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Zach Feinstein and Manu Saadia on the Macroeconomics of Star Wars and Star Trek
Star Wars and Star Trek are both highly entertaining science fiction series, but they also have a lot to teach us about macroeconomics and economics more broadly.
Zach Feinstein is an assistant professor at Washington University in St. Louis, where he specializes in the study of systemic financial risk, and he is also the author of an interesting study titled, *It’s a Trap: Emperor Palpatine’s Poison Pill*, where he provides a fascinating look at the financial consequences of the destruction of the second Death Star in the movie, Star Wars: Return of the Jedi. Furthermore, Zach is also an expert on the economics of Star Wars in general. Manu Saadia is a writer based in Los Angeles, a lifelong Trekkie, and originally hails from Paris, France. Manu’s book, Trekonomics, details the economics of Star Trek, and is said to be the definitive book to read on the topic by economists such as Nobel Laureate Paul Krugman. Zach and Manu join the show to talk about the macroeconomics of the Sci-fi shows. Topics include: the economic fallout from the destruction of the Death Star, the absence of money in Star Trek, whether a universe can really eliminate scarcity, and more.
Read the full episode transcript:
Note: While transcripts are lightly edited, they are not rigorously proofed for accuracy. If you notice an error, please reach out to [email protected].
David Beckworth: Zach, Manu, welcome to the show.
Zach Feinstein: Hi.
Manu Saadia: Hello.
Beckworth: All right, thank you for joining us. Zach, your article made a big splash. It was about this time last year, right?
Feinstein: Yes, this time last year.
Beckworth: That's right.
Feinstein: It was so awesome.
Beckworth: It was. It was very fascinating.
Feinstein: Thank you.
Beckworth: We'll get into that in a minute. Both of your works, we'll get into that. But as a background, building up to when we get to those pieces, let's talk about maybe some of the basics of the economics in these two separate universes and let's begin, again, I'll start with you, Zach. Let's talk about some basic economic institutions. First off, you alluded a minute ago to interplanetary trade. What does that look like in Star Wars? Is it a fairly safe endeavor? Are there pirates? What do we know about it?
Feinstein: We know that we have smuggling, we have Han Solo who is a smuggler to the Outer Rim working for the Hutt. We also know that in the prequel trilogy, in episode one, the entire separatist movement starts based on taxing of trade routes. There is truly this vast interstellar, interplanetary trade network that is going on. Beyond that, we have banking systems that exist. So there's the InterGalactic Banking Clan, which exists in the Star Wars galaxy. And my favorite part is it is deregulated during the Clone Wars. So we have a vast amount of information about the economics in the Star Wars galaxy that most people just completely ignore, except in the prequel trilogies when everyone hates it.
Beckworth: Okay, nice summary. Let me ask this question about the interplanetary trade, can we tell about how much specialization there is? In economics, we talk about comparative advantage. One country produces textiles, one country produces high tech. Is there something along those lines among the planets in the Star Wars?
Feinstein: Yeah, so it certainly looks that way. The same way that in Star Wars you have the desert planet, and the ice planet, and the jungle planet, it really looks like you have the industrial planet, the political planet. Really, everything is hyper specialized planet-wide or even planet system-wide. Instead of having a national park, you have the Forest Moon of Endor.
Feinstein: We really have hyper specialization in this galaxy of approximately, I want to say 1.25 million planets.
Beckworth: That's remarkable. Okay. Let's now talk about the Star Trek universe, what's going on there Manu?
Saadia: So Star Trek is very different from Star Wars, obviously. People call it a post-scarcity society. I'm not entirely comfortable with the term because some things are indeed scarce in the Star Trek universe, but generally you have the Federation, which has achieved a measure of terminal abundance, thanks to technology. And then, you do have other cultures and other races who are still more attached to, I would say, either capitalistic ways, so that's the Ferengis, the traders. They're fantastic. I love the Ferengis.
Saadia: And then, you do have the Klingons and the Romulans. It's not entirely clear how their stuff functions really. It seems that the Romulans are exploiting the Remans. It seems that the Klingons, as you remember in Star Trek VI: The Undiscovered Country, they do have this moon where they produce a lot of their energy or their energy supply of some sort and it explodes.
Saadia: I would say the Federation itself is described at enormous length, just only because you do have more than 600 hours of TV show, as compared to Star Wars where it drops in here and there. It's much more detailed and the institutions are really fleshed out. For instance, there is no real currency circulating within the Federation because having achieved terminal abundance, thanks to technology, the price of most things has gone to zero, so that has a lot of implications in terms of behaviors and what you do in your life, but also how you conduct the affairs of state. The Federation people, those you don't see on the show most of the time, are probably fairly happy and don't do much or if they do stuff, it doesn't seem to be directed towards economic activity, or what we would call market activity.
