Tuesday, October 29, 2013

More on Krugman's Theory of Interstallar Trade

This is odd. In the intro to last Friday's "Why we should actually build the Death Star" I noted in passing:
No mention of  "The Theory of Interstellar Trade" (Krugman 1978) which work led to the Nobel prize winning New Trade Theory and New Economic Geography but not to New Keynesianism.
Further, TTIT was the precursor to Krugman's more important Alien Invasion Hypothesis...
Yesterday Barry Ritholtz linked to Scientific American:

To seek out new markets....(Credit: adapted from NASA image, Les Bossinas)
Everyone needs a little light relief sometimes, including the Nobel winning economist and writer/blogger extraordinaire Paul Krugman. A few months back he reminded the world of a short paper he’d written some years ago on the rather unexpected topic of interstellar finance. You can teleport a copy to your automated reading device by clicking here.

It’s a lot of fun, with a satirical slant lurking between the lines. But it’s also quite serious, because the specifics of sub-light-speed interstellar travel do pose some rather unfamiliar and intriguing conundrums: Krugman points out that transit times for goods are of course extremely large, and the passage of time itself is a function of inertial frames and the acceleration of frames. Relativity says that you can keep your roses fresh for Alpha Centauri, but your first customers may dead by the time you get there. Electromagnetic communication is naturally far faster than the transmission of material goods (although that’s a situation we already encounter here on Earth), which allows for trade to be set up. And having one-way transport, rather than round trips, of cargo vessels or merchants is okay for stable economic function on an interstellar scale.
He also shows that, in terms of capital, interstellar arbitrage and competition will tend to equalize interest rates between two locations (planets, ring-worlds, Dyson spheres, whatever) as long as they’re in the same inertial frame. This, as far as I can see, is astrophysically tenable. Typical relative motions of stars in our bit of the Milky Way are of the order of 10-40 kilometers a second. Although large by terrestrial standards, these velocities introduce a time dilation factor between systems of no more than 1.0000000089, or barely a millionth of a percent....MORE
HT: The Big Picture

Although not technically an example of the "Baader-Meinhof Phenomenon", I can't for the life of me remember the related psychological experience so I'm going to say I had a B-M.