Paul Krugman is now a famour economist, but many years ago, he was “an oppressed assistant professor, caught up in the academic rat race.” So, he did what any good academic would do in that situation: he wrote a silly paper to cheer himself up. In this case, a paper discussing the issues that arise in interstellar trade because of realtivistic effects.
It’s a brilliant bit of silliness. It’s hard to pick a favorite bit, but this is pretty good:
To conclude this section, we should say something about the assumption that the trading planets lie in the same inertial frame. This will turn out to be a useful simplification, permitting us to limit ourselves to consideration of special relativity. It is also a reasonable approximation for those planets with which we are likely to trade. Readers may, however, wish to use general relativity to extend the analysis to trade between planets with large relative motion. This extension is left as an exercise for interested readers because the author does not understand the theory of general relativity, and therefore cannot do it himself.
The whole thing is worth a read.
From the paper:
Doesn’t this violate a fundamental law of finance? If one could know prices at all future times, wouldn’t that imply that the future supply and demand are also known? And it’s that uncertainty that makes a market in the first place?
In such a market, one could achieve arbitrage at will. Prices would have to change in order to eliminate the arbitrage.
So the state of having prices fixed results in a case where prices would have to change. Paradox.
Yes, I’m aware that economics != finance, but it seems like a pretty bold assumption to make. Then again, I wasted five minutes on a Saturday scanning this paper, so maybe the joke’s on me.
And it’s that uncertainty that makes a market in the first place?
Not if there’s any kind of comparative advantage in the production of goods.
I’m surprised you didn’t comment on Krugman’s misconception that General Relativity is needed when planets have large relative motion. That’s what Special Relativity is all about!
GR only comes into play in highly curved spaces.
Ah, cut him some slack — he’s an economist!
James, perhaps that comment about perfect forecasts was made somewhat tongue-in-cheek?
Asad
Note that one of his references — Light than faster — was “published” years *after* this paper was written. Really makes this all the funnier.
I also enjoyed this parenthetical remark:
Which explains exactly why Figure II looks the way it does.