For me, the optimal outcome is actually as much secession as possible - to a state or county level. With so many options in place, people can self-select into what fits their style and culture. This would be, in my view, a recipe for increased global peace. It is when forced integration is in place that conflict emerges.

China Mieville wrote a novel a couple years back, The City and the City, that is exactly the type of thing I want to see more of: pushing the boundaries of what we consider a plausible political entity. In it, there's one city but two governments that are both sovereign within its limits, and people choose to be part of one or another. I'm also reminded of the historical political mandalas of Southeast Asia--one city state might simultaneously be a client of two other states.

Is either the future? Of course not. But my point is that our vision of what governments have to look like is sadly limited, and our myopia has caused us to see the Eurocentric romantic state nationalism of the past two centuries as the only way for a civilization to exist. Think bigger, folks! (Or smaller, as the case may be.)

We don't need to eliminate states. We need to bring down remaining empires masquerading as nation states. Russia shall be divided by separating it's ethnic autonomies, Kaliningrad taken away, Crimea given back to Ukraine. Catalonia and Scotland shall be finally granted independence. Bavarian voices are rather silent nowadays, but why not.

In Europe, exactly the opposite is happening. People are being prodded to give up their sovereignty to a supra-national bureaucracy, and to be assimilated into a hetrogenous body politic with hundreds of millions of other people with which they share little other than said bureaucracy. People in the U.K. were very rightfully afraid of what that could lead to and decided they wanted to get off that train.

Self-determination breaks down just as easily. You get regions seceding from countries, but nothing stops cities from seceding from that region, or blocks seceding from that city, creating an ungovernable patchwork where everyone is a king trying to extort taxes from neighbors.

Permanently fixing borders based on a population's will at one moment assumes demographics are held constant for all time. (And how do you pick how large of a population gets to vote?) Re-voting every time anyone calls for a referendum destroys any certainty that the state will exist for more than ten years, and creates little wars of demography, where populations try to pack supporters into a territory for political control.

As you noted, borders drawn according to pure whimsy aren't much of a prize either.

All of these systems are basically terrible for different reasons.

Not that it would fix all woes even, but it'd be a good start.

I know that seems a little naive, no state would surrender so much power. But it seems so much more appealing and reasonable when contrasted with the status quo, where all of these issues are resolved by bloodshed, standoffs, ethnic cleansing, and colliding vessels.

Friendly devolution of sovereignty back to the various peoples is the moral way forward.

Small communities tend to do well.

People who believe in the policy they are implementing will work to make sure it secedes, while those who disbelieve will try to make it fail. Your subjects cannot be blind to the policy.

  he actually wants to build a floating city where he can 
  make his own rules

We have mechanisms for that on an individual level, as people can move from a city or job to a new city or job. We have mechanisms on the level of couples, like divorce. Perhaps most interestingly, we have mechanisms on the level of small to medium size organizations, in that one can start a new company. But right now there is no frontier, no way to peacefully start a new country.

If you do believe that there are multiple stable equilibria for societal organization, then it should be a good thing if all the reds and the blues could just separate and self-govern rather than endlessly squabble. Apple is not Google, but both are successful; Singapore is not Sweden, but both are very nice countries. Things that are legal in one jurisdiction are illegal in another (e.g. porn is legal in Sweden but prostitution is not; it's the other way around in Singapore).

Similarly, wouldn't it be better if all the fundamentalists could have their own island and teach prayer in their own schools without trying to make my child read the Bible? Or if the blue state residents could actually have a country in which stem cell research was legal without having to do backflips to accomodate religious objections?

I ask only that you reconsider the theoretical merits of seasteading as a peaceful means for separation. If nothing else, it'll mean that all these guys go off and drown and stop trying to influence US elections :)

But imagine if each neighborhood could pay for a free market of police agencies. The police agency would train local people to learn local laws and enforce them. If the agency and its tactics were too brutal or too ineffective, the neighborhood would simply give next year's tonract to their competitors.

I think the same approach should be done with cities choosing the countries bottom-up. The UN could simply extend self-determination to cities and regions, allowing e.g. Lugano in Switzerland to join Italy if they felt it was in their best interests. Or Hong Kong could choose to secede from Mainland China. Then we wouldn't have these stupid wars. Most wars start because some separatists (or armed opposition to the central government) seize a chance for their cities to leave the larger polity or federation. (Perhaps demographics changed, or there is a constitutional crisis, or another war.) Kurds, Basques, Catalonians, etc. are all looking for such an opportunity. If the UN recognized the self-determination of cities, then any armed gangs would just be arrested as criminals, by the city's own police, since the city can simply vote democratically, there is no need for violence.

Instead, the revolution is usually nipped in the bud by violent arrests (e.g. in Catalonia by Spain, or Hong Kong by China) but once in a while, a larger country helps these separatists because of ethnic ties, or because of geopolitical interests (e.g. to keep the host country destabilized and weak). So you get a protracted war for many years, while the civilian population faces a humanitarian crisis. We have seen such things in Yemen, Syria. Rather than meeting up and holding diplomatic talks (like Iran and Saudis are finally doing) the two countries just keep throwing weapons at the region from both sides.

In Ukraine, this is like a matreshka doll[1] of this exact phenomenon on several levels:

  1. Donetsk vs Ukraine  (to combat Donetsk distancing from Ukraine, but Donetsk is armed by Russia endlessly)

  2. Ukraine vs Russia  (to combat Ukraine's distancing from Russia, will be armed by US+EU endlessly)

  3. Russia vs West    (to combat Russia's naked imperialism distancing from Western Democracy, crippling sanctions)

  4. West vs East       (Russia+China+India+Pakistan+Belarus+Kazakhstan etc.) build their own SWIFT, exit US hegemony

[1] Yes I realize the matreshka is a Russian symbol not Ukrainian.

100% on your last point about self determination. If people want to define themselves, by all means!