Now I must tell you that before you think that this type of analysis is the stuff of cranks, in 1978, at the same time he invented New Trade Theory, Paul Krugman wrote a paper about the real issue associated with interstellar trade: can the fundamental trade theorems in economics work when ships are travelling at relativistic speeds? A quote from the introduction …
This paper represents one small step for an economist in the direction of a theory of interstellar trade. It goes directly to the problem of trade over stellar distances, leaving aside the analysis of trade within the Solar System. Interplanetary trade, while of considerable empirical interest (Frankel 1975) raises no major theoretical problems, cince it can be traded in the same framework as interregional and international trade. Among the authors who have not pointed this out are Ohlin (1933) and Samuelson (1947). Interstellar trade, by contrast, involves wholly novel considerations. The most important of these are the problem of evaluating capital costs on goods in transit when the time taken to ship them depends on the observer’s reference frame; and the proper modelling of arbitrage in interstellar capital markets where — or when (which comes to the same thing) — simultaneity ceases to have an unambiguous meaning.
So can the economic tools of trade theory survive all this? The answer, in case you were concerned, is yes. Phew. If that hadn’t been the case, we could never get off the ground, so to speak. Krugman goes on:
It should be noted that, 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.
I should point out that this is only the start. The issues of trade barriers can become real. After all, the entire fall of the galaxy to the dark side of the force in Star Wars started because of an interstellar trade dispute. And let’s face it, the actions of Trade Federation made as little sense as the actions of most trying to subvert free trade.
And there is more. Marc Reinganum published a paper in the Journal of Portfolio Management in 1986 that proved that time travel was impossible. [HT: to Robin Hanson for that link]
Current economic conditions rule out the possibility of past, present, or future time machines. The interest rate would always be zero if time travel were possible, because of the arbitrage opportunities that time travel would permit. Positive rates of interest are positive proof that time travel, unlike space flight, is pure fantasy.
Well, I am not sure about that. It shows that current and past interest rates are inconsistent with time travel but that doesn’t mean that at some point in the future such travel will be possible. But it does suggest that that will show up in interest rates plummeting.