Beckworth: Okay, very interesting. So one thing you don't see in the Star Trek world, which I think you do see in the Star Wars world is specialization or at least it's not as clear. I think that's the point you've stressed there. You don't see certain planets specializing in certain things, although you do see, like you mentioned...
Saadia: It has a pleasure planet, Risa.
Beckworth: This is true. You do see these different empires competing and there's presumably some kind of exchange going on among those.
Saadia: I think there's tremendous exchange between those and between the Federation, and that's part of the Star Trek thing that is not entirely clear because in all logic, the Federation should have bought out the entire galaxy already, so that's... sorry for interrupting.
Beckworth: No, no. It's interesting. I dare bring in another sci-fi genre, but the show Firefly, if you guys remember that...
Beckworth: What's fascinating about that, I want to apply it to your shows, that show takes place on the fringes of the civilization, right? There is this advanced civilization. On their fringes, you got this cowboy genre intermixing with sci-fi, it's a really fascinating thought. On that particular fringe, on that environment, there is a Wild West ruthlessness going on, there's more trade. You see money. And so, I'm wondering, we see that same type of frontier mindset in your two universes?
Feinstein: Yeah. In Star Wars, you have Han Solo who is exactly that space cowboy, smuggler on the fringes of the economic system, up until really Episode VII, he's back to being a smuggler. Even though he marries a princess at the end of Episode VI, he can't get away from being that Wild West cowboy, smuggler existing at the fringes of society.
Beckworth: What about Star Trek?
Saadia: Well, in Star Trek, you do have an entire show called Deep Space Nine where it is exactly at the frontier. Some humans and Federation people actually have sworn off the Federation and its values. They're called the Maquis, and they're rebels, and they live under Cardassian rule nominally. There is a lot of that. At the point of contact between the Federation and other civilizations, you see a lot of these exchanges and a lot of these transactions, I would say. It's interesting because you see Starfleet officers playing games in the casino/bar. They do have thumbprints to pay for their beers and all that or Romulan ale, sorry. It seems that Starfleet officers who are tasked with interacting with other civilizations have an unlimited account to do so.
Beckworth: Very nice. Well, let's segue into money, you've already touched on it Manu a bit. Let me start with you, Zach, first in the Star Wars. Because in Star Wars, money or credit is much more clear. It's brought up in the movies. Can you talk to us a little bit about that form of money they have?
Feinstein: Yeah. They have the Galactic Credit, which is widely used across the galaxy really up until its Republican Credit, and this continues right on to be the Imperial Credit right through the fall of the empire. After that point, it becomes a little less clear, but what we also have is we know that this Galactic Credit is backed by the InterGalactic Banking Clan, which is nominally a private institution, but is providing banking to the public good, to the public currency.
Feinstein: So this is closer to what you'd have early in the US history before there was a national bank, where each different bank would issue its own currency that nominally could be traded at other banks when you go to other locales. But here, this InterGalactic Banking Clan was truly so large that it institutionally became the central bank for the entire galaxy.
Beckworth: There's a...
Saadia: Do you think it's like the Bank of England? I mean, I've always wondered about that. Is it like the early bank, which...
Feinstein: Yes, which kind was tasked with issuing debt in the name of the king. Yeah. Okay. And so like capital...
Saadia: For colonization…
Beckworth: It became effectively a monopoly. I mean, it started out as a private bank became a monopoly of the currency issuer. But this does have you bring in, you're mentioning the kind of the free banking literature, like Scottish free banking system, the US, so it's a very fascinating. So I can take from that then that it's a uniform currency throughout the empire where it's used.
Feinstein: Pretty much. So there's a few fringe currencies that are additionally used. So this is mentioned in episode one where the Galactic Credits are now not accepted on Tatooine. But for the most part, Galactic Credits are widely used or widely accepted throughout the entire series.
Beckworth: Okay. So this leads me to a question that as a macroeconomist I naturally have, and that is how in the world does this work? So to kind of put the context to my question, if we go over to the Eurozone right now, they have one currency, a one size fits all for a very, very wide range of economies and countries. And that's been part of the problem. What's good for Germany may not be good for Spain or Portugal or Greece. And so having that one size fits all currency in my view has created a lot of the problems.
Beckworth: I mean, this is a concrete example when the Eurozone was formed in late 90s, '99, Germany was growing really slowly. The countries on the periphery Ireland for example, was having the rapid growth as a high tech sector. So if you're the European Central Bank, what do you do? Do you do monetary policy that fits Germany, or do you do it for Ireland? And what happened is they effectively did it for Germany because Germany makes up a bigger part of the Eurozone.
