Mining in Space, and Banning Inflation

Often, answering a silly question can lead to better understanding. Randall Munroe proved that in the context of physics via his two “What If” books. Tim Harford tries the same with “silly” economics questions.

 

There’s a lot of talk on mining asteroids for ores. That’s the first question Harford takes on. How big would an asteroid need to be to make it worth a space mission to mine it? There are 3 aspects to consider, he says. First, engineering. Either you setup a refinery in space (very expensive, maintenance overheads) or you bring the raw ore back to earth (very messy. And expensive). Second, economics. Increase the supply of something and prices could drop. Which makes any cost-benefit analysis tricky and error-prone. Third, physics. It is very expensive to carry anything into space – the extracting equipment, tools etc.

 

All of that also means that it is better to set up some system in space to launch, receive and refine things (in space). Some place cheaper than earth, say the moon. In which case, we’d need to first focus on the basics – soil and water.

“These are the things you’ll need to support any kind of human settlement in space… If there’s money in mining anything from asteroids, it will be compost and ice.”

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Another question I found interesting was whether inflation can be made illegal. What if we prevented the price of goods from being increased? How would that play out – would it be desirable?

 

In any complex economy, it is almost impossible for any entity to know what is best, to be able to guess all the side-effects and behavioral changes. So we have contradictory needs. It is best to leave the market to function freely and allow for the prices of individual items to change, based on demand, supply and other factors. But, on the other hand, we don’t want the “average prices (of items taken together) to rise”.

 

But let us say a legislation is passed to ban inflation. Now the economy cannot adjust to a new technology. So you try to introduce exceptions – a new product can come up with a new price. But then you’d just encourage every producer to call out every minor change to an existing product as a new product altogether, with a new price. Just checking for such abuses will be a nightmare.

 

Or consider the other problem with such a measure. Say, the demand for coffee increases. Prices cannot rise, so new producers will not step in to increase production. Nor will existing coffee drinkers consider switching to tea. Long queues will line up for items in great demand, since market forces cannot operate anymore. All of which is why Harford ends by saying:

“What would happen if inflation was made illegal? Nothing good.”