why we need to develop mediating institutions that aren't twitter, tiktok, or TV. or even bluesky. institutions whose leaders know what's going on, and whose rank-and-file interact personally with, and can hold accountable, those leaders. 1/

unions, political parties, fraternal orgs, churches, there're many possibilities. some of us tried to use universities for this, but that's a mistake. mediating institutions have to be able to be parochial in favor of interests of their memberships, but universities owe universal obligations. /fin

I really like Western ideas of individual enterprise free from the guidance of authority! But we can adapt them to alternative institutions! 1/

@vitalik.ca for example has had interesting ideas about decentralized ex post finance of public goods. Treat innovation as a public good, and let a diverse range people allocate state funds to the ones they perceive has having been very valuable. 2/

@deanbaker13.bsky.social has suggested giving all citizens a right to allocate sum of state money they can allocate to journalistic organizations that do not paywall. 3/

Even institutions where the state does play a formal role can be reformed to be much less discriminatory. Subsidies of fixed capital can be granted on the basis of proof that capital will be fixed and there's a plausible business plan to try to use it, without playing sectoral favorites. 4/

In general, the barriers to entry to granting systems, and the returns to connections or experience or expert-knowledge in applying for grants, can be diminished, and the range of activities for which grants can be offered can be made very broad. /fin

Yes. Absolutely we need to make rules! Stateless warlordism is not good for innovation. An otherwise decent state that did nothing to address the implications of the fact that innovation is costly but copying is not would be stagnant. 1/

But there are lots of ways to address those implications. We've become grandly proud and ideologically wedded to one approach, intellectual property "to benefit creators", which in practice is doing an increasingly poor job of that while extracting increasingly exorbitant rents. 2/

If we want to transition from this approach, we absolutely have to start adopting alternative, intentional, solutions. (@deanbaker13.bsky.social is very good on these.) Going laissez-faire (in a way most libertarians wouldn't recognize as laissez-faire) would not be sufficient. 3/

But the evidence grows ever stronger I think that the costs of our approach are very high, and we should be looking for better means of achieving (and hopefully surpassing) its benefits. /fin

The state undergirds risk-taking under both approaches. 1/

In China, the state is very explicit about where it wants to encourage innovation, it calls industries strategic, subsidizes them, is forgiving of failure. 2/

In the West the state incentivizes risk-taking with the prospect of huge profits, and (at least used to) subsidize the riskiest part of the innovation chain, basic research, via grants to academia and institutions like defense contracting. 3/

The state does not "centrally plan" innovation in either system. In both systems, the state imposes some direction on research that does not obviously pencil, via what grants and other forms of support fund (in the US), via what industries are subsidized (and also academic research funded) in CN. 4/

It's true that the Western system of tolerating and helping impose market power enables more incentive for innovation totally out of the blue, on ideas or in sectors the state would not encourage ex ante. 5/

But it has very large costs. The welfare costs of drugs not taken, for example, by virtue of the market-power tax imposed is very large. The market-power approach rewards "innovation" in extraction as much as innovation in useful goods and services. 6/

So there are tradeoffs! And ten years ago, I might have been persuaded that the Western approach was genuinely, importantly more "creative", and would be less willing to write broadsides against it. 7/

But I think this is a harder case to make now, as China is now at the innovation frontier in most industries. It's true in nearly all of these industries they began by copying. But now it's we who have to copy if me mean to catch up. 8/

I think the case is stronger that our historic position at the frontier owed more to path dependence rendering us an insuperably great power (for a while) than for any great genius in the arrangement of our incentives for innovation. /fin

isn't involution just the name they give when something akin to Econ 101 "perfect competition" takes hold, when price is competed down to variable cost? 1/

Yes, this means fixed costs may not be recoverable absent some form of subsidy. Yes, it's uncomfortable for businesses. But it's not at all clear it's a problem overall. 2/

Subsidy is in fact an option to keep industry sustainable. It's not at all clear that the tax burden of subsidy is worse than the Western approach of creating + protecting sources of market power to help firms cover fixed costs. There is no obvious limiting principle to this "market-power" tax. /fin