Beckworth: And as a consequence, it was too easy for the periphery, helped feel the boom. And then after the burst in 2008, you can argue, they were too tight for the periphery, maybe appropriate for Germany. The point is the one size fits all can create all kinds of problems. And I'm wondering, is there any evidence of this in Star Wars?
Feinstein: Absolutely. So for 20 millennia before episode one or episode four, whichever one we want to go with, there was no technological progress in the Republic. So, you definitely could see that the economy has completely stalled up until the point of the Empire's formation. So this definitely is going to have been impacted by monetary policy.
Beckworth: Wow. We'll come back to that. But what you're saying is a very long period of secular stagnation?
Beckworth: Okay. Amazing.
Saadia: Millennial stagnation.
Beckworth: Millennial secular stagnation. Larry Summers would be just amazed if he heard that. Okay. Let's move into the Star Trek world. You touched on it earlier Manu, but why don't you go back and tell us again, what has happened to money in that universe?
Saadia: Well, it seems to have disappeared at least within the Federation. However, there's also a revolution in banking within the Federation. So in the original series, you can see the crew getting paid to go on shore leave, but then by the time next generation happens, money is no longer something that is used or in currency so to speak in the Federation. So in between these 100 years in the space of 100 years, roughly money has disappeared. And it's probably thanks to the advance of the replicator.
Saadia: So that's within the Federation. Outside the Federation, you do have the Ferengis who used latinum and gold-pressed latinum. So latinum is kind of a liquid that is encased in so-called worthless gold, as you can see in one of the episodes. And latinum has the property of not being replicable. So it's a sort of weird, hard money or hard currency, even though it's liquid, they're playing around with that. They know exactly what they're doing. The hard currency used by the Ferengis is actually liquid.
Beckworth: Very interesting. Yeah. Very interesting. So here are the thoughts I've had about that, because I'm a big Star Trek fan too, and I've watched it and I've wrestled with this issue of how could they get rid of money? So as a monetary macro guy, one of the things we think about is, well, how does money emerge? Or why does money emerge?
Beckworth: And there's different theories, but one story goes like this. If you're in a small village or even if with your family, you don't really need money. You can use credit. Your word is good, they know you. Think of a small prehistoric village, I take your apple and I promise to pay you back next week with my corn. I mean, that's an exchange that doesn't require money, it's credit, but it depends upon credibility, trust, those type of issues.
Beckworth: When you get to a much larger group of people, when you start getting cities and markets where maybe millions of people roam, you get these large amounts of people, you can't just rely on character or trust anymore. And so you have to rely upon some kind of asset that can facilitate exchange, maintain its value, despite the fact you don't know people. In fact, there's a famous paper in the American economic review. And the title of it's called Evil Is The Root of All Money. So remember, now the Bible is the other way it goes, money is the root of all evil. It says, evil is the root of all money.
Beckworth: And it's something you can bring up next time you around someone going to church it's really fascinating thought that the problem... Money emerges as a solution to a problem, and it's a credibility problem. It's information problem. Some of all sudden the literature money is memory. It's a way to keep track of past transactions. So to make it work in the Star Trek universe, it must be that technology is so great that trust issues, character issues, it's done through technology, you know whether a person's reliable or some mechanism that works around that. What are your thoughts?
Saadia: Yes, I tend to think that the institutions and the... I would say, the internalization of social duties by Federation members, and we're talking hundreds of billions are so strong that there is no question you will trust somebody else in the Federation. It's idealistic. It is not necessarily workable in the real world, but you know, this is science fiction, so that's one. The second thing I'd like to bring up is you do remember the Borg, they are the best and the greatest villain in Star Trek. And the Borg when you look at it, they are a sort of analog to the Federation.
Saadia: They do have post scarcity, and they do have immediate communication between all parts of and all members of the Borg. It's almost like they have no problem of coordination. And that indicates something maybe about this issue of trust, and how you can perform exchange in a society without the mediation of money. And that might be through this sort of, how do you call that complete information? So coordination in the Star Trek universe to get wonky is solved by complete information. It's idealistic.
Beckworth: Well, that's a fascinating… no, that's a fascinating way to think about it is... And the Borg would be kind of the extreme limit of that. There's no issue, character issue, trust issue among them. They all coordinate and know exactly what each other is doing-
Saadia: And supply and demand are solved because everybody knows instantly who needs what and where, and they go on and pillage.
Beckworth: Yeah. Right. And resistance is futile if you-
Saadia: It is.
