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Paul Krugman's 1978 Theory of Interstellar Trade
Posted by
kdawson
on Wednesday March 12, @02:52AM
from the world's-pre-eminent-stand-up-economist dept.
from the world's-pre-eminent-stand-up-economist dept.
jerryasher recommends Paul Krugman's blog at the NYTimes, where he introduces a paper he wrote, The Theory of Interstellar Trade, with tongue very much in cheek. Some packrat academician was kind enough to send him a scan, because "back then academics did their work with typewriters, abacuses, and stone axes." Abstract: This paper extends interplanetary trade theory to an interstellar setting. It is chiefly concerned with the following question: how should interest rates on goods in transit be computed when the goods travel at close to the speed of light? This is a problem because the time taken in transit will appear less to an observer traveling with the goods than to a stationary observer. A solution is derived from economic theory, and two useless but true theorems are proved... This paper, then, is a serious analysis of a ridiculous subject, which is of course the opposite of what is usual in economics."
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A continuation of what I posted on MR (Score:5, Informative)
On a note, I recall reading that section of the book. It comes at the end of "island in the Sky", a remarkably sober book about colonizing space (sober in light of crazier scifi/colonization books). For some reason I read it first and the pessimism of the article stuck with me, setting the tone for the whole book. That's not bad--our views about space travel and the future need pessimism, but I felt that it was the overriding theme.
In the end, there is no free lunch. While you could predict that interstellar travel would change time preference for some, there are a few caveats to make here:
1. Perhaps travel is so expensive that the change in time preference for some doesn't impact the market as a whole. If you have a vanishingly small group of people pushing the discount rate down, does it affect the prevailing rate? You could argue that the income effect of the billionaires of the world might be analogous. While Bill Gates may have the latitude to spend more money on small purchases than they might be worth to him systematically, that does not do much to change the price I pay for those same products.
2. Travellers will face a STEEP opportunity cost. There isn't any other way to describe it. They may (as the article in "islands in the sky" suggests) spend their wealth ENTIRELY on acclimating themselves to a radically different world or insulating themselves from that new world. In other words, this would be like taking a trip from ancient greece to the Soviet Union. You don't speak the language, you don't understand the culture, the medium of exchange, almost everything. You would be lucky if you weren't put in a circus or a museum.
3. In the longer term, risk dominates. Inflation risk and default risk historically rise to 1.0 as time marches on. There are vanishingly view equity or debt instruments that are still valid from 200 years ago. they exist, most notably in the low countries and england, but they are few and far between. What happens in the event of hyperinflation, panics or fraud (although the last one could be accounted for given a persistent third party overseer)?
4. Adverse selection. This is a corrolary of the risk argument. What bank would be likely to write a contract to make an astronomical payment in the far future? A bank that is likely to be solvent that whole time (assuming the bank knows with certainty) might, but would be FAR less likely to do so than a bank who might default on the contract.
5. Explicit cost. While this might eventually become a non-issue, we have to be real about what is at stake. A long term space voyage is basically one way in the eyes of the company chartering the craft. Unlike a 767 from NY to London, when the space ship returns, it will be obsolete, or at least at the end of its viable life. Each trip presents a large fixed cost for the charter company. This may not translate directly as a large enough cost to a consumer if the flight manifest is big enough, but it isn't trivial.
Just some thoughts.
Re: (Score:3, Interesting)
This still doesn't solve the right problem (Score:5, Interesting)
(And even then it doesn't necessarily solve it completely. A colony of robots can still spend most of its energy and resources just repairing the robots and building new ones, so that cost can still remain. Or worse yet, it may need more goods sent from Earth than some colonists would, because such robots would presumably be high tech and require lots of energy and a lot of different factories to produce. So it might still be cheaper to send a 20km ship full of colonists, which only need a couple of farms to live there.)
But, anyway, the thrust of TFA isn't "how do you build a colony for your people", but rather "how the F-word _do_ you make a profit out of it? Is interstellar trade even viable?" Even with robots, and without having to pay the crew or the producers anything because they're robots, you still face some non-trivial problems there.
E.g., ok, you put an order for, say, uranium from that far far colony. How do you know that you'll even still need it by the time you get it? How do you know that the price will still be OK?
