Thursday, 1 June 2017

Paul Krugman on interstellar trade

Economists (and academics) should never be too busy to have fun. I sometimes regret that I'm too busy to read some of the more fun contributions of other economists. For instance, this 2010 article by Nobel Prize winner Paul Krugman, titled "The Theory of Interstellar Trade" and published in Economic Inquiry, was sitting in my to-be-read pile for way too long before I picked it up this week. I can't be faulted too much for this relative to others - Krugman originally wrote the paper in 1978 (see this version), and took 32 years to get around to having it published.

The paper extends the ideas of trade between nations (or between planets within a single star system) to the case of trade between planets of different star systems. In that case, travel between the stars would require travel at close to the speed of light, where time dilation becomes an issue. The paper is full of memorable quotes, like:
It should be noted that, while the subject of this article is silly, the analysis actually does make sense. This article, then, is a serious analysis of a ridiculous subject, which is of course the opposite of what is usual in economics.
It isn't the only humorous bit (which shouldn't be a surprise - regular readers of my blog will recall that Economic Inquiry is the journal responsible for classics like "Riccardo Trezzi is immortal" (see my post on that one here), and "On the Efficiency of AC/DC: Bon Scott versus Brian Johnson". The Krugman paper has other points of interest, such as the imaginary Figure 2, on which he explains:
Readers who find Figure 2 puzzling should recall that a diagram of an imaginary axis must, of course, itself be imaginary.
And this:
Readers may, however, wish to use general relativity to extend the analysis to trade between planets with large relative motion. This extension is left as an exercise for interested readers because the author does not understand the theory of general relativity, and therefore cannot do it himself.
I guess that leaves an opening for further extensions of this work, and there are certainly enough former physicists working in economics (especially finance) that someone must take up the challenge sooner or later (or sooner and later, time being relative and all that).

Paul Krugman blogs for the New York Times. Despite having read his blog for a while, to me this paper on interstellar trade is his most entertaining writing.

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