At Real Clear Science, Ross Pomeroy sings the praises of an early publication by the pre-Nobel academic Paul Krugman:
Paul Krugman is a Nobel Prize-winning economist, a respected professor at Princeton University, and an outspoken liberal columnist for the New York Times. But first and foremost, he is a huge nerd, and proud of it.
Back in the sweltering summer of 1978, Krugman’s geekiness prompted him to tackle a matter of galactic importance: the economics of interstellar trade. Then a 25-year-old “oppressed” assistant professor at Yale “caught up in the academic rat race,” Krugman crafted his “Theory of Interstellar Trade” to cheer himself up. Krugman’s jocularity is evident throughout the paper, which was published online in 2010, thirty-two years after he stamped it out on a typewriter. Early on in the article, he even pokes fun at his chosen profession:
“While the subject of this paper is silly, the analysis actually does make sense. This paper, then, is a serious analysis of a ridiculous subject, which is of course the opposite of what is usual in economics”
The key problem with interstellar trade, Krugman writes, is time dilation. When objects travel at velocities approaching the speed of light — roughly 300,000 kilometers per second — time moves more slowly for them compared to objects at rest. (For a great explainer of this effect, which is tied to Einstein’s theory of special relativity, check out this video.) So the crew of a space-faring cargo ship might experience only ten years while thirty years or more might pass for the denizens of the planets they’re traveling between. How then, does one calculate interest rates on the cost of goods sold? Trading partners will undoubtedly be many light-years apart and trips will last decades, so this is a vital issue to resolve.
Since the speeds of vessels will undoubtedly vary, but both planets should be moving through space at close enough velocities where time dilation wouldn’t be a factor, Krugman contends that the interest costs should be tabulated based on the time shared by the two planets. But what about those interest rates? Won’t they differ? Not necessarily, Krugman argues. Competition should lead them to equalize amongst interplanetary trading partners.
