What has Krugman been smoking?
I have almost finished writing the second edition of Debunking Economics (to be published by Zed Books in September 2011), which (a) makes me particularly sensitive to the drivel neoclassical economists write and (b) in need of the occasional diversion when reading nonsense dressed up as science gets all too much.
So I have to thank Paul Krugman for feeding both needs at once, with a paper that has been just brought to my attention via the Western Economic Association 2011 conference newsletter (I’m presenting a paper at the conference, and being a discussant on two others).
The conference is being held in Brisbane this year–which, one has to admit, is pretty far west when the continental US is your frame of reference–but it’s apparently not far enough out for Paul Krugman, who has just published a paper in the WEA’s journal Economic Inquiry on (drum roll please…):
Krugman is one of the best neoclassicals in general–mainly because his core humanity overrides his unfortunate training in economics–but this one is full bore neoclassical. I hope he’s pulling neoclassical legs here–pointing out the nonsense that one can get published in a mainstream journal if one makes neoclassical assumptions–and this is implied by the final line I quote below: “This article, then, is a serious analysis of a ridiculous subject, which is of course the opposite of what is usual in economics”.
I wonder how many neoclassical economists are going to bite before Paul reveals that they’ve been had?
So Paul, please tell me you were sending up neoclassicals when you put this one together and then submitted it to a journal–that it’s your version of a Alan Sokal hoax on neoclassical economics. Otherwise, expect a call from Charlie Sheen, because whatever you were taking when you penned this stuff makes Charlie’s drugs of choice look utterly tame (the emphases below are my own to point out where I think Krugman was signalling that this is a hoax):
Many critics of conventional economics have argued, with considerable justification, that the assumptions underlying neoclassical theory bear little resemblance to the world we know. These critics have, however, been too quick to assert that this shows that mainstream economics can never be of any use. Recent progress in the technology of space travel as well as the prospects of the use of space for energy production and colonization (O’Neill 1976) make this assertion doubtful; for they raise the distinct possibility that we may eventually discover or construct a world to which orthodox economic theory applies. It is obvious, then, that economists have a special interest in understanding and, indeed, in promoting the development of an interstellar economy. One may even hope that formulation of adequate theories of interstellar economic relations will help accelerate the emergence of such relations. Is it too much to suggest that current work might prove as influential in this development as the work of Adam Smith was in the initial settlement of Massachusetts and Virginia?
This article 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 since it can be treated 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 modeling of arbitrage in interstellar capital markets where—or when (which comes to the same thing)—simultaneity ceases to have an unambiguous meaning.
These complications make the theory of interstellar trade appear at first quite alien to our usual trade models; presumably, it seems equally human to alien trade theorists. But the basic principles of maximization and opportunity cost will be seen to give clear answers to these questions. I do not pretend to develop here a theory that is universally valid, but it may at least have some galactic relevance.
The remainder of this article is, will be, or has been, depending on the reader’s inertial frame, divided into three sections. Section II develops the basic Einsteinian framework of the analysis. In Section III, this framework is used to analyze interstellar trade in goods.Section IV then considers the role of interstellar capital movements. It should be noted that, while the subject of this article is silly, the analysis actually does make sense. This article, then, is a serious analysis of a ridiculous subject, which is of course the opposite of what is usual in economics.
As my partner often says, “That’s out there Mulder”.