Author:

Anton Galenovich, PhD

Founder, DAO IPCI

All of the important, painful social and environmental issues discussed in “That’s where public blockchain is indispensable” are extremely complicated. Most evident example would be climate change issue, which requires knowledge so complex and in so many fields of science that any progress might seem coincidental.

All of these issues need planning, coordination based on all relevant accumulated knowledge. But is such planning and coordination practically possible taking into account that this knowledge is dispersed and no one individually can even pretend that has enough of this knowledge to really accomplish something? One could expect rather trivial proposals to create a “committee”, or “association”, or other kind of centralized mechanism or authority to accumulate data, information and knowledge, process it and do the planning. But would such a mechanism or authority be able to master all the necessary knowledge in its totality? Or there is a more efficient alternative?

We may assume that experts carefully chosen by hypothetically efficient and honest authority would do the job, though typically it is not the case. Different aspects, relations, consequences of above-mentioned issues are so numerous and various that harmonious work even of the selected experts is a problem. In addition, it is even physically impossible to find and bring together all the experts needed to understand specific time and space circumstances, not to mention critical and sometimes sensitive commercial, economic or technical information indispensable for correct inferences.

Getting back to climate change example, we would have to recognize the fact that, on the one hand, the fundamentals are physical long-term processes in the atmosphere and oceans, while on the other, to make anything change in terms of economic activity you cannot do without microeconomics. What sort of central authority, commission, or association would be able to comprehend all the necessary knowledge entirely?

Suggestion here would seem quite evident: we need some form of decentralization that would integrate fundamental scientific knowledge with dispersed specific knowledge on the level of microeconomics within one pattern. That’s where prices come in.

This might sound immoral or cynical but for the issues of the level of complexity we are discussing, there is just no other option to integrate the knowledge, except for “political will and power” which would really mean coercion.

“Fundamentally, in a system in which the knowledge of the relevant facts is dispersed among many people, prices can act to coordinate the separate actions of different people in the same way as subjective values help the individual to coordinate the parts of his plan”[1].

Prices essentially communicate information. They bring the information necessary to make a decision to a minimum and solve the problem of integrating knowledge on complex issues. However, the more rigid is the pricing system the less efficiently it performs this function. In the example of climate change issue, carbon tax rather communicates the aspirations of the governments than reflects the entirety of information needed for the businesses to make adequate decisions. Sometimes it leads to paradoxes, when introduction of carbon tax results in growth of GHG emissions. Experience shows that even carbon markets, when rigidly controlled by the governments do not provide expected incentives to make the individuals do the desirable things without anyone having to tell them what to do.

Free market prices and decentralization are cornerstones. All the governments have to do is introduce a policy, for example: “no new sources of pollution without offsetting” or even better “no commercial deals without offsetting”, and let the rest be dealt with on peer-to-peer basis.

The technology solutions to implement the policies is in place. It is decentralized public and programmable blockchain. It still has to overcome awkward age issues, to grow up, but government interventions would rather distort the process.

The example of “blockchain avatar” of market solution for the problem of social costs described here.

[1]Hayek, Friedrich A., "The Use of Knowledge in Society." 1945 . Library of Economics and Liberty. 29 May 2018. http://www.econlib.org/library/Essays/hykKnw1.html.