An Interplanetary Keynesian Economy

*The year is 2025 & the world has woken up to another one of Elon Musk’s tweets that read as follow*-

@elonmusk

‘Gazing away for better, see you on the other end.’

While most readers interpret it as a passing gimmick, a group of twitteratis’ battle over the veracity of claims. The media is caught in the frenzy, threading together theories of trouble in paradise at best, suicide speculations at worst. Little do earthlings know of the new horizon (literally) cropping up, set to change the course of history forever.

Soon after SpaceX had made the passage from & to Mars an affordable journey. Would such a move unbox untapped opportunities or open a pandora’s box instead? Let’s dig deeper into what Adam Smith defines as “an inquiry into the nature and causes of the wealth of nations (planets, rather).” or simply put, the economics of it all.

If we were to assess the economic system favorable to Mars, it would make sense to use the most obvious indicator of such prowess, the GDP. Subscribing to the likes of the Keynesian cross model, the equilibrium level of real GDP is determined by the point –

                                           AS=AD          

                                              Or,

                                    Y= C+ I + G + NX

(where C=consumption; G=government spending; I=Investment; and NX=net exports).

It’s essential that we look into each of these components in the context of newfound colonies on Mars.

Consumption

When a reporter asked a participant of the Mars simulation program, what would prevent her from joining a real Mars mission, she quickly responded, “If they don’t have cheese, I’m not going.” (2)

As much as we would like to place our hopes in upcoming technologies- 3D printing to indoor farming to cellular agriculture, it is a time taking process. Any increase in consumption demand will have to be met by the interplanetary exchange at least until dairy products can be produced on Martian land or humans residing on Mars change dietary patterns, which are found to be inelastic in the short run.

                    Figure 1.1 Price Elasticities of demand in the short and long run.

Even if for once, we suppose that humans have adapted a vegan approach to life at the inception of their second life at mars, the abundant CO2 available from the Mars atmosphere, water recycling, and the soil on Mars may still not be enough to sustain agricultural practices. Hence, there is little scope for the Martian economy to a closed one.

Parallelly, given that the unexplored environment is often a precursor to the adoption of the ‘every man for himself’ strategy, it is likely that production and consumption stem from the same house. This would limit the benefits that specialized trade could offer, let’s build on that further in subsequent components.

Investment

Generally, this component would entail- fixed capital formation, valuables, and changes in inventory. The use of technology in establishing a colony on another dot in this infinite universe points at the likelihood of a capital-intensive Martian economy. Unlike the linear growth pattern observed on Earth, the secondary sector may take the lead in contribution to the Martian GDP, undoing the works of conventional economic wisdom. In more eloquent words ofMatthew Weinzierl, a professor at Harvard Business School:

“If such space-economy visions are even partially realized, the implications for society—and economists—will be enormous. After all, it will be our best chance in human history to create and study economic societies from a (nearly) blank slate.” (4)

 The red planet is said to store elements yet unknown to us, capitalizing on such untapped resources does appeal to the opportunism of its new residents. If the patent laws hold on the red soil, it would unflag a rat race of monopolizing said elements subsequently unleashing heavy infusion of capital in mining and manufacturing activities.  The possessions obtained from the fourth planet can be useful in fields of medicine, foods, chemicals, and nano-structures, further reinforcing investment in infrastructure and research. The investment might turn into a disaster or a blessing in disguise, there’s only one way of knowing.

Illustration Credits: Tanisha Gangwal

Government: How red is the red planet?

The level of government spending is determined by political factors, not by the level of real GDP in a given year. Thus, the first settlers on the planet may play a prominent role in the formation and spending of government, if any at all. These may well belong to the upper tranche of the income groups who can bear the sunk cost of the initial few travel tickets. Would this lopsided income distribution lead to the establishment of a majoritarian government? On the contrary, SpaceX has talked about a research-focused city, where teams burrow underground to learn about the darkest corners of Mars’ history and use direct democracy to make decisions. Such a libertarian social democracy would only incur demand backed expenditure and socially approved welfare scheme costs.

