Phil Plait has an interesting discussion of what our future on the moon looks like. I've always been more interested in Mars myself, because it seems to offer more potential for the first non-Earth human civilization, but the Moon is almost surely going to play a role in our early interplanetary ventures. The idea that Phil outlines involves the Moon as a stepping stone to asteroid mining.
The key here, from an economics perspective, is to note that these are very long-term investments and even if they have shorter horizon payoffs the bulk of their benefits are going to accrue to future generations that can't demand these services now. This is the problem of what I call "temporal autarky" that I used to talk about on here every once in a while. Normal "autarky" makes us all poorer because we're not trading with other (contemporary) humans. Temporal autarky makes us poorer because we don't have the opportunity to trade with future humans (say, the residents of New America on Mars in 2512). Autarky limits particular trade flows depending on the economies in question, and temporal autarky is no different. Specifically, it limits trade in what we can produce that the future would want - for example, pioneer bases and infrastructure on the moon and Mars.
What that means is that insofar as market forces drive our interplanetary settlement, they're going to be restricted to settlement patterns that incentivize contemporary humans trading with contemporary humans, which means relatively short-horizon returns on investment (and even those will be long horizons relative to most other investment opportunities).
Of course we humans don't just do things through markets. There is also a role for public investment here and for non-pecuniary motivations.
Thursday, June 14, 2012
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Suppose someone in the year 2200 will be fantastically wealthy if he owns stock in a company that mines asteroids. Work backwards with an OLG framework. Ergo people today should be willing to buy stock in a new corporation that will start investing in that capacity.
ReplyDeleteIf you want to make a specific argument about why private sector people are shortsighted and politicians are farsighted, OK, but this "temporal autarky" stuff is a non sequitur.
Brad DeLong made a similar argument when I was talking about DARPA's 100 year starship project.
DeleteSo I don't get it... exactly. An investment that might not be profitable for decades can emerge with no problems at all now because investors would anticipate being able to sell their shares to an investor tomorrow (when the business is still not profitable) because they anticipate being able to sell their shares to an investor the next days because they know that 200 years in the future someone will actually value the company?
Are you saying these transactions should go smoothly as one giant intergenerational secondary futures market?
I can see how you might talk about such a thing in theory, but it seems to me your dismissal of it being a non sequitor is a little harsh. We would presumably be doing a lot of things now for future generations if - for example - time travel were possible and such transactions could be made. Put another way, if you were trying to explain why we only conduct economic activity for the benefit of those close to us in time, it is because the laws of physics leave us no other choice (not because it is optimal in any broader sense).
I'm really trying to understand this Bob - I'm not sure exactly what you're talking about. You would think we would see more of this if such a thing were plausible.
DeleteNow I agree, there's simply a sense in which we have short time horizons in our own lives. That's part of it. But I don't think that's all of it.
When we make transactions today I know my transaction benefits the other person because they want to transact with me, so there's no ambiguity. You can't do that with future generations. Now, part of that is just the job of the entrepreneur. When I transact with an entrepreneur for factors of production he is anticipating the future benefits that people will experience from his production. What I think you're saying is that the entrepreneur can also anticipate selling his (non profit earning) business to future entrepreneurs who anticipate selling the (still non profit earning) business to future entrepreneurs who anticipate selling goods to future Mars colonists. Is that what you're saying? If that's really what you're saying I suppose I'd just respond that the temporal autarky (we don't have those Mars colonists placing orders today) combined with the same fundamental uncertainty we Keynesians and Knightians always worry about makes the whole concept a non-starter, practically speaking.
Do we have any examples of such schemes that don't earn at least some profits in the interim??? If we do I will be much more optimistic about these sorts of responses.
