Why Today’s Big Problems Keep Getting Worse, and What We Can Do About It [Part III of III]
By: Alex Mucalov, Jd Mba, Msc Economics
Tags: Democracy, Cryptocurrency, Government, Capitalism, Economics

Part III: Exploring One Possible Part of a Solution

Part I concluded that governments, firms, and individuals collectively express insufficient will and ability to address today’s biggest public issues — and especially those that require global coordination. Part II concluded that coupling individual incentives more tightly with the global public good is perhaps the single most effective and principled way to better address global public issues. This Part III addresses the question, “How do we create incentives that couple one’s individual private good with the global public good?” And, “How do we do this in a way that doesn’t require (politically-challenging) government action at the outset?”

We can create individual incentives to pursue the global public good without jeopardizing the time-tested profit motive, by putting them together.

Doubtless there are many ways to more tightly couple private incentives with the global public good; but naturally, we might think first in terms of dollars and cents. And propitiously, the advent of blockchain and decentralized digital currency technologies today enable solutions here that in prior times wouldn’t have been possible.

For example, today, it’s now possible to create blockchain-based ‘smart contracts’ that can be programmed to execute the terms of (digital) financial contracts, while denying anyone — even contract creators — the ability to renege or invalidate these contracts, which live permanently and immutably on the blockchains that host them. And immutable digital contracts like these could, for example, tie private digital currency payouts to the achievement of global public outcomes — directly coupling private incentives with the achievement of the global public good.

To take a more concrete example of this, one could imagine, for example, a blockchain-based digital “coin” whose price tracks, say, food security in states across Africa, Central America, and Central Asia. This “coin” could be programmed so that the less that people go hungry in a given calendar quarter, the more the coin is worth the next quarter; the more that people go hungry, the less the coin is worth. Such a coin as described would inherently couple the private financial interests of the coin’s buyers with global public outcomes — in this case, food security — with all the benefits promised by this tighter coupling, as explored in Part II.

And it’s already possible to create such digital coins, whose prices track (global) public outcomes — the class of which we might term “Atlas Coins.” In fact, beta-versions of 3 such Atlas Coins have already been been created and deployed on the Ethereum blockchain, including the coin described above. With a few digital DAI “stablecoins” (whose price is pegged to the U.S. dollar) and an account to access the Ethereum blockchain, one can exchange DAI for “Plenty Coins,” whose prices track food security levels in Africa, Central America, and Central Asia. Precisely as described above, Plenty Coin prices grow more when fewer go hungry in a given quarter, and less when more do.

Now the real promise of a digital coin like this, we’ll recall from Part II, is that if enough people become sufficiently invested in, for example, Plenty Coins, this could give rise to entirely new private sector product and labour markets aimed at improving the public good.

The thinking here is straightforward. Plenty Coin holders see greater price growth when food security is better in Africa, Central America, and Central Asia. So Plenty Coin holders could improve their returns by paying firms to improve food security in these places. And if Plenty Coin returns grow more than the fees charged by these firms, then Plenty Coin holders make a net gain.

An example of this could look as follows. Suppose, for the sake of argument, that 1M people each purchase $1K worth of Plenty Coins. This means that buyers would have collectively purchased $1B worth of Plenty (1M x $1K). At typical food security levels, Plenty Coin prices grow roughly 4% per year, say; but along comes a firm that makes an enticing offer to Plenty Coin holders. The offer is this:

“If you pay us $40M, then we’ll improve food security to the point where Plenty Coin’s price grows 10% this year. We’ll improve food security by, among other things, providing local farmers with today’s best farming technology, helping to set up local irrigation systems, and ensuring sufficient crop supply to sow in seasons following periods of drought. You pay us only if we hit food security targets that yield 10% price growth; otherwise, you pay us nothing.”