Beckworth: Okay, let's move on to taxation. So, these representative governments or the Federation, I don't know why you really call it a government, but it's kind of the governing institution in the Star Trek universe. How do they pay for their activities? So we'll start with Star Trek first. And I mentioned Federation. So I know in your book, you talk about post scarcity, but then you also go on and I'm glad you did this in your book, you say, well, actually there are some scarcity issues. Like if I build one Starship, that's a space station I didn't build. Or its resources I've dedicated to that. So even the Federation has to have some kind of opportunity cost when it's building these ginormous spaceships. So how do they fund it? How do they get their resources? Is the replicator capable of just solving that resource constraint issue?
Saadia: To a certain extent, yes. But I think in fact, the Federation realized principally, I mean, mostly on human capital. I think there is an abundance of very highly qualified people who will jostle for position and will be happy to work and imbue meaning to their lives. That is, they still have to allocate resources, there is still opportunity cost, but there is probably no shortage of intelligent people and robots to make things happen. They don't dwell that much on that in the show, except maybe during times of war where it is mentioned that the Federation that being at war during Deep Space Nine takes a while to ramp up production of ships, and to get people to sign up to go to war.
Saadia: But there's a sense that duty to your fellow citizens is such that these constraints will be overcome in time of real need. Under normal circumstances however, it seems that the abundance is such, that it's really at the margins that you probably have some issues of what to do, what not to do, how to decide through governing bodies, where to allocate resources. It seems to be no longer a big issue, that's in normal types. That's as close as I can get to an answer. I mean, they leave that aside a little bit.
Beckworth: Okay. All right Zach, tell us about the taxation and funding of the empire in Star Wars.
Feinstein: So actually let's start with the Republic. The Galactic Republic did not have a standing army up until the Separatist War. So they had to create this clone army. They had to pay for this clone army, and through that they had to raise taxes. So at the beginning of the prequel trilogy, there were tariffs on Interstellar trade on some of these trade routes. But for the most part, there was very low taxation at the Republic level, very kind of let the planets do what they will do, and we'll just make sure that there are no wars by just being a UN.
Feinstein: But once we get to the separatist movement, they start raising taxes. The Imperial government eventually takes over. And from there, there are much higher taxes. They're building all of these star destroyers. They build the Death Star, and this Death Star is not cheap. Death Star would be, my calculation was about $193 Quintillion. So this is not something that's cheap. But it helps, if you have a Death Star, you can go into a planetary system, say, give us the money and what are they going to do? So it's good to be on top.
Beckworth: Let me ask you a question about that Death Star and this will reveal my ignorance of the Star Wars literature, but could the Death Star travel at hyperspace speed? Is it?
Feinstein: Yes. So the Death Star could travel through hyperspace, could... So in episode four, we see it go from Alderaan to Yavin 4 within the same time as the Millennium Falcon.
Beckworth: Okay. All right. So it's-
Beckworth: Go ahead, I'm sorry.
Feinstein: Yeah, it truly can travel through space, ignoring the rules of relativity.
Beckworth: Yeah. A lot of energy, just thinking about that. Something as big as the Death Star propelling that at light speed, as well as having the energy to destroy a planet, that's quite an amazing engineering fit.
Feinstein: So I think actually the energy to propel the Death Star is far higher than the energy to destroy a planet. I haven't crunched those numbers, but we have E equals MC squared kind of thing going on. Death Star is not small. It's a moon size battle station. So this is going take energy to transport it at light speeds.
Beckworth: Okay. Let's use that to segue into long run economic growth issues. We may come back to some other issues later, but let's segue into secular stagnations. You mentioned a while back there's been this kind of secular, not decline, but just no innovation for a millennium. And you mentioned the technology that the energy would've required to move a Death Star at light speed. It seems to me if they could have done that, that same kind of understanding why not just... Instead of destroying a star with a ray, just make a planet disappear with a similar amount of energy, move it through space somewhere else, move it into a sun. I mean.
Feinstein: Yes. So we actually see this with episode seven with the star killer base. Where they just use the energy from the sun instead of propelling the planet through Interstellar space, they use the sun and just shoot across space to destroy the new Republican planets. But as for why you would build a Death Star rather than using projectiles fired at light speed, I think a lot of it has to come down to intimidation. If you're saying we have this Death Star, you can see it in the sky looking like another moon, you're going to give into their demands. If…
Saadia: Want to destroy the planets, you want to see their wealth.
Feinstein: Exactly. So the emperor still is kind of doing somewhat of a hands off ruling of the planets. So up until episode four, the Galactic Senate still existed. That was only removed 20 years after seizing power. So there was a significant time gap between the empire being founded and the dissolution of the Senate. So much of the ruling of the galaxy was still being done at the local level.
Beckworth: Okay. Now let's revisit why technology did not grow during this millennium. What's the story behind that?
