Paul Krugman…space colonist?

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My favorite Krugman-esque image.

Six years after the last Apollo moon mission, a young assistant professor at Yale wrote about the economics of…interstellar trade. If the economist hadn’t been Paul Krugman, I doubt we would remember the attempt. But while his 1978 essay – “The Theory of Interstellar Trade” – was intended to be somewhat of a joke, its combination of some basic physics and economic theory turns out to have some serious points.

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Cover page of Krugman’s essay; note the “credit line.” More on this in my post…

self-professed science fiction buff, Isaac Asimov’s Foundation stories helped launch Krugman’s entry into economics. He wrote the short paper when he was “an oppressed assistant professor, caught up in the academic rat race.”1 (This was years before he won the Nobel “for his analysis of trade patterns and location of economic activity.”

Despite the essay’s absurd-sounding title, it presented an economic analysis of the kind that Asimov would have appreciated. As the paper’s introduction states, “while the subject of this paper is silly, the analysis actually does make some sense.” The result is a “serious analysis of a ridiculous subject” which, Krugman notes, is “the opposite of what is usual in economics.” (Ah – so jaded and yet still an assistant prof.)

Let’s Assume We Have a Can Opener” is classic joke about how professional indoctrination encourages people to make unreasonable assumptions. The butt of the joke is an economist. So – to paraphrase the punchline somewhat – let’s assume we have an interstellar starship that can travel close to the speed of light. Krugman wrote his essay in 1978 – a year after Star Wars appeared in theaters – so probably what he had in mind looked something like this:


So – if one is an interstellar trader shuttling, say, dilithium crystals and ‘droid parts around the galaxy, “how should interest charges on goods in transit be computed when the goods travel close to the speed of light?” After all, the time of transit will appear less to the space pilot transporting them than it will to the person waiting  to receive them on some faraway planet. This makes calculating the true value of our (hypothetical) space commodities quite difficult.

In his essay, Krugman used physics and economics to prove “two useless but true theorems.”

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Krugman concluded that one should use clocks on a planet’s surface, not on board the traveling vessel, to calculate interest costs. The reason is obvious – a trader on Trantor (Krugman’s choice) could have invested her money in a bond. Instead, they invested it in cargo. Therefore, the opportunity cost of trade should be based on the passage of time on Trantor. As Krugman phrased it: “When trade takes place between two planets in a common inertial frame, the interest cost on goods in transit should be calculated using time measured by clocks in the common frame.”

Krugman’s second point concerns “interstellar capital movements.” Krugman’s “First Fundamental Theorem” assumed equal interest rates on the two planets. But wouldn’t interstellar movement of capital distort interest rates because “simultaneous arbitrage is not possible”? In other words, while goods move slowly, information about their circulation moves at the speed of light.

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Krugman’s “Second Fundamental Theorem of Interstellar Trade” concluded that this needn’t be a problem: “If sentient beings may hold assets on two planets in the same inertial frame, competition will equalize the interest rates on the two planets.” (Another economist read Krugman’s essay and concluded that “in such worlds the real interest rate cannot exceed the costs at which more fuel can propel you into the future through time dilation…as The Economist interpreted this: “Better buy antimatter futures while they are cheap.”)

So — we now have what the future Nobel winner called a “foundation for a coherent theory of interstellar trade.” It’s a picture of the universe that is “not a lunatic vision; stellar, maybe but not lunatic.” The double entendre here is a nice touch as Krugman’s theorems are less relevant for more “mundane” financial transactions between traders on the earth and the moon. Krugman’s conclusion: space might be “the Final Frontier of economics.”

OK – so I’ve been having some fun with Krugman’s essay (in the same spirit in which he wrote it.) But scattered throughout it are hints which point to some other interesting possibilities. First of all, Krugman – like many people his age – was aware of the public interest in space settlements stirred up by Gerard O’Neill’s visioneering. His essay, in fact, cites O’Neill’s book The High Frontier. (Of course, Krugman also cites Lawden’s Introduction to Tensor Calculus, Relativity, and Cosmology so we probably shouldn’t read too much into his bibliography.)

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Another little puzzle is found on the title page of Krugman’s essay – he notes his research was supported by a “grant from the Committee to Re-Elect William Proxmire.” Famed for his Golden Fleece awards given to protest government waste, the former Wisconsin senator became known as “Darth Proxmire” to O’Neill supporters. In fact, after CBS’s 60 Minutes ran a segment featuring O’Neill and his ideas, Proxmire was so incensed that he promised “not a penny for this nutty fantasy” and suggested instead that an irresponsible NASA should instead have its budget cut. (The CBS piece implied the agency was seriously considering O’Neill’s ideas. It wasn’t.) Why did Krugman single out Proxmire? Was he making a joke because of Proxmire’s dislike of O’Neill-style space settlement ideas? Or did Krugman sympathize with them?

