without the aid of a central authority, people are able to decide on a set of rules that must be respected to play in the market. People can switch to different "markets" with different rules at will.

The value of these markets is itself decided through a free market.

Given a sufficient level of digitization, it's not hard to imagine how many kind of real world markets could be backed by Bitcoin-like systems.

Except for very narrow use cases I don't see how the rules you can enforce in a digital space like a blockchain network help when you don't have a stable meatspace system of law. A bitcoin transaction can be mathematically as bullet proof as you want, but that doesn't help make your meatspace assets any more bullet proof.

It doesn't take much law to make cryptocurrency secure for a person to hold: just protection from home invasion and torture. It can work quite well in otherwise highly dysfunctional societies.

Other forms of property ownership are much more fragile, and require a much more sophisticated legal system.

Ok, so no one can steal my crypto. But what if they accept my payment, and then they don't give me the items I payed for? Or vice versa - if I'm selling something and I give them the item, but they don't initiate the payment? What if the company I work for isn't transferring the BTC in our contract at the end of the month, because they ran out because their own customers haven't been paying?

With a regular currency, the government can print more money and at least have a chance for things going back to normal once the currency has a chance to go back up in value. But with a currency that's not controlled, you won't get payed in worthless money (inflation), you just won't get payed at all! And instead of getting back your lost value if the currency rises in power, you'll have to hope the contract will be honored at a later date, or massively overload the legal system.

Commerce generally works quite well, to the point that it works even when there is no legal compulsion to not cheat.

Bad actors are ostracized while good actors build followings, leading to reputation acting as an effective mechanism to find good actors to trade with, and incentivize people to become good actors.

In any case, when people are free to choose between government-recognized currency and non-governmental digital currency, they will choose the one that best suits each circumstance, leading to greater overall utility.

Yes, in a functioning economy. Here we are discussing what happens as an economy breaks down - as people stop being able to pay their debts, for various reasons.

I thought you were talking about economies with poorly functioning states, like say Ethiopia or Kenya. In these places, markets work quite well, they are just limited in the range of products and services they offer. They have limited access to the most useful financial and payment systems, like PayPal, due to undeveloped banking systems, blacklisting by governments of advanced economies, and bans by their own govermments.

Cryptocurrency offers a much more accessible alternative to global payment systems to the people living in these countries.

Usually, markets work quite well because they work face to face. Internet commerce on the other hand is usually extremely risky business if you don't have access to parties which can control that risk: strong, fair states that enforce complex laws in cases of disputes; 3rd parties that assume some of the risk, such as PayPal or eBay.

Bitcoin solves none of these problems. Sure, it allows you to at least assume this risk, which your country otherwise doesn't, so it's not nothing. But it's at best a band-aid.

It also doesn't protect you in any way from your employer not paying your salary on time, from being wrongfully terminated, from not being able to get a loan, from business partners not paying their debts because they can't sell their own products etc. These are usually the problems that a non-functioning state and non-functioning economy face.

>>Internet commerce on the other hand is usually extremely risky business if you don't have access to parties which can control that risk: strong, fair states that enforce complex laws in cases of disputes; 3rd parties that assume some of the risk, such as PayPal or eBay.

Cryptocurrencies can be used in person too.

With respect to eCommerce, EBay worked extremely well simply because of reviews. Not because of laws. And yes, people came to trust eBay, which was due to its faithful fulfilment of its obligations as a platform steward, not due to regulatory requirements imposed on it.

Will that be enough? AFAIK, every country's government (or some warlord) has a monopoly on violence and the law. If they wanted to, they could easily just draft a law mandating crypto to be stored in particular forms else can't be used/traded. Or they could simply invade your home on some bullshit pretext and seize all of your crypto. Both instances have happened before (and have been posted on HN too) and I've seen both of them in both autocracies and Western democracies.

Imo, there's nothing better to secure your assets better than some form of monopoly on the law, or a monopoly on violence, or even better a combination of the two. This is also why billionaire classes simply consider crypto a wealth store asset and not a secure store of assets.

In theory, there is nothing an autocratic government can't do to you.

But leaders pay a political price for instituting draconian enforcement measures, while their country pays an economic price, which makes them less likely. It's one thing to send armed agents to storm the homes of executives of a large private bank to shake down the bank. It's another to do it against end-users at a scale where it becomes effective.

You may be right about the most secure form of property. Many don't have access to jurisdictions that can offer people in their income class that kind of security of property. For them, I think in some situations cryptocurrency can be a very secure form of property comparatively speaking. Cryptocurrency can be thought of as a poor man's offshore bank account, literally speaking.

> Many don't have access to jurisdictions that can offer people in their income class that kind of security of property. For them, I think in some situations cryptocurrency can be a very secure form of property comparatively speaking. Cryptocurrency can be thought of as a poor man's offshore bank account, literally speaking.

Actually I didn't mean monopoly on the law and monopoly of violence that way. I meant that billionaires invest a lot of cash into politics and personal security (legal and otherwise) for good reason. It would be very hard for a politician to go head to head against a billionaire donor, since he would just donate to the other guy the next time. Similarly, they get to influence a lot of things including who might head the city's police force or what policies to implement on a regional or national level. It's the same thing everywhere, whether you're in the Indian or Pakistani badlands, the heart of the EU or smack in the middle of NYC or SF.