Feinstein: So the best story that I have for this is because of the Jedi. So you have a ruling class of warrior monks. This is a religious order that believes in meditation, and being at balance with nature, and being at balance with yourself. And that really, if this is going to permeate through society, is truly going to slow down and even stop innovation. They're not going to want new innovation. The Sith on the other hand actually are known for trying to create innovation. So where we're saying, oh, they have the Death Star, it's able to travel at light speed in hyperspace.
Feinstein: I actually pause it after the emperor took power. The reason he's able to stay in power for 20 plus years is he's finally creating economic growth again. There's finally some amount of economic growth because there's finally some technological innovation.
Saadia: I always thought the dark side was awesome.
Beckworth: I remember reading some articles. I don't know if it was the last Star Wars movie when it came out, that sometime ago that was actually making the case against the Jedi order, and you just made another one.
Feinstein: Yeah. So those articles come out fairly regularly when the new Star Wars movie, or TV show, or something comes up, which is we imagine the empire is evil, the Jedi are good, because we're told that in the opening crawl of episode four, it calls the empire, the evil empire. The first time we see it. But in episode four, they're evil because they blow up Alderaan, that's possibly the work of one bad apple, and he is killed. We don't see this going up the emperor hearing, he blew up Alderaan.
Feinstein: We don't see what the emperor's reaction is to that. So we don't know if this is a war crime, this guy needs to be punished. He needs to be made an example of, because immediately after that they go to Yavin 4, the Death Star is destroyed. And really, we don't know that the empire is truly evil in terms of personal freedoms, the empire is not great. It seems to be totalitarian regime. They have dissolved the Galactic Senate, but in episodes one, two, and three, we had Padme who was a queen. We have princess Leah, these are heroes who are royalty. These are not democratically elected leaders. So there truly is this mismatch of who is good and who is bad, not to say that the empire is good, but it doesn't mean that the rebels have to be good either.
Saadia: I have a question about the Jedi order. I mean, how do they fund themselves? Are they a medieval monk order that owns land because that's what it was in Europe, the church owned tons of land, and would exact taxes on farmers and on people with farming.
Feinstein: Yeah. So I'm not sure that they specifically owned land, but when they were not in their headquarters, not in the Jedi temple, and they would travel elsewhere, they would be treated with great respect. They would be fed, they would be housed. So there wasn't really a need for taxation, if you could just show up and get whatever you needed.
Saadia: The mind trick.
Beckworth: Who needs taxes when you can make someone voluntarily give you funding.
Beckworth: Well, how about Star Trek? Let's talk about innovation there. We definitely see that you bring this up in your book in fact, there's a big difference between the original Star Trek and the next generation. So tell us about that.
Saadia: Well, the replicator is the sort of metaphor for the endpoint of the industrial revolution. I mean, when you think about it, it's the Christmas machine, or the Santa Claus machine, it's like you say make me this, and it makes it on the spot and on demand and right away. So it seems that the use of replicator started in between the two series. So with profound transformations in society, bringing about of profound transformation in society. But interestingly enough, it seems also that innovations continue after the Federation has reached this state of bliss or economic bliss.
Saadia: And I would point out for instance, the invention of the doctor, the emergency medical hologram, which is actually a fully self-aware holographic entity, that can actually perform any kind of duties once they're given this little Borg thing that allows them to escape the holo deck. It is kind of interesting because Star Trek portrays a lot of its people, those who are outside of the somewhat military service of Starfleet, portrays a lot of scientists who are very busy inventing new stuff.
Saadia: So it's a pan to science and research I guess, that's why a lot of people get inspired by it. So it seems that technological progress actually continues, even though people live in bliss, and maybe it's an attempt at portraying a society where innovation itself would not be the direct result of market demand. It's not necessarily perfectly consistent, but it's an attempt. And I think that's what's very significant about Star Trek still.
Saadia: And by the way, innovation can also happen without market demand. I mean, think of Los Alamos, for instance. So big government programs, military programs, but what came out of Los Alamos is not just nuclear bomb, it's game theory, it's computing, it's climate science, it's all these sorts of things that are unintended consequences of public atomic research.
Saadia: And I think Star Trek started out in the '60s and what was very much a product of that era, we're going to space, it's the final frontier, but in fact it's the ultimate government program. So it's reworking the idea of the American cowboy ethos, like the individualistic innovator, and trying to roll it into Kennedy Liberalism, big government liberalism, and we're all doing this together because we're going to space.
Saadia: So today it's a little different, but I think that impulse is there in Star Trek and has lived through the entirety of the series. And again, it's easier to say that about Star Trek because there's so much more of it. And it covers 50 years. Star Wars is more elusive, and I'm really looking forward to more of Star Wars movies precisely so that we can discuss this more.
