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What Do Acemoglu and Robinson Have to Teach Us About the Consequences of Destroying the Death Star in Star Wars?
In this blog post, I will argue that the Death Star (from Star Wars IV and VI) was a prime technology used by an ”extractive institution” (the Imperial Empire). Thus, based on the Why Nations Fail logic, its destruction was actually good for long run economic growth of the universe. My logic stands in contrast to the point made by Zachary Feinstein in his humorous piece in the NY Times Review Section today. This piece is an extension of his parody of a technical paper posted here.
“In a case study titled “It’s a Trap: Emperor Palpatine’s Poison Pill,” Feinstein assesses the condition of the Galactic economy following the Empire’s collapse, and applies economic modeling and systemic risk analysis to the Star Wars economy. He even establishes the Gross Galactic Product, similar to a more traditional GDP.
The bottom line: The Rebel Alliance would have to bail out the Imperial banking sector to prevent a devastating economic collapse.
“This project was really about modeling the size of the Galactic economy and banking sector,” Feinstein said. “Once I had that, I simply applied my research on measuring financial systemic risk to determine the required bailout.””
Based on the Acemoglu and Robinson logic, Feinstein's core economic claims are wrong. If Darth Vader and his team were extractors of galactic resources, then removing this implicit tax on innovation and entrepreneurship and effort will unleash long run economic growth. The core claim of Why Nations Fail is that the destruction of the Death Star would accelerate the economic growth of the universe.
Under the Efficient Market Hypothesis, asset owners would be aware that the future dividend stream would rise and this should be reflected in the price of assets at the time when the Death Star is destroyed. To repeat this point, when Luke Skywalker destroys the Death Star — this is “new news” and the Eugene Fama and Efficient Market Hypothesis proponents would predict that asset prices would jump at that point as these assets are claims on future dividend streams that have increased due to the Acemoglu and Robinson effect.
Where Dr. Feinstein is correct is that the owners of Empire Debt won't be paid back. What we need here is a convertibility option such that the debt can be converted into equity shares of the entities that no longer face the encroachment of the Empire's extractive tax.
Source: http://greeneconomics.blogspot.com/2016/01/what-do-acemoglu-and-robinson-have-to.html