Net Exports

 The 5th principle of economics attests to the usefulness of trade

‘Trade Can Make Everyone Better Off’

Trade could play to the advantage of both the planets, while earth transfers essential nutrients, Mars could sell its own produce and brand it as exotic in the spacial market.

However, trade can adversely affect the owner of resources that are specific to industries that compete with imports. Examples would include the mine owners on Earth going out of business due to the discovery and import of renewable and cleaner sources of energy from Mars, altering income between broad groups, such as workers and capital owners.

The benefits from trade can be divided between –

  1. Volume Effect
  2. Value Effect

There is a strong empirical relationship between the size of a country’s economy and the volume of both its imports and exports. Economists have devised a way of enumerating the volume of trade between any two countries fairly accurately- The gravity model of world trade (analogous to Newton’s law of gravity).

                                                 Tij= A x Yi x Yj /Dij

(Where A= constant term, Tij= volume of trade between planet i and j, Yi or j = planet i or j’s GDP, Dij= distance between the two planets). Let us assume that planet i is in fact Mars and planet j is Earth.

Bearing in mind that Earth’s GDP is representative of individual GDPs of a basket of well-performing countries, its GDP will be quite high. Since the volume of trade is proportional to the product of the two GDPs and inversely proportional to distance, the trade volume is a substantial amount, but this could be offset by the negative effect of the large distance between the two planets, 72.63 million km to be exact. Be that as it may, anomalies don’t fall far from the proposed model- it does not take into account transportation cost. Given that SpaceX has discovered a cost-effective way of reaching the red planet, the distance is less than what these depressing figures may indicate!

The value effect can only be computed if the currency value of each planet in relative competence is known. It can be ascertained that the initial level of imports in Mars will outweigh the exports due to foreign capital and service requirements for settlement and livelihood creation. This will lead to depreciation of the Martian currency with respect to the hypothetical cumulative earth currency in the universal currency exchange market. Nevertheless, if the Martian resources are as useful as claimed by the scientists, the universal demand for it will appreciate the Martian currency in no time.

The Martian economy doesn’t seem too fictitious now, does it?

After careful analysis of simple measures of economic wellbeing (C, I, G, NX) of the Mars colonies, it is safe to say that humans are truly a multi-planetary species.

“No matter how you get there or where you end up, human beings have this miraculous gift to make that place home.”, or even become aliens, if need be!

– Rishika (Guest Writer)

3rd year, B.A. (Hons.) Economics, Miranda House, Delhi University

Edited by: Robin Francis (Editor, Econ Declassified)


Sources

1.Tiffany Vohra.(2020). Singularity Hub. Singularity University.

2. MarsOne. Will the astronauts have enough food, oxygen, and water. [ FAQ Post]- Retrieved from- https://www.mars-one.com/faq/health-and-ethics/will-the-astronauts-have-enough-water-food-and-oxygen#:~:text=It’s%20not%20feasible%20to%20send,will%20produce%20those%20on%20Mars 

3.Matthew Weinzierl.(2018). Space, the final economic frontier. Volume 32(2nd edition). Journal of Economic Perspectives.

4.Bhushan Ghate.(2018, July 30). Is it worth to invest in Mars colonization: featured on InsightSucess.[Blog post]- Retrieved from- https://www.insightssuccess.com/worth-invest-mars-colonization/

5. Mike Brown.(2019, May 25).Mars may become a socialist nation of strong-bonded ship- dwellers: featured on Inverse. [Blog post]- Retrieved from- https://www.inverse.com/article/55919-life-on-mars-how-a-socialist-nation-of-strong-boned-ship-dwellers-may-rise

6.Mankiw, N. G. (2011). Principles of microeconomics. Toronto: Nelson Thomson Learning.

7. Marc Melitz, Maurice Obstfeld, Paul Krugman. (1987).  Policy and Theory of International Finance (v. 1.0). Pearson Education.

8. Troy Campbell.(2013, May 21). The office finale’s miraculous quotes-the scientific truth behind. HuffPost entry.

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