How would an interstellar trading empire figure out how long goods had been in transit, for the purposes of calculating interest? After all, if the shipping vessels are traveling at close to the speed of light, the shipping time will seem longer to an observer on the ground than it would to someone traveling on the ship. This is apparently the sort of thing rockstar economist Paul Krugman thinks about when he's not prophesying our total doom. Click through for Krugman's solution to this thorny problem.

Krugman's offbeat look at the economics of interstellar trade (which we really meant to blog last week) comes from a paper he wrote 30 years ago when he was "an oppressed assistant professor." It's full of little jokes, like the idea that space explorers may one day "discover or create a world to which economic theory applies." (Unlike Earth, in other words.)


Krugman unveils two pioneering theorems of interstellar trade: 1) The transit time should be calculated according to the clocks on the ground, not the clocks on the ship; and 2) If sentient creatures can hold assets (such as bonds) on two different planets in the same "inertial frame," then competition will equalize the interest rates on the two planets. In a nutshell, for trade to be viable, you have to have common interest rates and a common framework for calculating transit time, so investors can decide whether to under-write a trip, or just stay on Trantor and buy a bond instead.

If we ever do actually colonize other star systems or start trading with other interstellar civilizations, Krugman may get a freighter named after him for his contributions to space economics. [Conscience of a Liberal]