Star Wars can teach us about the economy or as Yoda might say, ‘about economics, it can teach’
- Written by John Hawkins, Senior Lecturer, Canberra School of Politics, Economics and Society, University of Canberra
Economists may sometimes sound like they are speaking a language out of this world. But perhaps there are lessons about economics from a galaxy far, far away.
The Star Wars saga – the science fiction trilogy of trilogies that spun out of the original 1977 movie[1] – tells the tale of a small group of rebels, led by the brave and wise Jedi Knights, who fight against a corrupt empire.
The films earned more than US$10 billion[2] at the box office. Then there were profits from cartoons, comics, books, and even more from toys.
Legal scholar Cass Sunstein[3], best known as the coauthor of Nudge: improving decisions about health, wealth and happiness[4], estimated[5] that since 1977 the Star Wars franchise has generated as much in earnings as the gross domestic product of entire countries such as Iceland and Jamaica.
This stellar performance is based on stories that themselves contain some economics lessons, on topics such as trade, money, automation, forecasting, cost-benefit studies and behavioural economics.
As the Jedi elder Yoda would put it, “about economics, it can teach”.
Galactic trade wars
The galactic federation in Star Wars has been estimated to have a gross galactic product of between five sextillion[6] and 200 octillion[7] US dollars. Much of this wealth is generated from interplanetary trade.
Indeed, the star wars started from an interplanetary trade dispute. Interplanetary trade seems based on the resources each planet has in abundance, which may be some minerals or cheap labour.
Galactic trade is conducted by corporations but also by smugglers like Han and Chewbacca.
There is a lesson here, both about the gains from trade[9] and the risks of starting trade wars[10], which incoming US President Donald Trump should heed[11]. If other countries retaliate against the large tariffs he is proposing, global trade may contract significantly. This will make the world poorer.
Digital currency vs precious metals
The federation, however, suffered from the lack of a common currency[12]. Galactic credits, a digital currency, are the most commonly used and there are also planetary credits and dataries (Republic credits[13]). But the credits lacked credibility. Han would only accept payment in precious metals.
Some planets, such as the young Jedi Rey’s homeworld of Jakku[14], use barter rather than any currency. Notably these tend to be poorer planets.
Another impediment to trade is trust, in the absence of respected legal systems. Han offered to take the heroes Luke Skywalker and his Jedi Master Obi-Wan Kenobi to the planet Alderaan[15] for 10,000 credits. The agreement was instead 2,000 immediately plus 15,000 on arrival. Obi-Wan wanted to align Han’s incentives better.
These examples illustrate the conclusions from economic studies that have shown[16] having a common trusted currency encourages trade. It is the economic motive for the euro project[17], that introduced a common currency to the European Union.
The automated workplace
The federation relies on droids for much of its work. The droids take the place of humanoids in an example of capital/labour substitution. And the droids specialise in different tasks[18], showing the division of “labour”.
Once the relatively peaceful federation splits into an empire and republic, military expenditure becomes very large. The massive planet-destroying Death Star[19] demonstrates the empire devotes huge amounts of resources to it.
This could explain the apparent paradox of an economy with both highly advanced technology but much apparent poverty. While there are droids there are also manual workers in drudgery.
The impact of automation, even if we have not yet[20] got as far as humanlike droids such as C-3PO being commonplace, is an issue in our world too. Economists are asking how will it affect jobs and incomes[21].
Cost–benefit analysis
The characters are sometimes faced with decisions requiring a cost–benefit analysis[22] in uncertain times. Cost-benefit analyses usually involves comparing future benefits with immediate costs.
The droid robot C-3PO must decide whether to risk losing his memory[23] to translate an important message. His droid friend R2D2 wants to beat the ape-like wookie Chewbacca at a kind of chess. But when Han warns of wookies’ temper, C-3PO’s wise advice to his fellow droid is “let the wookie win”.
Luke calculates the short-run costs of some further education will be exceeded by the longer-term benefits. He hopes to increase his human capital by attending the flight academy. But his uncle prioritises helping with the harvest. Later he seeks training in the “force”, from the initially reluctant Jedi master, Yoda.
Cost-benefit analysis is used by economists advising a company on whether to build a factory or a government on whether to build a railway.
The concept of opportunity cost[24] is illustrated when Luke must decide whether to go to Alderaan with Obi-Wan. Initially he declines as he does not want to leave his aunt and uncle. But when he learns of their murder, the cost of going with Obi-Wan is much reduced.
The famous bar scene[25] illustrates search costs[26]. Obi-Wan and Luke go there because it has a concentration of potential pilots.
Characters in a scene from the original 1977 Star Wars. From left, C-3PO, Luke Skywalker and Ben Obi-Wan Kenobi looking at a hologram of Princess Leia.
LucasFilm Ltd/AP[27]
The concept of search costs is used by economists to answer questions such as how long a person should keep searching for a job[28], or a romantic partner[29], before “settling”.
Negotiating
Negotiation is illustrated when Princess Leia negotiates with Jabba[30] for Chewbacca’s release. Neither the original offer of 25,000 credits nor the asking price of 50,000 are acceptable but they reach an agreement on 35,000.
Another negotiation in which Leia is involved is when the evil Governor Tarkin offers her the choice of revealing the location of the rebel forces or watching her home planet of Alderaan destroyed.
But as it is not a repeated game[31], Tarkin is not concerned about his credibility and breaks his word. Even after Leia tells him (inaccurately) the location of the rebels, he still orders the planet’s destruction.
These aspects of game theory[32] are widely used by economists in situations where outcomes are affected by how rivals respond. An example is a firm in an industry with a small number of rivals. The impact of cutting price will depend on how the rivals respond.
References
- ^ original 1977 movie (www.themoviedb.org)
- ^ more than US$10 billion (www.the-numbers.com)
- ^ Cass Sunstein (hls.harvard.edu)
- ^ Nudge: improving decisions about health, wealth and happiness (theconversation.com)
- ^ estimated (www.harpercollins.com.au)
- ^ five sextillion (arxiv.org)
- ^ 200 octillion (www.youtube.com)
- ^ Twenthieth Century Fox/AP (photos.aap.com.au)
- ^ gains from trade (www.imf.org)
- ^ risks of starting trade wars (www.brookings.edu)
- ^ US President Donald Trump should heed (theconversation.com)
- ^ lack of a common currency (www.investopedia.com)
- ^ Republic credits (economicsofstarwars.com)
- ^ Jakku (www.starwars.com)
- ^ Alderaan (www.starwars.com)
- ^ shown (www.frbsf.org)
- ^ euro project (www.ecb.europa.eu)
- ^ droids specialise in different tasks (economicsofstarwars.com)
- ^ Death Star (www.starwars.com)
- ^ not yet (www.youtube.com)
- ^ how will it affect jobs and incomes (www.brookings.edu)
- ^ cost–benefit analysis (oia.pmc.gov.au)
- ^ decide whether to risk losing his memory (economicsofstarwars.com)
- ^ opportunity cost (www.stlouisfed.org)
- ^ famous bar scene (economicsofstarwars.com)
- ^ search costs (www.google.com)
- ^ LucasFilm Ltd/AP (photos.aap.com.au)
- ^ searching for a job (economics.mit.edu)
- ^ romantic partner (fee.org)
- ^ negotiates with Jabba (economicsofstarwars.com)
- ^ repeated game (kstatelibraries.pressbooks.pub)
- ^ game theory (www.aeaweb.org)
Authors: John Hawkins, Senior Lecturer, Canberra School of Politics, Economics and Society, University of Canberra
