One small step for an economist…..

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So today the Nobel Memorial Prize in Economics (not one of the original true Nobel Prizes) will be announced. I thought this would be a good time to write about the work of last year’s winner. And yes, you are still reading an astronomy blog.

In 1978 Paul Krugman was a bored young assistant professor at Yale. To amuse himself he let his thoughts wander onto how economics could evolve in the far future. This resulted in him writing a paper entitled The Theory of Interstellar Trade, which is quite frankly fantastic.

This is a light-hearted work and with the claim on the front page that the work has been funded by the Committee to Re-elect Willian Proxmire it starts as it means to go on. Proxmire was a US Senator who crusaded against what he considered wasteful public spending. His cross-hairs sometimes fell on scientific projects which were often recipients of his Golden Fleece Award, a sort of insulting IgNobel for spending government money on bizarre research programmes. Proxmire is also credited with killing off NASA’s space colonisation research programme. Hence Krugman’s ironic funding claim for his odd research work on the economics of space trade.

What makes interstellar trade unusual is the great distances involved and the problem of the Universe’s speed limit. Stars are separated by distances of light years and it is likely those with habitable planets are rare and could be even further apart. As it isn’t possible to travel faster than the speed of light through empty space, trade missions could take tens or hundreds of years to travel between worlds. Additionally as some for of propulsion that carries a craft close to the speed of light will be required for such journeys, time dilation will prove a problem.

Time dilation is a effect of travelling close to the speed of light where time appears to go slower for an observer moving at high speed compared to one that is stationary in a particular frame of reference. You might have heard of a consequence of this, the twin paradox, where one twin remains on Earth, while the other goes off on a rocket at high speed. When the rocketeering twin returns he finds he has aged less than his brother. The same principle applies to a space trader on a long voyage and raises the problem, who’s time frame do you you use for calculating money gained from compound interest? Krugman uses an argument based on trade between the fictional planet of Trantor (Galactic capital in Azimov’s Foundation Series) and Earth to show that the time lapsed in the inertial reference frame of the trading planets should be used for calculating interest costs (this is his “First Fundamental Theorem of Interstellar Trade”).

Krugman further uses the example of Trantorian’s trading with and living on Earth to assert his second law, that interest rates on the different planets will eventually equalise.

I may have come across as glossing over some of the details, this is mostly because it would lead to a pretty long blog post. But also it’s because I want to encourage you to read the original paper because it is one of the smartest and most amusing pieces of writing I’ve read in a long time. Krugman is clearly both a science and sci-fi geek and uses his knowledge wonderfully to weave together a thoroughly fun read.

Paul Krugman was awarded his Nobel Memorial Prize for his terrestrial work. This is lucky because to be awarded the prize for his stellar interstellar work he’d have had to wait longer than Peter Higgs to be proved right.