If your colony is at, say, 10.5 light years away on Epsilon Eridani, or 12 light years away on Tau Ceti, and if you travel at half the speed of light average (accelerate to nearly C half the distance, then decelerate the other half), that's 31.5 and 36 light years respectively from the moment you sent the order by radio to the moment it lands on Earth. (10.5 or 12 years respectively for your signal to get there, 21 and 24 respectively for the ship to travel here.) That is, if they already have the mine and the surplus of that resource and everything. Otherwise you might have to wait more.
For farther away colonies, even more.
Historically there have been massive changes in demand within less time. Cloth went from a massive money-maker good to being "meh" to being outsourced to third world countries to produce. Coal was once _the_ fuel for any navy, and sometimes even (explicit or implied) military threat was used to open up markets to buy it from and coaling stations. (See Perry's expedition to Japan.) It took less than 30 years for everyone to switch to oil in their ships, and coal became of much less importance. Or once whale oil was the main lighting fuel, then some guy goes and discovers the light bulb. Grain was _the_ thing to have for millenia, and the wealth and military power of, say, Poland throughout the middle ages was based on being able to produce and export lots of it. Buggrit. Then it took less than a century for the bottom to fall off _that_ market, and nowadays the only countries which still have an agriculture are those who subsidize it. Etc.
It becomes even funnier if you want to build a colony for the explicit purpose of getting some goods from there. Let's say unobtanium wishalloy is the latest rage, you spot some unobtanium in the spectral line of a far away star, and plan to make a living out of it. Now you have the round trip increased by building those robots and waiting for that ship to get there, build the colony, get mining, and some time after 50 years or so you get your first shipment of it even for the nearest stars.
Will it still be needed? Will your company even still exist after so much time? What bank will give you a loan for that kind of thing?
And will your investors want your head rolling for that? Today's capitalism is obsessed by short term results, and thinks in quarters and years. (Maybe even justifiedly so.) Proposing to blow a huge chunk of money, with compound interest (one way or another: even if you have the money and don't take the loan, it must be judged against the interest you'd get if you just put that money in a bank and started _getting_ interest on it) on something which _might_ make you the big bucks in 50 years, will get Wall Street screaming for blood.
A Starcraft Named Desire (Score:5, Interesting)
I was just reading a piece on economics which termed 1000BC to 1800AD "The Flintstones" and 1800AD to the present "The Jetsons". It's only been a relatively short time period where the economy has grown (hence *changed* in material respects) so rapidly that 50-year investment cycles are hard to fathom.
Yes, it turns out that some forms of economic activity are hard to justify as we charge toward the looming technological singularity [wikipedia.org].
http://en.wikipedia.org/wiki/Yucca_mountain [wikipedia.org]
At some scale, common abstractions break down, such as your broad-brush of "subsidy" to the whole of global food production above. Some human endeavors are larger than the greed-loop in a Wall Street tycoon, who is, after all, merely engaged in a culturally shaped manifestation of his underlying biological drives.
The solution, obviously, is genetic engineering. One must first genetically alter the human population with biological drives compatible with 50-plus year investment cycles. In 50 to 100 years, a suitably modified humanity would support any length of transgalactic investment cycle you might wish to contemplate.
If you started with some Wikipedian root stock (barely qualifying as human as it stands), you could even set things up so that people compete for the opportunity to deliver your goods for free. Just be sure to suppress the "crow" complex, or they'll bring you back a cargo container filled with shiny lumps of carbon.
Re:This still doesn't solve the right problem (Score:4, Insightful)
Your fleet *is* the company. From what little information you gather, you take things with you that are probably tradeable at destination, and as well you take tools that can work on a wide variety of raw materials, in case you have to do this work yourself (if the locals aren't friendly, aren't at the right tech speed, or just aren't). If you're running to and from a base in the middle, you'll end up having to work out what home base might find useful when you get back from extrapolation of your current trends, while being aware that commodity consumables probably won't cut it.
That actually makes it worse (Score:4, Interesting)
I mean, take the two following scenario:
1. We send a bloody huge colony ship there, and it all stays there. Then all it sends back are some smaller container ships with the ore they want to export.
2. We send a bloody huge colony ship there. But on the way back we have to carry the ore _and_ the same bloody huge colony ship, with all the people and the life support and everything.
