You have a better chance of making an economic transaction with someone from North Korea today than you have of making an economic transaction with someone living 100 years from now. We typically think of North Korea as an autarkic regime, so I've always felt that it's reasonable to apply the same term to the future. We are simply not allowed to trade with anyone in the future - even our future selves. This is the problem of temporal autarky.
We have evolved to deal with this. The matter that composes us may extend in all four dimensions of space-time, but our experience of existence has evolved to be an experience of space-time as a three dimensional reality (space) moving along a fourth dimensional track (time). Einstein called this conceptualization of reality a "stubbornly persistent illusion", but it is an illusion that works decently well for both neoclassical economics and Newtonian physics. Both of these metaphors for "reality" have produced important practical results. But they have limits. We broke those limits a century ago in physics, and the twentieth century has reaped the benefits. Keynes started to crack the limits in economics seventy-five years ago (something that Andrew Bossie discusses here), but I'm not sure he fully incorporated the economics of the future into his thought.
We have one investment to consider as a society that I talk about fairly regularly on here: the exploration, terraformation, and colonization of the planet Mars. That's a costly endeavor, but also one with important benefits. But benefits to whom? Mostly to people living two hundred, three hundred, four hundred years in the future at least. It would be an adventurous, but not exactly pleasant place to live until at least that time. Now imagine if you lived in 2311, on the Earth. You have the option of living with a single planet civilization or a two planet civilization (with much better access to a resource-rich asteroid belt). You only know Earth now, of course, so you could be tempted to say you're fine with a one planet civilization, but I think that's naive. Imagine if half or even less than half of the Earth's landmass were gone: if there were no North and South America. The world would be much more impoverished place. More places, more people, more opportunities for interaction, trade, and specialization is a good thing. It's an enriching thing. Go even farther into the future - 2811 - and imagine metropolises on Mars. Imagine two Parises. Two New Yorks. Two Tokyos. Two Rios. Imagine the new cultures that would flourish there. Unambiguously more human civilization is better. Someone from 2311 or 2811 would want to make an investment in the past in this new, expansive human civilization. And in 2311 or 2811 they're going to be tremendously wealthier than we are, so investing in a Martian colonization effort in 2011 would be a pittance for them.
The problem is, these humans that coexist with us in space-time but exist in 2311 or 2811 rather than 2011 can't make this transaction with us. We are complex combinations of four-dimensional existence that can only (so far as we know) truck, barter, and exchange in three dimensions. We are living under a regime of temporal autarky, and autarky is impoverishing.
This is why I have substantial doubts about the optimality of a three dimensional market when it comes to four dimensional distributions of costs and benefits. We fake it, of course. We economists are happy to talk about "intertemporal choice". But that's not really the right term for what we're discussing. Intertemporal choice models are actually principal-agent models where our present self is acting both on his own behalf and on behalf of our future self in a transaction, but the future self has no say. Behavioral economists have pointed out that humans generally do hyperbolic discounting (to varying degrees of course). This is discussed as a sort of cognitive bias. Of course what it really is a lack of standing in the transaction for our future selves. Hyperbolic discounting is a major problem for efficiently allocating costs and benefits between future and past versions of ourselves. The problem becomes even worse when we think about allocating costs and benefits between future and past people.
What does temporal autarky imply? Well, let's think of it in terms of an autarky we're more familiar with (say, North Korea). What does the autarky of two contemporaries in the United States and North Korea imply? Well for one thing it implies that mutually beneficial exchange can't occur. So far as we know, we can't get technology from the future (Sarah Connor probably thinks that's a good thing). But if we think specifically in terms of direct investment from one trading partner to another, it means that investments that would be beneficial in North Korea and profitable to Americans can't be made in North Korea.
The same is true of the future. Our faux-intertemporal choice allows us to make a few provisions for the future, but only because we gain some utility from the expectation that some future version of ourself will gain utility. No such transaction can occur between other future humans and ourselves. The conclusion is absolutely unambiguous: the market economy underinvests in the future. Period. The market is by far and away the best institution for allocation decisions we have, but it has certain predictable blindspots and this is one of them.
Another book project...
2 hours ago