Economics 2.0 meets the Fifth Protocol

In the book Accelerando, Charles Stross describes a future world that runs on “Economics 2.0”, an indecipherable economic system used by post-human intelligences. Because its workings are beyond human understanding, Stross can provide little detail of how such a system works. But the concept of Economics 2.0 stokes my imagination. If machines are to become first-class economic actors, the economy will adapt to fit their preferences and modes of operation. Humans will find ourselves sharing a marketplace with what amounts to alien intelligence.

From our current viewpoint we already see some initial glimmers of the arrival of economics 2.0. Day-trading on public stock markets is dominated by competing algorithmic trading computers, making trades according to statistical models in fractions of a second. But this is an unimpressive example. The movements of stock prices was already so complex as to be indecipherable to human understanding. The entrance of machine intelligences into stock trading had a quantitative impact in the market, but not a qualitative one.

What is yet to come may be much stranger. The key technology is cryptocurrency, enabling the machine-payable web. Cryptocurrency allows computers to talk the language of money as easily as they currently talk the language of information. Currently, our computers and mobile phones are our information agents, transparently uploading and downloading relevant information in order to serve the tasks we have given them. With cryptocurrency, this constant chatter will be augmented by economic transactions.

This layer of economic exchange is described by Naval Ravikant in his essay titled “The Fifth Protocol”. He describes this new world where money is cheaply and easily exchanged by computer:

“Can a completely distributed grid of small generators trade power with each other, using a decentralized and trustless cryptocurrency? Can a traffic jam of self-driving cars clear itself as the computerized vehicles bid for right of way? Can a mass of people crossing a street take priority over a single car waiting at the traffic light, as their phones vote, trustlessly and reliably, for their presence?”

Money is a way for people to exchange scarce goods. Whenever we are in possession of a scarce good that someone else desires more than we do, a positive-sum transaction can be made so that both parties benefit. This is the basis of all economic activity in the world. Transaction in labor is founded on the scarcity of personal time - we are each given 24 hours in a day, and to scale our efforts beyond what we can achieve with that we must purchase the time of others.

But in real life many positive transactions are missed because the costs of coordinating the transaction outweigh its collective benefits. In the logic of the market, this is an inefficiency. Devices that are always on, collecting and communicating information can negotiate these transactions for us. The result may be quite odd, as scarce resources are monetized which before we would have never noticed.

For example, imagine waking up on a workday. Your phone chimes, offering you an anonymous payment if you delay your commute 15 minutes. You accept. 15 minutes later, you hop into your car and drive to the office. On the way your phone tells you to pick up a package from a store. Since your phone knows your commuting habits, it can sell your unused car space for partial routing of goods and people. A few miles later, you pull over and hand the package out your window to someone waiting on the sidewalk. He exchanges the package with another one destined for your office. You’ll get paid for both deliveries today.

Upon arriving at the office, you receive a request to take a parking space further out. You don’t mind walking and could use the extra cash, so you accept.

Some people will be shocked by the inequality of a world where all scarce goods can be traded. For the rich, life will be truly frictionless. The traffic lights will always be green, they will always start at the front of the line, and they will always find a parking spot in a crowded city. If they want to ship an item to someone else, they will simply hold it out in the air and someone or somedrone will come by and snatch it.

For the non-rich, a plethora of micro-tasks and trades in scarce goods throughout the day may supplement or even replace traditional trade in scarce labor. This has the potential to make them better off as well. After all, between globalization of capital, mass migration, and automation, labor isn’t quite as scarce as it used to be. Physical volume, auditory space, and visual environment are all scarce resources. The ultra-rich might be willing to pay others to turn down a radio, trade places in line, alter commute habits, route goods, wait at red lights, livestream a landscape, and even change their fashion. In this environment, the question “what do you do for a living?” become strange, as the answer may be “respond to dozens of micro-prompts throughout my ordinary day”.

Eliminating economic friction is only one half of economics 2.0. The other is autonomous non-human economic agents joining the marketplace. But I am not so inspired to write about that for the moment, so I’ll leave it to your imagination. Accelerando has several depictions of what this might be like if you are interested.

Before I conclude, I should note that Economics 2.0 is a misnomer. The qualitative nature of economic life has evolved through several epochs already in the history of human society, we ought to be on version 4.0 at least (the first three being early markets and trade, globalized trade, and the information age). Already in Adam Smith’s time, Smith marveled at how the expanding division of labor had created an economic system beyond all comprehension. A single piece of clothing was the product of thousands of laborers, sourcing materials from several continents. It was a system of human creation, but not human design. The systems of production have grown orders of magnitudes more complicated since then. Witnessing global capitalism, we may already feel that we are in the ghostly presence of an alien intelligence, where humans are its neurons.

Edit: A friend points out that an AI agent that knows our preferences could negotiate all these microtransactions for us, perhaps with Pandora-like training system. So there is no need for pings. The user interface would be simply an agenda for the day. What is your job? You do the things on your agenda. It may have some repeating items, but it may have many one-offs. It may have tasks whose purposes are opaque to you or that seem nonsensical. The possibility of life as such an absurd dance intrigues me.