The political economy of d/acc by Eli Dourado | Devcon SEA

All right. Everybody, I'm thrilled to be here. I am Eli Dorado. I'm chief economist at the Abundance Institute. And it's a real pleasure to to hear be here to talk about DAC.

I'm approaching this through my training as a sort of political economist and kind of give I'm going to give a high-level overview of how I see this space. I want to start by talking about our instincts for both control and freedom. We all have these instincts and in the last few years with AI innovation, we've seen this kind of like control narrative or this kind of control instinct be on display. Like we need an enforced pause on AI development. We need to shut down data centers.

We need a kill switch. We need regulation. We need to restrict model releases or we need to impose bans on open-source AI models or export controls. And in sort of the counter-reaction to that is like, no, we need freedom of speech. Are we really going to regulate matrix multiplication and this is a slippery slope to totalitarianism.

And then I think that there's an interesting conclusion at the end that therefore I'm going to not believe the premise, right? I'm not going to believe that there is any risk here. And I think that this conclusion is is very natural. It's really bad epistemic hygiene, but it's common and we need to acknowledge it, right? And you see this um um in completely different contexts with things like climate, right?

Like people will say like, "Oh, I just don't believe in it." Because they don't want to like like accept the the sort of control-oriented uh uh beliefs of of the of the other side. Um so just because freedom is good doesn't mean that the problem raised by the anti-freedomites is fake, right? So, DEAC approaches both like AI safety and bio safety from the perspective that they are genuine public goods. But crucially just because we acknowledge the existence of safety as a public good doesn't mean that we think the right approach is to generate it through top-down coercive means, right?

We're going to take both freedom and public goods seriously. And I think that's the ethos behind DEAC and about and a lot of Ethereum in general. So, that brings us to the next part of the talk. Uh the private provision of public goods. So, uh what is a public good?

In in classical economic terms, a public good is one that is neither excludable nor rivalrous. So, like the canonical example is a lighthouse, right? A lighthouse on a coastline provides guidance for all the ships uh whether or not they pay, right? So, so the a lighthouse is not an excludable good. And at the same time, one ship relying on the lighthouse for guidance does not diminish the ability of any other ship to uh to rely on the lighthouse for guidance.

So, the lighthouse is non-rivalrous. So, game theoretically here we have a free rider problem and we should not expect the lighthouse to be produced by the market, right? You must rely on governments to produce lighthouses. So, one of the great economists of the 20th century, uh Ronald Coase, got interested uh in this example, and he decided to actually collect data on lighthouses in Britain. And uh astonishingly, he found that every single one of them was privately constructed.

So, we have a free rider problem. It's not supposed to happen, uh but every single lighthouse in in the in Britain was privately constructed. So, how can this be? What Coase found is that lighthouses were vertically integrated with ports. So, uh the port operator would build a lighthouse so that people could come to their port.

And then they would recoup the costs through port port fees. And what this example shows is that creative structuring uh can turn a public good problem into a private private good provision. Um another closely related idea is a common pool resource, right? With the classic example being irrigation systems. So, um irrigation systems are arguably one of the things that led to the creation of states in the first place.

So, Carl uh Wittfogel, his book Oriental Despotism, right? Advances the concept of a hydraulic empire, right? A powerful state uh as in Egypt or Mesopotamia or China that's built around irrigation, right? And and maintenance of this common pool resource is a public good, and it's worth it to accept some coercion if it means you get the benefits of irrigation. Um So, just like with the lighthouse, there's a twist.

Um so, later scholars, particularly uh Elinor Ostrom, uh figured out that many complex irrigation systems, uh like in the Philippines or in this one in Valencia, Spain, uh were cooperatively maintained. There were without an autocrat, without you know, this one goes goes a thousand years. Uh and and so she want to know about prize for figuring out uh, the conditions under which uh, such cooperation is possible. Um, another example of non-coercive public good provision is standard setting. Uh, so standards are a public good, but because the value of the standard goes up when other people use it, there's an incentive to cooperate in in standard production and standard development.

So, um, one of the explicit powers reserved for the government in the US Constitution is to develop standards, but it turns out that private standard setting happens all the time. Uh, this is an example from IETF, but we're here at Devcon and Ethereum itself uh, involves a lot of cooperatively produced uh, standards. Um, I'm not going to do a long spiel on on each of these modalities, but there's a lot of different ways in which um, public good production can be incentivized without relying on sort of centralized top-down government coercion. Um, we've talked about like the first three already, but you can think of a lot of like open source software uh, development as scratching an itch. Um, sometimes people do things to accumulate prestige.

Uh, sometimes people give money to to causes they believe in. My organization, the Abundance Institute, is a 501c3 nonprofit. Our budget is fun- entirely funded by donors who get very little public recognition. Usually usually they don't want it. And they give just because they believe in the mission.

Um, norms like politeness or not engaging in petty theft are are also a source of of public goods. And and of course uh, you know, mechanism design is an important one for Ethereum, right? We can think of consensus as a public good and the consensus protocol as a as a mechanism that incentivizes coming to consensus. So, public goods like AI safety and bio safety, uh, can be provided non-coercively without government involvement. And it happens all the time.

And it's possible that by some accountings most public goods are in fact privately produced. And so now I want to show the flip side. When public goods and particularly safety is provided coercively top-down by the state, the results are often pretty bad. So let's look first at nuclear energy. In the 1950s and 60s, we experienced cost reductions as we as we deployed more more nuclear plants.

So this is common in industry. It's called the learning rate. And then in the 1970s, the trend reversed. And costs started to to explode. Right?

