Saturday, May 21, 2011

The Future is an Autarkic Regime

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.


  1. Let's say there is a tree that grows for 200 years and then produces a rare and valuable fruit. I only plan to live for 40 more years, yet it still might be profitable for me to plant the tree.

    I plant the tree. It grows for 30 years and then I sell the tree to someone younger. He grows the tree for 70 years and then sells it to someone younger. The new owner grows the tree for 100 years. After all these years, the fruit blossoms and the latest owner of the tree eats and sells the fruit.

    It's not clear if there is an underinvestment in the future if people can sell work-in-progress projects.

  2. Your entire argument for investing more in space technology, exploration, and colonization is based singularly on your beliefs. I daresay that whether there is underinvestment in the future or not is not something you can answer, because you really have absolutely no idea what the "optimal" degree of investment in space actually is.

    Neither does your post consider the possibility that technologies that are relevant to the investments you're interested will gradually become cheaper, and the uncertainty revolving around space will decrease, and investment in this sector will pick-up as people begin to economize resources towards what they now consider a worthwhile investment.

    If a Roman had predicted the railroad and related technologies, would it have justified the expenditure of vasts amount of resources towards the development of all this technology? What opportunities were being foregone? At what true cost would these investments have been made?

    These are all questions you conveniently ignore, because your opinion here isn't based on any real knowledge (as in, calculation knowledge... not general knowledge), only a presumption that these types of investments are more important than anything else these resources could have possibly been economized towards. In short, you are acting as a central planner.

  3. Also, why is more human civilization better? I'm not particularly concerned with how many planets/continents human beings live on, I just want a good life for me.

  4. How does one determine how future people will want us to direct our investment?

  5. For those interested in controversy, I criticize Daniel's argument here.

  6. Jonathan -
    Saved! On the comment - It is based on what I think, but I think in this case it's fairly safe. I'm not deciding what ice cream flavors the future would like to eat, after all. Preference is somewhat less relevant here. More human civilization or less? I feel more comfortable making that decision. The point is, though, what's the alternative? We don't serve the future's interests by not making investments either. That's the facet of the argument I try to make here - the laws of physics are protectionist and autarkic. That's unfortunate for everyone involved already. Taking a shot at a few smart investments isn't the worst thing in the world. Corner solutions are bad economics, practically as a rule. Some space exploration and colonization certainly makes sense. The details, of course, would be subject to all manner of problems I agree. The problem is, not doing anything is subject to all manner of problems too.

  7. Stravinsky -
    re: "How does one determine how future people will want us to direct our investment?"

    I don't know. That's why I was so pessimistic about the DARPA RFI. I have no idea - it's a very tough problem. All I know is that the limitations of the laws of physics that we our constrained by given our current state of technology have very real consequences for our flourishing.

  8. @Jonathan
    I daresay that whether there is underinvestment in the future or not is not something you can answer, because you really have absolutely no idea what the "optimal" degree of investment in space actually is...

    Well, this is obviously something of a broader philosophical discussion than a matter of precision, but I interpret Daniel's argument as being that the tendency to over/underinvest in the long-term future cuts one way (i.e. towards underinvest).

    On semantics, I think that Bob's point (on his blog) about inter-temporal "autarky" being dubiously defined is well made -- since the future isn't able to trade goods with us... However, having said that, the transactions in this case are not about conventional market goods. It is about, I guess, the piece of mind that comes with the knowledge that future civilisation will thrive and prosper in ways that we would like to do ourselves had the roles were reversed. In other words, kin selection on steroids.

    While we're on the subject on long-term planning and inter-temporal justice, I recently wrote a post in response to David Friedman's criticism of the "sustainability" movement. I daresay the following paragraph is relevant:

    "[U]ncertainty about how mankind's future welfare or technology will develop is not a license to profligacy. Yes, we may be wrong in our projections of what the world will look like in a hundred years, but that hardly means that we should abdicate responsibility in making reasonable investments and sacrifices based on our best estimates. Also, why do people think that we won't be able to shift goal posts as the game changes and new facts emerge? The idea that we might be paralysed by the fear of making mistakes (in our predictions of the future) is analogous in its intellectual poverty to the Luddite idea that we should leave the earth exactly as we found it. These are empty false choices."

  9. Daniel's entire argument is undermined by the fact that there are numerous private space corporations working toward the colonization of Mars; I daresay they have a far better chance of making such a thing happen than agencies like NASA - bloated, costly organizations who do one thing really well - PR.

  10. Daniel,

    It's not about "more civilization or less", because you have absolutely no idea what civilization will look like at any given time in the far future. For all you know, the economization of resources without intervention will provide optimally for the far future. You're making an estimate based on a calculation that you can't really make; it's based entirely on an assumption.

    "We don't serve the future's interests by not making investments either."

    You don't know that. The way of economizing resources of the market may be better for the far future than disrupting this natural coordination and investing in something else.

  11. Gary -
    You know very well what I think of private space organizations and you know very well it doesn't undermine my argument at all. Or if you don't, then you should spend more time familiarizing yourself with what I think of private space organization and what my argument is here.

  12. And Gary -
    Let me once again point out that this is YET ANOTHER situation where I wasn't talking about government until you decided that you wanted to talk about it.

  13. Daniel,

    All I know is that you are an advocate - as you have said - of the "socialization of investment" (a method of central planning) - I can think of few things more disastrous to a prosperous society than a system of government-sponsored or implemented investment.

  14. Think what you will.

    I'm sick of reassuring people I'm not a central planner. Clearly you'll think what you want to think.


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