Krugman’s foray into the economics of interstellar economics aside, there actually was a small community of people writing about such things circa 1978. Although most people realized that they would likely not be able to actually build a space colony (or an interstellar spaceship), the participants in the summer studies that NASA helped sponsor (and Gerard O’Neill helped organize) considered what living on a space settlement might be like. This demanded taking anthropology, sociology, and, of course, economics into account.

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Cover (badly pixelated) of the 1985 book Space Colonization: Technology and the Liberal Arts

Given the fondness that many in the space settlement movement had for libertarian thought, it’s not surprising that a good deal of attention was given to what sorts of future financial and economic systems would/could be enacted. At MIT, the Department of Aeronautics and Astronautics offered a new undergraduate course on “space systems engineering”. For an entire semester, undergraduate and graduate students studied the engineering needed to build a small, industrial space settlement.2 Other schools used the “Colonization of Space” topic to introduce undergraduates to “current topics in science and technology.”3 This attempt to jumpstart the curriculum reflected a more general trend of drawing students to science through nontraditional approaches such as the “Zen of physics.”

So, while Krugman’s essay might have been only semi-serious, it connected to other ideas circulating at the time, some of which the economist/science fiction fan was aware of. For me, the best convergence happened in 2000. This was the year Krugman left MIT for Princeton University, the same school where Gerry O’Neill spent his academic career.



  1. []
  2. MIT published the class’s final product as “A Systems Design for a Prototype Space Colony,” Spring 1976. []
  3. For example, see the essays collected in Charles H. Holbrow, Allan M. Russell, and Gordon Sutton, F., eds., Space Colonization: Technology and the Liberal Arts (New York: American Institute of Physics, 1986). []

Does Matter Still Matter?

We often want our new technologies to be “frictionless”. We want them to reside elsewhere – consider the buzz over ‘cloud’ computing – and free from the thinginess that weighs down “traditional” technologies and industries. Perhaps this is an echo going back to the ancient Greek’s exaltation of mind over matter. However, there have been attempts to think of technology in a more disembodied manner. For instance, in 1994, a manifesto of sorts appeared titled “Cyberspace and the American Dream: A Magna Carta for the Knowledge Age

Screen Shot 2013-08-18 at 12.17.38 PMIts authors were an eclectic bunch: Esther Dyson (daughter of physicist Freeman Dyson and an Internet entrepreneur), Alvin Toffler (pop futurist famous for books like Future Shock and The Third Wave); George Keyworth (Reagan’s former science adviser and director at Hewlett-Packard); and George Gilder (a critic of feminism, a speech writer for Reagan, and – later – an advocate for intelligent design). Despite their varied backgrounds, the four co-authors were all techno-utopians who believed in the emancipatory power of both the Internet and the free market.

Their preamble began with the memorable, if not hubristic, statement, “The central event of the 20th century is the overthrow of matter…The powers of mind are everywhere ascendant over the brute force of things.” Out on the new cyber-frontier, the contours of cyberspace were just beginning to come into focus.1 Written in the giddy afterglow of the Cold War’s end, the halcyon days of beckoned as the Internet bubble began to inflate.

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The sock puppet mascot of, c. 2000.

Today it’s easy to look back on statements like the Magna Carta and marvel at its prescience as well as its utter naivete about the “overthrow of matter.” A persistent flaw in cyber-advocates’ 1990s boosterism was forgetting that all of the stuff that made the Internet and the Web work was, well, made of stuff. And to imply that all of this was nothing but potential emancipatory energy…workers in Silicon Valley, Seoul, and Shenzen would certainly see it differently. Similarly, today’s server farms aren’t running on good intentions while generating Google search results. To be sure, the Magna Carta’s autors aimed at a deeper subtlety but their overall attitude was to denigrate the “desert of the real” in favor of the glory of cyberspace.

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In The Matrix (1999), Morpheus tells Neo about the “Desert of the Real”

I recently read two things that made me revisit and rethink claims – some more than two decades old – about the “overthrow of matter.” The first of these was George Packer’s recent and excellent book The Unwinding: An Inner History of the New America.