Scenario 2 doesn't just involve hauling a lot more weight on the way back (hence bigger engines, more fuel, etc), but also hauling a bigger ship on the way there. Since, you know, it has to also have some space for the ore.
But at the very least, that way back is what really sucks. The same big colony ship which would normally be a one-way trip, now has to do the trip back too.
I also don't think it solves the problem of fluctuating prices. In fact, methinks it makes it worse. Let's look at two scenarios again. Let's say, Tau Ceti in both cases, and as I was saying, an average of half the speed of light for the whole trip, just as example values.
1. Ordering a shipment of unobtanium from a colony. You send a radio signal, it takes 12 years to get there, it takes the container ships 24 years to come here. Total: 36 years.
2. Your corporation-ship "sails" off to find unobtanium on Tau Ceti. The ship takes 24 years to get there, and another 24 years to come back. Total: 48 years.
In the second case, you now have to predict what the prices will be in 48 years from now.
And the whole point was that extrapolation of current trends sometimes doesn't cut it. You can look at the steadily increasing price for some resource over a whole century, and think "man, this thing will be worth a fortune in 48 years." Then you come back and discover that somewhere in the middle of that interval, someone discovered something that made your resource dirt cheap.
Think cloth and the introduction of the powered looms in the 19'th century. You could look at a graph of the prices throughout the 18'th century and think, "man, by 1848, the prices will be sky high. Let's buy the biggest container ships available and go bring some cloth from Tau Ceti." And you'd be wrong, because by the middle of the 19'th century, the price had dropped a lot.
Or look at Aluminium. In 1884 it was selected as the material for the capstone of the Washington Monument because it was a very expensive metal, more expensive than silver. An ounce of it cost more than a worker's daily wage. In just 2 years after that, and actually before that monument was finished, a new production process hit and caused the price of aluminium to collapse. It's just the kind of thing I'm talking about. That was a forecast for the next four years: that when the monument is finished, aluminium would still be, pretty much, a precious metal and a whole capstone made of it would be a thing that makes people go, "wow!" It only took 2 years for that to turn out wrong.
And nowadays it's a bit over a dollar per _pound_. So by the same comparison with a worker's wage, what was once worth a whole day's work, nowadays won't even hire someone for a minute. (Going by the federal minimum wage, anyway.) How's that for a price drop?
Re:That actually makes it worse (Score:5, Informative)
In the Qeng Ho business, there's no "ordering" and not necessarily a trip back. If a trip takes 24 years, then you only need to predict prices 24 years into the future, not 48. You load up your ship with things that you think are going to be valuable at the destination. You go. Then, when you get there, you make decisions about what to trade and where to go next.
And yeah, if your ships are full of stuff that the destination doesn't consider valuable, you're screwed.
Though in Vinge's stories, there are some points in your favor:
You're just as likely to be trading technology as commodities. Your destination might have all sorts of raw materials (e.g. they're not particularly interested in buying Uranium) but not certain technologies or the industrial base to build the things they want. Earth 1700 has all the raw materials needed to build spaceships, but can't actually do it. Sell spaceships to Earth 1700. Earth 2008 is probably a great market for nanotech. And so on.
Vinge's stories suggest the existence of a higher level social science than we have right now. People know how to abstractly summarize entire civilizations. (e.g. "That civilization is a typical tyranny, and that group of solar systems is a Class 2 Perversion.") Perhaps practitioners of this science can make better guesses than we can imagine, e.g. "I bet those guys have great surveillance nanobots for us to buy, but low genetic tech so we can sell them text-to-DNA fabs."
In addition, there's likely a bio market everywhere. Assuming all colonies are founded by earthlings, then everyone probably has roses and cattle. But Tau Ceti does not have Centauri's fungus lifeforms or anything based on its interesting secretions. And Romulan Ale is valuable everywhere; it's made from grains and hop-like-things that you just can't get anywhere else. Also, even when seeds/DNA/etc get shared, environmental conditions (soil, weather, and so on) make it hard to really copy the other guys' stuff. Take some DNA-identical Tettnanger hop rhizomes from Germany and grow 'em in America, and the resulting hops just don't taste and smell the same. Some things contain subtleties that keep them from ever really becoming commodities. Tau Ceti will probably always want Northwest-America-grown Cascade hops. :-)
Damn, I totally have beer on my mind right now.
