Futuristic Economics

Anyone with little knowledge of economic theories and analyses is likely to have encountered atleast one laughter inducing (usually unintentional on the part of the author) piece of research. However, Prof. Paul Krugman is one economist who stands out for his grasp over the subject, and his intentional comedy.

 His paper “The Theory of Interstellar Trade” may be intellectually valuable in the present and practically useful in the future, but according to me, is a beautiful criticism of economic analysis and research in general. By Krugman’s own admission, the paper involves a “serious analysis of a ridiculous subject, the opposite of what is usual in economics.”

The paper analyses the problem of interest rate determination when trade takes place between humans and aliens from a planet outside the solar system. The topic of analysis is itself quite humorous, but what follows forces the reader to acknowledge the hilarity of the discipline in general. Starting with a framework of physics, Krugman proves two “Fundamental Theorems of Interstellar Trade” by assuming negligible transport costs in inter-galactic trade and perfect competition in the spaceship industry, which are the usual assumptions underlying much of economic analyses. In a brazen fashion, Krugman calls it a “special case”, and then claims that it is generally applicable. As a proof for the general case (non-perfect competition), he refers to his own yet unwritten paper, “Theory Capital and Travel-Light-than-Faster.” This targets the mindless extension of perfect competition results to anywhere and everywhere. Another priceless part of the paper is the “imaginary” diagram put forth to explain the velocity of the spaceship. One can’t help feeling that Economics is way too futuristic a discipline by the virtue of its assumptions, even if we disregard Krugman’s contribution to the development of a “universal trade theory”. We are equipped to handle the future, but remain clueless about the present.

You can read the entire paper at: www.princeton.edu/~pkrugman/interstellar.pdf

 Krugman admitted at having written the paper during a time when he was an “oppressed” assistant professor, caught in the academic rat race. The analysis provided in the paper is absolutely methodical and scientific. It should therefore, be taken very seriously.

“The picture of the world- or, rather, of the universe- which emerges is not a lunatic vision; stellar, maybe, but not lunatic.” –Prof. Paul Krugman.

 (Note to readers: The above article, like much of the discipline of economics, is not ideologically neutral. Hence, readers are advised to exercise their own preferred biases)

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