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Nominull comments on Poll - Is endless September a threat to LW and what should be done? - Less Wrong
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The power of the banhammer is roughly proportional to the power of the dungeon. If it seems less threatening, it's only because an online community is generally less important to people's lives than society at large.
A bad king can absolutely destroy an online community. Banning all the good people is actually one of the better things a bad king can do, because it can spark an organized exodus, which is just inconvenient. But by adding restrictions and terrorizing the community with the threat of bans, a bad king can make the good people self-deport. And then the community can't be revived elsewhere.
I admit, I have seen braindead moderators tear a community apart (/r/anarchism for one).
I have just as often seen lack of moderation prevent a community from becoming what it could. (4chan (though I'm unsure whether 4chan is glorious or a cesspool))
And I have seen strong moderation keep a community together.
The thing is, death by incompetent dictator is much more salient to our imaginations than death by slow entropy and september-effects. incompetent dictators have a face which makes us take it much more seriously than an unbiased assessment of the threats would warrant.
There's a big difference between exile and prison, and the power of exile depends on the desirability of the place in question.