Hmm.. but I think I see where I'm going with this: for intersteller trade, don' deal in commodities. Deal in very unique things. Somebody on Tau Ceti might pay quite a fortune for the bragging rights of having the only Van Gogh painting on the whole planet.
Here come the gold freaks (Score:3, Insightful)
Aluminum (Score:5, Interesting)
Re:Aluminum (Score:5, Funny)
But... (Score:5, Funny)
OK totally OT I admit, but... (Score:4, Informative)
Wow, maybe I have been lucky before but that's a first for me. Also possibly the beginning of the end as a
Bad, BAD
Plural of abacus (Score:3, Informative)
Isn't the secret to deal in collector's items (Score:4, Funny)
check the references (Score:5, Informative)
Re: (Score:3, Interesting)
Re:Figure 2 is really informative (Score:4, Insightful)
If the transporters were "traveling salesmen" who flew around the galaxy buying and selling, they would need to be both long-lived and long-sighted since the demand for product X is entirely dependent upon time. Let's say they were selling a brand new Earth. 6000 years ago, such a thing would not have been necessary, while today it would be quite attractive at the right price. How could those beings know and prepare such a product 6000 years in the past in anticipation of demand 6000 years into the future? It wouldn't be trade so much as gambling.
Re:Figure 2 is really informative (Score:5, Funny)
The buyer? Well, he dresses all in white, has a big white beard, talks out of burning bushes...
Re: (Score:3, Insightful)
The time taken to travel
Failure of imagination? (Score:4, Interesting)
So... you're allowing the trader's society to have sufficient technology and resources to accelerate a shipload of titanium to virtually c, to navigate across instellar voids, and then decelerate again... but you also think that society will not have conquered aging?
That seems far-fetched to me.
And of course, once aging becomes an outpatient condition, then a species' horizon is going open wide again. Thinking in terms of centuries or millenia will not be uncommon.
Re: (Score:3, Insightful)
Re:Figure 2 is really informative (Score:5, Insightful)
Second -- I'm not sure that a transaction that takes longer to complete than the life of any trader is necessarily impossible. People make investments they know will outlast them, largely because they hope to sell to somebody younger when they need the money. If I set cargo in motion that will return a $100 million payment in 100 years, I know that I'm not going to live long enough to ever see the return. But, in 50 years I can probably sell the right to the value of the cargo for $5 to $20 million, depending on interest rates (see present discounted value [wikipedia.org]). Some young whippersnapper (or an institution with a long horizon, or somebody else who hopes to trade again) would be happy to take the deal. It doesn't matter that I'll personally never see the dividends; if the payment down the line is certain enough then somebody will be happy to buy it from me.
Oh exploitable (Score:5, Funny)
Investments which outlast the investors... (Score:5, Insightful)
This is largely just a pointy headed clarification: interstellar trade would be impossible for a host of other reasons. We'll start with "There is nobody to trade with, and finding somebody to trade with would require the 12th century Catholic Church making a deal with Microsoft on behalf of the 28th century Catholic church, without of course knowing that Microsoft exists, what form it takes, or what it values."
Re:Figure 2 is really informative (Score:5, Interesting)
Indeed I've always thought that that's the way the Federation really worked in Star Trek. All the feel good stuff we see is just propaganda from inside the system like Starship Troopers was. If you really were a primitive species then the Enterprise would arrive for peaceful contact and leave. But it would send your coordinates and description of your planetary defences (i.e. none worth mentioning) back to the Federation. A bit later swarms of starships would arrive and your planet could be turned into more starships and any survivors could be reprogrammed to serve on them, which doesn't seem a very skilled job. People seem curiously inhuman too. My explanation is that they're not really people. Physically they are mostly human with a few aliens, but socially they are more like insects in a hive. They follow orders without question and work without payment and show little concern for their individual interests or safety. If they'd been programmed to do their job without any choice in the matter it would all make sense.
It explains why they don't have money, or politics, or arguments of any sort. In the best 1984 style of course they criticise the Borg for behaving like this because it's always useful to have an enemy. I suspect that it's not really necessary anymore of course since their drones have long since lost even the possibility even considering that the system they are in is anything other than totally benign.