Design Margin is the acknowledgement of two things:
1. Bounded rationality. We don’t know everything, or much of anything about the future.
2. Asymmetric payoffs. If we overdesign by 20%, there is additional cost. If we underdesign by 20%, there is catastrophic failure.
The question is: How much DM is optimal?
The lower bound of DM is generally maintained through a competitive market by failure. Schumpeter’s Creative Destruction. In the absence of competition, underdesign occurs when executive incentives are to maximize monopoly rents. This incentive causes DM to be cut until failure, which becomes systemic because the failure of one organization is the failure of an entire industry.
The upper bound of DM is generally maintained through a competitive market by the profit motive. This is Adam Smith’s Invisible Hand. In the absence of competition, overdesign occurs when executive incentives are to minimize failure. This incentive causes DM to be increased until the point of economic unsustainability, leading to a systemic failure because of bad resource allocation.
Because the world is a non-linear place, DM cannot be optimized ex ante, but only through a trial-and-error process, the real-world equivalent to Newton’s Method or Runge-Kutta. There is no closed-form solution to the equations of the real world, so there is no way to optimize DM in a planned economy (or any monopoly). There is no feedback loop, and any incentive scheme is likely to make matters worse, not better.
A Constitutional Convention is a good idea but not to set a DM, but instead to limit the size and scope of the Federal Government so as to increase the amount of trial-and-error experimentation. According to the Constitution, such a convention can be called by 2/3rds of the states to consider specific amendments. The amendments I would propose are to eliminate the gerrymander (decreases the power of incumbents, who wield the most power in Washington) and cap Federal outlays to some percentage (20%?) of the three-year trailing average of GDP.
We need a Constitutional Convention, but not to turn the US into Switzerland. We need a Constitutional Convention to turn the US back into the US.
L3