Beckworth: Yes, indeed. All right, let's move to the short run side of macro. So we've been touching on the long run side of macroeconomics, which is long run economic growth. Why are some countries richer than others and issues behind that? Let's look at the very short run, the business cycle. And Zach, I want to ask you about that since your paper was exactly on that topic. So tell us what you learned about the consequences of the destruction of the second Death Star.
Feinstein: So by destroying the second Death Star, you have all these banks, all these investors who are part of the status quo. So the rebels aren't going to be our freedom fighter heroes, they're going to be terrorists. And so after destroying this first and second Death Stars in a four year period, and this is two successful terrorists attacks that take out the government, that take out the leadership, they disband the government, they start their own government, and they're going to have repudiated the debts on the Death Star. I cannot imagine the rebel alliance coming forward and saying, "We're going to pay off the debts that were incurred on building these two Death Stars."
Feinstein: They're going to repudiate these. And by doing that, the banks that had to... And I'm going to say they had to, because I don't think they had much choice in the empire. They had to provide the money for building these Death Stars, are going to have their balance sheets hit drastically. First by the repudiated debt and then by the market reaction to a successful terrorist attack. So between these two effects, we're going to have the economic system in the galaxy, the financial system in the galaxy drop on the order of about 12% on average in my simulations, going all the way up to a possible 30% drop in GGP, Gross Galactic Product, a non-negligible chance of that overnight from the destruction of the second Death Star.
Feinstein: And putting that into perspective, this is just in the financial sector. The great depression in the US from 1929 to 1933 was a 29% up in drop in US GDP. So from peak to trough was smaller. Economy-wide over a four year period, then this would be the net day in the galaxy potentially. So really end of episode six, everyone's cheering, everyone's happy, the next day they look at their bank account and realize it's no longer there. And really there'd be no deposit insurance as I said, during the clone wars, the banks were deregulated. So there really is no safety net for these people.
Saadia: So you think that may explain the splintering of the new Republic into the first order?
Feinstein: Yeah, exactly. So I think that this takes place 30 years later, and really during those 30 years there probably was no economy. People are just trying to have a subsistence living and this first order comes forward. As the remnants of the Republican says, "Join us, we'll feed you, you'll have a place to live, have stability," and people would jump at that chance.
Beckworth: We see, we need a movie for us economists that that focuses just on the economic collapse. Where are the economists? Where's the central bankers? What are they doing during this time? I'm sure it would be a big flop at the theaters, but I'd pay to see it, so. Well, let me ask this question then. So you have this massive financial collapse. We had one as well in 2008, it wasn't obviously as large as that, but one solution out of that is a government bailout. And I mean, make this concrete, in theory, the US government could have done what they call helicopter drops.
Beckworth: It could have literally printed money and sent them to households to repair their balance sheets. Probably would've been some temporary about, of higher inflation, but arguably it would've made the financial crisis here a lot easier. It didn't happen for political reasons, and then wishful thinking of a partisan economist, but would a helicopter drop even be possible in the Star Wars universe?
Feinstein: So there's two impacts of this. One, I calculated what the theoretical amount of a bailout that would be necessary to avoid this size of a collapse. So to make it only a 2008 sized collapse. So we did have tarp, we did have a bailout of the banks, and to do that in the Star Wars galaxy after episode six, would've required about 15 to 20% of the Gross Galactic Product, which of course is on the order of sextillion. Sextillions of dollars. So it really would've been an immense bailout that this rag tag group of rebels do not have.
Feinstein: The other side of this is we have the federal reserve that could have said, "We're going to do this helicopter drop of money. Doesn't matter what the politicians in Washington want." It would've been politically unpopular, would've caused all sorts of issues. But as I mentioned, in the Star Wars galaxy there is no truly public bank. There's the Intergalactic Banking Clan, which is private. They have no incentive for their private money to give it away.
Beckworth: So the institutions weren't in place for there to be a bailout in any event. So that's-
Feinstein: In any event.
Beckworth: Okay. Very interesting. So we have this severe, we would say truly the great depression of the galactic empire and that sets the stage for later developments in the show. All right. Manu, what about the Star Trek universe? Any evidence there could be a recession there, or is it such a wonderful utopia, never going to happen?
Saadia: Well there's war and you have outside people. And I think Star Trek, I mean, at least the Federation while it is a very happy and blissful on the inside still has to deal, I mean, the scarcity is on the outside, and it still has to deal with other economies and other cultures that do not work in the same function. I think that's what limits the level of, I would say wealth and happiness, and utility maximization that can take place. Though, when the Borg rams through the Alfa quadrant and the Federation that has a lot of consequences.
Saadia: So I would say the risks or the macro risks for the Federation are mostly tied to political risk or can you say galactic political risk? Geopolitical risk. And in a way, I tend to look at the Federation as something like OECD, and I mean, it is an analog to that. Most of our societies can actually deal with internal shocks. We do have institutions, the main risks are on the outside, and this is what limits us.