Now, to the holders of Plenty Coins, this would be a good offer! 10% price growth would be 6% more than the 4% typical of this Coin. And that 6% gain is worth $60M when buyers collectively possess $1B of the Coin. So even after Plenty Coin holders pay $40M to this enterprising food security firm, Plenty Coin holders will have netted $20M, equivalent to an incremental 2% gain on their total owned stock of Plenty. The offer entails no downside risk, since the firm gets nothing if targets aren’t hit. And all of these terms could theoretically be designed to be programmatically executed on a given blockchain.

And since firms like the one described above could make money by selling food security solutions to Plenty Coin holders, more firms would form to serve this new customer base, competing to devise and execute the most effective food security solutions at the lowest cost to win contracts with Plenty Coin holders.

So in this way, Plenty Coins would ultimately give rise to entirely new private sector product/service and labour markets aimed at improving food security.

And thus more generally, Atlas Coins, such as Plenty Coin, have the potential, I believe, to give rise to entirely new product and labour markets aimed at improving the public good.

Addressing this class of collective action problems could solve its many manifestations.

Our world today faces countless cross-cutting global issues — global warming, health crises, global inequality, failed states, terrorism, leadership deficits, and so on, already well-enumerated in Part I and many other sources besides. We have seen, though, that all of these myriad global issues share a common thread, in that they are “collective action” problems — a class of problems that are notoriously difficult to solve, because individuals do not face sufficient individual incentive to contribute to their resolution. But, after some reflection through Parts I, II, and III — on the kinds of problems the world faces today, how they contrast with yesterday’s issues, why we can’t expect today’s institutions to deliver as effectively as yesterday’s, and what kinds of new institutions it would take to resolve these issues — we arrive ultimately at the simple and intuitive proposition:

Perhaps we don’t need to solve all the world’s problems. Perhaps we need to solve only one — “How do we get enough people with enough clout to care?”

And a solution of the kind proposed above — of Atlas Coins — has, I believe, much potential to help answer this question. A single Atlas Coin aimed at a pressing global issue, such as food security, has the potential to give rise to an entire ecosystem of for-profit companies whose paid mission it is, for example, to help make places sustainably better fed. And if the history of capitalism over the past 100 years has taught us anything, it’s that human ingenuity and initiative are unlimited, when properly motivated.

But there’s no reason why we need be limited to a single Atlas Coin. To be sure, we can imagine a financial ecosystem arrayed with many Atlas Coins, each carefully-designed, and established as a set to address the most important collective action problems of our day at every level — global, multinational, domestic, municipal.

To take this a little further, were the idea of something like Atlas Coins to take root, we could even imagine accountable government bodies calibrating rates of return vis-a-vis public outcomes for different Atlas Coins, to incentivize appropriate relative effort in achieving various (global) public aims. Accountable bodies could periodically raise return rates for those Atlas Coins aimed at issues that are becoming more pressing, thus encouraging greater commitment; and it could lower rates for Atlas Coins whose public outcomes may happen to be decreasing in relative importance. (These mechanics would be analogous to how central banks today calibrate interest rates to achieve given national inflation and growth targets.)

And Atlas Coins established as a set could improve their overall cost-effectiveness, given their inherent diversification generating less-correlated returns, and thereby reducing overall balance sheet maintenance costs.

But arguably most importantly, having something like Atlas Coins more entrenched alongside traditional markets could give rise to an entirely new for-profit sector of the economy as described above — this one aimed explicitly at pursuing the public good. And this could give rise to entirely new mission-driven labour markets, potentially energizing an entire generation of labour market participants desperately craving both means and meaning in our professional lives.

Indeed, something like Atlas Coins might even represent something more poetic than prosaic economics: it might even represent the democratization of public service itself, and the corresponding revitalization of shared purpose. For no longer would pursuit of the public good be restricted to today’s privileged class of civil servants. Instead, wage-earners everywhere could have the opportunity to direct their private, paid efforts to the betterment of all, through the provision of their labour to private sector firms that profit directly by improving the public good. And this could liberalize an entire class of needs heretofore attended to exclusively by national government elites.