I agree with crypto being the poor man's offshore, but a poor man wouldn't need an offshore. Not to mention, the barrier to open an offshore account is much less than the cost of BTC right now.

>>It would be very hard for a politician to go head to head against a billionaire donor, since he would just donate to the other guy the next time.

Yes true.

>>I agree with crypto being the poor man's offshore, but a poor man wouldn't need an offshore. Not to mention, the barrier to open an offshore account is much less than the cost of BTC right now.

Offshore bank accounts are very costly and difficult to get. They are also not that secure, considering how many have given up on financial privacy in the face of the warrantless-financial-mass-surveillance aka AML push by the dominant political powers, and leaks like the Panama Papers.

> But leaders pay a political price for instituting draconian enforcement measures, while their country pays an economic price, which makes them less likely. It's one thing to send armed agents to storm the homes of executives of a large private bank to shake down the bank. It's another to do it against end-users at a scale where it becomes effective.

I don't think the political price is as high as you think, and armed agents don't have to storm the homes of end-users at scale. All they have to do is storm enough homes discourage people by making it clear the risk is real, and everyone internalizes the rules.

If cryptocurrency is contraband, it's the worse kind of contraband because it advertises that you use it to the authorities through easily monitored channels (since you have to connect to identifiable internet services to use it).

>>All they have to do is storm enough homes discourage people by making it clear the risk is real, and everyone internalizes the rules.

I suspect the scale of enforcement needed to discourage widespread usage would be very large, and incur political and economic costs that are prohibitive. That's corroborated by the fact that the USD circulates widely in countries suffering high inflation, despite it being in the best interest of the elite of these countries for people to only use the national currency.

>>If cryptocurrency is contraband, it's the worse kind of contraband because it advertises that you use it to the authorities through easily monitored channels (since you have to connect to identifiable internet services to use it).

Only if public access to strong encryption is prohibited, and there are economic costs associated with a country doing that.

> Without the aid of a central authority, people are able to decide on a set of rules that must be respected to play in the market.

What you mean to say: people will reinvent laws and governance.

That's right, but what's new about this time is that the "how bad things have to get before we rethink laws and governance"-threshold had changed, as has the "how efficient of a government we'll accept before we stop iterating"-threshold.

Governments run themselves but until recently, economies didn't. Now that there are two memes (besides violence) that are each independently capable of mediating coersion on a global scale, we can play them against each other and select for the one we like best.

Governments have always (always) been involved in economies. Rome imported hundreds of tons of grain a year and gave them out free to its citizens. Hammurabi’s code mandated fixed medical payments and regulated professions. Don’t get me started on China. And taxation has been around as long as there has been agriculture, although it’s much better nowadays since the taxman won’t come in and tax all the food you own just before winter, leaving you to starve.

> If you have to resort to using a gun, then that leads to huge costs and lots of dead people.

Is that more true for you using a gun than it is for police using a gun?

Yes. Police is regulated and has a lot of conventions (laws) and resources that enforce those conventions. Ultimately, it goes back to a fairly well-resourced court of law, which is willing to take a fairly high cost to make a decision, as a shared cost paid through taxes.

With individuals making those decisions, the decisions will be made at much lower cost, and this will result in lower quality of decisions.

If it’s you using a gun, you get Somalia. If it’s the police using a gun, you get the US. (If it’s the police using a baton, you get the UK). It works because the threat isn’t just physical harm but also social consequences. Even going back through history, there would be governmental consequences for not abiding by fair trade, whether that was the local lord throwing you in the stockades or the rest of your tribe ostracizing you.

> based on who can waste the most energy

not unrelated is the disk storage the block chain will eventually require, now ZFS and storage density arms races make sense

> Markets fail or succeed because of improper or proper governance.

I have yet to see proper governance last long enough to be of any note and worse governance tends to quickly flip to favor the powerful.

Hong Kong and Singapore might be great examples

TBH, I'm ignorant of these countries' regulatory systems. You may be right. What makes them good examples?

This podcast will do a much better job at explaining how solid economic policy lead success in Hong Kong: http://www.econtalk.org/neil-monnery-on-hong-kong-and-the-ar...

Of course Hong Kong is now different, but that's not because the government changed its policies, but there is a different government in power.

Singapore had the benefit of a trade port, but it kept importance as such and expanded into becoming a important financial center as well as punching well over its weight in terms of innovation. They have invested in education and provide a stable environment for business.

I will review. Russ Roberts is pretty good. He leans closer to no governance than any.

Still, Hong Kong being different now is because the powerful (China) changed the government to favor themselves. This is actually an example of government falling to powerful interests in short order.

Singapore has as bad or worse of income inequality as the US, and I wouldn't say the US is well governed. https://en.wikipedia.org/wiki/List_of_countries_by_income_eq...

Still, I don't want to take equality as a primary metric since I think inequality to some degree is natural.

Singapore is however a infamously repressive regime as mentioned by ardy42

The latter is famously authoritarian capitalist, and the former just gutted its civil liberties?

Also, IIRC, they both benefited from being trade gateways into the PRC economy, especially when it was more closed than it is now.

Thank you! Sure fine at some base level there is still technically market in a purely anarcho-capitalist system but that doesn't suddenly imply that the markets we have aren't essentially a pseudo-central planning systems that actually work.

A market is useless if it doesn't actually allocate goods and labor efficiently and in the way people want.

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