Screen Shot 2013-08-18 at 12.11.47 PMOne of the characters journalist Packer follows as he traces the unraveling of American institutions and ideals since the 1970s is Silicon Valley hero and study-in-contrasts Peter Thiel. A German-born entrepreneur, Thiel made his fortune by co-funding PayPal (along with Elon Musk) and investing in, among other things, Facebook. Stanford educated, Thiel set up an (in)famous program to pay talented young people to quit college to “build the innovative companies of tomorrow.” Owner of resplendent Bay Area properties, Thiel has given $1.25 million to the Seasteading Institute to help further its goal of establishing “permanent, autonomous ocean communities” – sea colonies – where libertarian principles will be put into action. And, despite his homosexuality, Thiel has donated money to political groups that are indifferent, if not hostile, to gay rights.

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Peter Thiel on 14 February 2011 issue of Forbes

Thiel, in Packer’s account, has also given up on the future. Or at least the future as it was imagined in the 1950s. No space colonies, underwater cities, or extreme engineering projects. As one of Thiel’s investment groups says in its prospectus, “We wanted flying cars. Instead we got a 140 characters.” Pulling an iPhone from his pocket, Thiel tells Packer that it’s no technological breakthrough. “The information age has made Thiel rich, but it has also been a disappointment to him,” Packer writes, “The creation of virtual worlds has turns out to be no substitute for advances in the physical world.” Jobs and wealth flow from improvements in manufacturing and industry, not just from shuffling electrons and dollars – the two are synonymous today – around the planet. And, to Thiel’s liking, not enough attention is being paid to the moving around of atoms and molecules – traditional industry – as opposed to bytes.2

In recent years, economists and entrepreneurs have made claims similar to those in the 90s’ about the Internet with regard to Big Data.

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Graphic by Chad Hagen accompanying 2012 New York Times article on Big Data

But is Big Data, James Glanz asked in a recent New York Times op-ed, going to be an “economic dud”?3 Or is Big Data the “new oil” as a report by the World Economic Forum claimed?

Glanz includes two useful graphics with his piece:

Screen Shot 2013-08-18 at 12.48.50 PMScreen Shot 2013-08-18 at 12.48.56 PMDespite the incomprehensible amount of data sluicing throughout the global pipes of the Internet, U.S. economic output has grown at a very modest amount (even after taking the Great Recession into account). One interpretation is that we still live and work in an economy based on stuff. An economics professor Glanz interviewed evaluated the “new oil” claim and deemed it “promotional nonsense.” Data, big or otherwise, isn’t comparable to the value of real fuel and the real vehicles it powers.

Glanz doesn’t totally dismiss the transformative effects that Big Data might have…perhaps these won’t be felt for years or decades and, of course, it’s difficult to disentangle its potential impact from other variables. Paul Krugman, in a response to Glanz’s piece, counseled patience. But he also recommended healthy skepticism to counter the hype around emerging technologies like Big Data and so forth.4 This same skepticism should extend to stuff-based emerging technologies, to be sure. K. Eric Drexler’s new book Radical Abundance offers an updated version of his radical vision for what was once called molecular engineering, later to be renamed nanotechnology and, now, “atomically-precise manufacturing.”

Here is where some perspectives from the history of technology can help give a better understanding. It’s entirely possible that the lives of many many Americans may be affected by Big Data in more and unanticipated ways as corporations and government agencies continue to exploit its potential. But should we expect that anywhere near as many people will participate in and draw wages from working with it as say, Detroit’s auto industry c. 1950?

Glanz draws upon a useful historical analogy, citing Harold Platt’s 1991 book The Electric City in which one finds similar curves showing the booming rate at which Chicago adopted electric power a century ago. Despite similar curves for the data explosion, electricity – just as intangible as Tweets, Bitcoins, and Instagrams are today – had a far more powerful effect on reshaping the material culture of industrial and domestic life in the U.S. and overseas. Matter still matters. Remembering the world of the real – hardly a desert – and the tangible nature of our technology, is one way toward using it in a more thoughtful manner and remembering the implications for doing so.

  1. For example, the first killer app for the Web, Netscape Navigator, was released just a few months after Dyson et al. shared their manifesto. []
  2. The fact that Thiel made his fortune via Internet ventures is an irony not lost on Packer or this reader. []
  3. Glanz used to report on science and technology – he has a Ph.D. in astrophysics – and then served as the Times’ Baghdad bureau chief for several years before rotating back to the U.S. []
  4. Krugman draws on some economic history by Stanford’s Paul David including David’s 1989 paper “The Dynamo and the Computer: A Historical Perspective on the Modern Productivity Paradox.” []