You're asking good questions but I have to be brief. A few things to think about:
ReplyDelete(1) I could with as much justification say there is interspatial autarky right now between the US and Japan. You point out that no, there are all kinds of trades occurring. Then I say, "Sure, but there would be a lot more if we had transporter technology from Star Trek. The current pattern is hardly optimal. The government ought to be subsidizing international trade right now, to correct for this interspatial autarky problem imposed by the laws of physics." If you think that would be a weird way of arguing, then you should understand my concern.
(2) Let's say there is a 30-year government bond, newly issued. Would you expect a guy with cancer to offer less for it than a healthy guy?
Can you think of any transactions that can be said to be occurring with 2512?
DeleteTo a certain degree this is a relative argument... I'm sure some stuff is smuggled in and out of North Korea, but it's still safe to call it an "autarkic" society. By your apparent definition with your Japan point I don't think we could call anyone autarkic! I still like the term a lot.
I am not saying that we should put all our efforts into time travel as a result. I'm just describing the intertemporal externalities that shape how we invest in very long term endeavors.
On the 30 year bond - right, but that's because there's presumably some chain of demand that can be satisfied for a 30 year bond with some likelihood. Do you see any of this going on with the far future. And let's be clear here, it's because we don't think that investment patterns would be different in the far future if we had access to that demand. Even thirty years in the future you only really have things like assets produced now to satisfy their interests. Anything more substantial (like a house) is expected to break even much sooner than that, because when someone builds a house that will last 100 years they're not thinking of the transaction that will occur 100 years from now. Any transaction that far in the future will largely be incidental to the initial decision.
DK wrote:
DeleteI am not saying that we should put all our efforts into time travel as a result. I'm just describing the intertemporal externalities that shape how we invest in very long term endeavors.
Hang on, you're missing the point of my beautiful analogy. If you said you wanted to put money into time travel machines, then that would at least make sense. But that's not what you said. You said you thought the government should subsidize investment in long term projects, because the market won't do it due to intertemporal autarky.
So I'm saying that doesn't make any sense to me. You normally don't list physical laws of nature as sources of market failure. The government today can't time travel either.
So, the proper analog of what you're recommending, wouldn't be for government to build Star Trek transporters, it would be to subsidize international trade. And that is clearly not right. There's no market failure just because there are shipping costs.
* * *
I don't know what the answer is, but do you think British consols traded for a higher market value than, say, 100-year bonds (if such a thing existed)?
It's the same argument as saying that pecuniary motives left a lot of the benefits of North America unrealized for a long time because of the physical barriers.
DeleteAnd I'm not just saying this is an argument for government - I said non-market. And who eventually took the initiative with North America? Governments and missionaries played a big role. Yes, profit-seekers played a role too - and profit-seekers are going to be right their pushing the frontier in space too. But you need more than that.
Perhaps I should approach this from a different angle - demand in the future (or across the Atlantic Ocean) is, in many ways, conditional on making these investments today. There's a chicken-and-egg problem in a lot of ways. The profit opportunity of a Mars colony is contingent on setting up the initial infrastructure of a Mars colony, but it's hard to see how profits can be earned by the people who set up that initial infrastructure.
100 year bonds: http://www.ft.com/cms/s/0/8300b436-6d3c-11e1-b6ff-00144feab49a.html#axzz1xtCXvX00
ReplyDeleteGene, Bob et al.
ReplyDeleteI'm probably the one missing something, but it seems to me the question of "can you market a security that you can be guaranteed a market for 100 years into the future" is a very different question from "can market incentives be the driving force behind capital investments made today for the use and benefit of people in the far future". Those seem like different questions to me. I'm happy to answer "yes" to the former.
Part of why you can answer "yes" to the former, though, is because it's a government issuing the bond.
Could a private Mars-terraforming firm issue 500-year bonds to finance their work? That seems doubtful. In other words, it's not the particular project of the government that is enabling them to issue 100 year bonds or consols, it's the fact that they'll probably be around.
Granted, it's the fact that they'll be around that makes it seem to me that governments are one of the best bets for colonization efforts.