Beckworth: What you're describing there, it sounds a lot like what we'd say is supply side shocks. So there's not going to be any financial crisis, or demand shocks in the Federation. But what you're saying is there could be a real shock. There could be a war, maybe some natural disaster, maybe some pestilence breaks out, which may... A war depletes your labor force, or causes some setbacks. So yeah, I see that there could be a real side recession, but unlikely it'd be a demand side recession.
Beckworth: Let's talk about the implications of all this for us today. If there are any lessons we can draw from this. So Manu, let's go to you because you actually have several chapters in your book about this. I mean, you really, you tie your book to what we're going through today. So tell us, I mean, as we head down this path of increased robots and smart machines, and I'm fairly optimistic technologically wise that we're down that path. I know there's some debate. Maybe we can go back and ask you guys, your thoughts on that, but what implications are there for us if we do head down that path?
Saadia: I tend to believe that it's inevitable that, I mean, Star Trek is a metaphor of the end point of the industrial revolution. It is kind filiological but at some point intelligent machines will have taken over most of the work. And that's a great idea I think. However, the transition is what's complicated. I'm not so worried about how developed economies can deal with these dislocations. We do have institutions, and they're old and they are functioning at least so far, and we are wealthy economies.
Saadia: And I put that in the book. My main concern is what happens to the normal path to national wealth that went through rural exodus industrialization, monetization of the economy and then import substitution. So what you saw in China, or Korea, or places like that. What happens to that for the next billion people? Not every African can be a barista. I mean, it's kind of a joke, but it's actually dreadful. Dark countries in Africa, like say Tanzania will have 300 million people by the end of the century. Nigeria will have 1 billion people.
Saadia: If the promises of automation are realized by then industrial production will be reduced to what agricultural production is today in the developed world. And we're talking about 3% of GDP in the US, and it doesn't employ that many people. And I don't know if emerging countries have as guardian institutions as developed countries. So that is my main concern. And I don't think we're on the path to sort of a Star Trek type of timeline. This is not necessarily in the cards. So there's that. And then there's a problem of coordination between nations to effectively counter the threat of global warming. And that's a collective action problem. And it seems that we still have a lot of work to do on that. So I'm cautiously pessimistic, or cautiously optimistic, but if we're going to say this straight up, I wrote Trekonomics out of despair more than anything.
Beckworth: Keep the faith Manu. Keep the faith man. What about you Zach? What are your thoughts on long run growth prospects for us today?
Feinstein: Yeah, so the implications that I have from Star Wars to the real world come more from looking at systemic risks. So we had 2008, we haven't really changed anything since then. We had Dodd-Frank, which has been implemented, but now looks like it's going to be disbanded. So really we're back to where we were regulation wise before 2008. And in Star Wars, when they had a de-escalated banking sector, you had one big crisis that took out the entire financial sector, and a bailout was the least bad option.
Feinstein: No one wants a bailout, it's politically unpopular, but at the end of the day, when this crisis is hitting, the option is between a 15% GGP bailout versus no economy left. So hopefully we never have to worry about this again, but really we had 2008, there was the Asian contagion in the late 90s, there was savings and loans. So basically every 10 years, one of these crisis happens somewhere in the world. I don't know where it will be, but this is something we really need to worry about, that really can destroy an entire economy overnight if it's allowed to progress to that point.
Beckworth: Yeah. And there has been a renewed interest in the effect that these crisis can have long term. And we typically in economics like a separate short run effects, and long run effects, but someone like Larry Summers has argued that since 2008, there hasn't been a robust recovery, and we've had secular stagnation, and had we not had the crisis maybe we would've avoided it. So, I mean, there are some people making the argument that short run crisis have long run effects, even though we tend to think otherwise typically. Well, let me go back. Go ahead. Yeah.
Feinstein: In the long run, we're all dead. So does-
Beckworth: We are, I still choose to remain cautiously optimistic, although, I do think there are transition issues that will come about, and maybe our institutions aren't ready to handle them, but again, we don't want to be Luddites and stop progress in happening either. I want to go back to the Star Trek world, which is truly utopian, and probably never will happen, but I want to go back to this question of scarcity. So what is it like to live and work in that environment?
Beckworth: And I look at that as a place of material abundance. So you're going to have all your... There's no poverty anywhere in the world, anywhere in the Federation for that matter, but there's still going to be trade offs. Even if you're affluent, you're still going to face... So I guess, well, I want to be careful in the use of the term scarcity. So today-
Saadia: I don't like it either.
