The Theory of Interstellar Trade

"The Theory of Interstellar Trade" [ [http://www.princeton.edu/~pkrugman/interstellar.pdf 'The Theory of Interstellar Trade'] ] is a paper written in 1978 by economist Paul Krugman. He described the paper as something he wrote to cheer himself up when he was an oppressed assistant professor, caught up in the academic rat race. [ [http://krugman.blogs.nytimes.com/2008/03/11/economics-the-final-frontier/ Economics: the final frontier] ]

Krugman analyzed the question of

"how should interest rates on goods in transit be computed when the goods travel at close to the speed of light? This is a problem because the time taken in transit will appear less to an observer traveling with the goods than to a stationary observer."

Responding to the paper Tyler Cowen, professor of Economics at George Mason University, speculates on how time travel affects time preference discounting. [ [http://www.marginalrevolution.com/marginalrevolution/2008/03/the-theory-of-i.html comment at Marginal Revolution] ]

My own puzzling focuses on the determinants of real interest rates, given how time dilation changes the meaning of time preference. As you approach the speed of light you move into the future relative to more stationary observers. So can you not leave a penny in a savings account, take a very rapid spaceflight, and come back to earth "many years later" as a billionaire? Hardly any time has passed for you. In essence we are abolishing time preference, or at least allowing people to lower their time preference by spending money on fuel. I believe that in such worlds the real interest rate cannot exceed the costs at which more fuel can "propel you into the future through time dilation."

References