So initially, it began in the early 1970s with environmental regulation. And then it accelerated in response to the Three Mile Island incident in 1979. Which by the way, like nobody was harmed by that incident at all. Um Another domain which Vitalik referenced is in which safety regulation has had enormous costs is pharmaceutical development. So um And and by the way, this is adjusted for inflation just like the last chart was also.

So these higher costs of bringing drugs to market represent thousands of missing drugs. Right? We're missing thousands of drugs. And people die because of the lack of drugs. But these people are not identifiable victims.

And my friend and former professor Alex Tabarrok calls it the invisible graveyard of people people dying because of lack of drugs brought to market. Aside from nuclear and far pharmaceuticals, the other major industry that is regulated via like pre-market approval is aviation. So, everyone thought like after World War II that there was going to be a growing uh personal aviation industry that like anybody people coming back from World War like knew how to fly, they could buy surplus military airplanes and and you know, we would all just have essentially flying cars or just personal aircraft that would take us wherever we wanted to go. Um, and it you know, it could have happened, but we had increased regulation at at a couple different points along the way here in the mid-1960s and early '80s and this strangled the industry. Um, unfortunately, uh FAA has recognized that they've gone too far with personal aircraft regulation.

They're beginning to actually loosen the rules and it something that's super interesting is that they actually think that loosening the rules for a category called light sport aircraft will on net increase safety through both uh through both innovation uh so the more you innovate, the more the safer the aircraft get, but also through increasing the changing the composition of of the fleet and and sort of increasing the use of manufactured airplanes. This is a way that uh deregulation can lead to um to actually higher levels of safety. And it's interesting to see a major uh federal regulator um recognize that. Um, so there's a lot of reason a lot of a lot of different examples in which coercive safety regulation doesn't actually make us safer. So, um we talked about nuclear, but let's compare it to coal.

So, so we have um nuclear is is highly regulated, highly safe and meanwhile, we have coal plants still operating and um contributing to to thousands and thousands of deaths. I think I estimate in the US we have about 16,000 deaths a year from coal emissions, which is like five 9/11s every year and everyone's apparently okay with that and but but not with not with bringing making lowering the bar for nuclear plants. Um you know experimental drugs can be certainly can be unsafe but um a lot of times drugs are substitutes for other medical procedures. And if you have to have a a surgery or a hospital stay, those are risky also and we don't and we don't balance the risks in those in those kinds of um we don't make that comparison in our regulatory system. Um one thing that strikes me is really interesting is in Europe you can buy a contact lens from a vending machine.

But in the US you have to you have to you have to go it's not safe to do that. So you have to go to optometrist and get a prescription first before you're allowed to do that and so it's thinly veiled protectionism. Um there is research that shows by an economist named Parker Rogers that shows that deregulated and down regulated medical devices are actually safer than than the sort of more regulated device types. He looks at cases where device types are where the regulation changes on the device types and he finds out that the the less regulated types increase entry into the market, they increase competition and they um and and ultimately they turn out to be both safer and cheaper. And and I already mentioned like the over regulation of manufactured aircraft means that people select for experimental aircraft a lot of times amateur home built uh, aircraft.

So, the background here, uh, and among all and all this, uh, all this carnival of, uh, of of of stagnant, uh, negative effects from safety regulation is uh, what's called the great stagnation. Um, this is a period in the US and much of the West known, uh, known as the great stagnation. And if we hadn't experienced it beginning around 1973, uh, the US would be about twice as rich today, uh, as as it, um, as it is. So, it's a a major a major economic event. And a lot of my work focuses on ending the great stagnation by enabling innovation in sort of these four sectors, health, housing, energy, transportation, which together make up about half of the economy in the US.

And I think of stagnation as the result of sort of three separate pathologies, but like one of them is the way that we do, uh, safety regulation in the West. I think the other is is sort of more generalized vetocracy and then protectionism. But, uh, today we're talking about safety. And, um, and So, so yeah, so safety the way we this sort of top-down model of safety is is a a major cause, I think. So, it's worth thinking about an alternative to that, and that alternative, I I believe, is to build.

Um, I think that the responsibility is on us to show that there is another way. If we don't have a good answer for how to deal with real or perceived risks in a decentralized and non-coercive way, people will continue to agitate for the coercive way. Right? And uh you know, I'm showing these modalities again for the different ways that we can uh we can sort of privately or non-coercively or non-top-down uh provide public goods, and we can think about how we can apply each of these to different aspects of the of the public goods problem, right? So, um you know, maybe there are safety resources that can be created um that can be done just via firms uh that can internalize things.

Maybe there's um there are maybe there's a risk that AI will uh be able to use sophisticated fishing attacks that need to be addressed, and we can do that through uh better protocols, new standards, uh authentication uh commu- authenticated communication standards. Um maybe uh air filtration systems, as as Vitalik mentioned, can protect against uh biological attacks, but also provide ancillary benefits in the form of reduced illness, so that they don't require like mandates or or uh you know, top-down regulation. So, I think another aspect of the of the solution of the build solution is to focus on uh concrete and near-term problems. I think a lot of attention is focused on the most fanciful scenarios, but a lot of the near-term solutions also have a bearing on those risks, and so working on things that are concrete and yield tangible benefits now can uh you know, if we ever if those other more extreme scenarios ever materialize, we can be uh more prepared for them than than we otherwise would be by focusing on the um on stuff that's more near-term, concrete, tangible. And finally, um I think a lot of times people think about, you know, what can go wrong with uh with with uh um with new technologies, uh AI and biotech in particular.

Right? And I would think that this needs to be balanced by what can go right. And I don't mean that in a trite way that shuts down um thinking about risks. But as um as a counterweight to the panic that sometimes people feel and as a motivation uh to to build the future and to build an exciting future that uh that we all want