Beckworth: I know I'm thinking, let's take Bill Gates, he gets up, he has trade offs he has to face, he has choices. He's far more bantha than I am, but he still has time issues, knowledge issues. Does he spend time at work, with his family? And the question will be for a materially abundant society like that, what will be the issues we get into? Will they be, for example, the issues that one can see by watching the wives of Manhattan? Petty concerns. Whose kid's in the best daycare? Who's got the best penthouse? Very petty concerns or will they be more productive ones? Who's created the latest greatest invention? Like you mentioned, the officers, the people doing research. So it's interesting to think about what will our limited time be spent on in a world of material abundance?
Saadia: It's devilishly complicated to put yourself in the mindset of people in Star Trek. In fact, they are aliens to us. Imagine you grew up in a society where not only you, but all your friends and all the people you know will never suffer financial hardship. There are all these studies about the impact of poverty on decision making, on brain development among children. So none of that takes place in the Star Trek universe. So you have individuals who are probably much more psychologically stable.
Saadia: I mean, a lot of neuroses and a lot of sociopathic behavior derive from... I mean, are known to derive from material, I wouldn't say scarcity, but sort of differential between this guy has more money than me, I mean, there's a positional aspect of it and there's a direct... I'm poor and it's really hard and I don't sleep well. So it's very hard for me to actually, I mean, I try that in the book, but it's very hard to imagine how people would think in such a society.
Saadia: They're ciphers, they're a little bit like Spock. The vulcans maybe are kind of a metaphor for that more advanced type of humanity that is at peace with itself. But the reason Spark is so logical and has the leisure to be logical is because he is essentially carefree. This is something that I find extremely difficult, and that I don't have a good answer to it. In Star Trek, they seem to show that people, they toy in their garage. There's this guy who builds this Android robot and is essentially a loner, like the guy who builds Data Dr. Soon is a loner. He builds it on his own throughout his life.
Saadia: It's not even like something that he thinks we would be invaluable in terms of business. You have a lot of people tinkering in their garage, and you have a lot of scientists and institutions, and maybe there is a lot of competition for the captains. This is the most coveted post. This is the post that commands the most respect. And a lot of people, somewhat sociopathic are striving for these positions. I mean, that's the thing, when you see the Starfleet officers, mainly they are the people who don't really fit into that sort of blissful, and rested, and soul searching. They are closer to us because it's a TV show and it has to be popular.
Beckworth: It'd be like the military. In the military really-
Saadia: Yeah. It's more like a fire department-
Beckworth: But in the military, in terms of like, it's a different labor market altogether. And what you see a lot of politics and the military officers, they either have to be careful if they want to get promoted, or they get kicked out of the service altogether, and it becomes a game, like you mentioned, who gets that coveted admiral spot, that itself becomes the issue of scarcity in competition, so.
Saadia: There's only one captain seat at a time. But most people probably in the Federation, those who don't... There are a lot of people who don't fit, they can't make it as super competitive Starfleet officers, and they don't necessarily want to, they're happy painting plates in their living room. I mean, they're probably like Norwegian retirees. And that's not a bad life, and you have a lot of time to take care of your kids, and to forge loving relationships with people. It's still super... When I was writing the book, I was like, okay, let's try to imagine, how do these people think? How do they behave? How do they react to necessity? They're aliens. They're aliens. They really are. And that's the only thing I can say, unfortunately, utopia is alien to us.
Beckworth: Well, Zach, any thoughts on that? Any from Star Wars?
Feinstein: Yeah. So Star Wars is certainly not a utopia. It's very much almost the worst of ourselves...
Saadia: Come on this is where there's heroism.
Feinstein: It's in the name, it's Star Wars. It's very war based economy. We have the Outer Rim is ruled by the Hutts, which are basically a mafia mob rule. So these are not economies that we really want to replicate. We would almost use them as something as a cautionary tale, if you will. And then just one more thing I want to add about the Star Wars economy, is Han Solo brags about doing the Kessel Run in 14 parsecs, which is something that's sounds ridiculous on its face, because that's not a time unit. That's a distance unit.
Feinstein: But episode seven, we show the Millennium Falcon is able to land from hyper speed onto a planet, basically stop on a dime. And this actually explains that, because that means on the Kessel Run, he's able to get right next to these high gravitational bodies without crashing, without destroying his ship, and is able to shorten the distance on this trade route.
Saadia: Nice. Nice, nice, nice, nice.
Beckworth: Great observation there. Well on that we find-
Saadia: Finally figure the Kessel Run. That's awesome.
Beckworth: Yeah. Well on that fascinating point, we're going to have to end. We've run out a time. Our guests today have been Zachary Feinstein and Manu Saadia. Gentlemen, thank you so much for coming on the show.
Feinstein: Thank you.
Saadia: Live long and prosper.
Feinstein: May the force be with you.