Systematically negative real rates of return are rare but possible. This differs from unexpected negative real rates on debt instruments, due to earlier underestimations of inflation. True negative real rates of return imply the economy cannot put resources to productive use. Decay and deterioration rule. Of course there must be storage costs for goods. Otherwise people could hold those goods and receive a zero rate of return. There must be price inflation, otherwise people could hold currency and receive a zero rate of return.
For examples, look to spoilage-vulnerable agricultural economies during times of war and siege. I also believe they have negative real rates of return in Battlestar Galactica. That is one reason why neither discretionary monetary nor fiscal policy will improve their lot.
Negative nominal rates of interest on money are harder to come by, but deteriorating paper or risk of theft could in principle do it. You must prefer to lend out your money at negative return than to hold it at an even more negative return. I have yet to see an example of this, not even on TV.
What’s strange was the recent “Black Market” episode of Battlestar. Asside from the slave trading, everything else that was being traded (medicine, jewelry) should have been traded in an open market. Once the slaves were released it could have been made legal just by declaring it so.
The biggest risk for the fleet is loss of human capital. Education must be one of their top priorities for survival, so all the better that President Roslin was once the secretary of education.
FWIW, the investment in new ships and pilots seems to be paying off.
In the 50s and 60s, most U.S. commercial banks essentially paid a negative nominal (and probably negative real) rate of return on many deposits, especially chequing deposits: the service charges were positive, and they paid no interest.
Perhaps journalism isn’t advertising driven in BSG. In such a war/refugee system rumors must be rife and good information rare. Perhaps people are willing to pay enough from trusted news sources for the information provided so that adverts aren’t needed. Besides, one need only look at the back of your local free weekly newspaper to see that legal goods aren’t the only things advertised. You just have to know how to read the codes words, like ‘escort’ or ‘massage.’
One possibility would be a cache of cash that must remain secret, only occasionally tapped for relatively small expenditures. Since it earns no return any storage cost results in a negative nominal return, as does the risk of loss even without storage costs.
Tyler, it’s nice to see you’re a Galactica fan. I’d sure like to see some intelligent discussion on the economy of the fleet. With only 50000 people, their economy is so small that I would think a command economy would work moderately well for many things, and might be necessary because of the uncertain situation and the severe risks to capital from Ceylon attacks.
What would they use for money? More to the point, how would they keep it stable?
And now that someone has mentioned the black market, wouldn’t a lot of that stuff have to be stolen?
I did come across another place (perhaps equally out of this world) envisgaging negative interest rates, in the work of the Belgian author Bernard Lietaer.
He seems to think that in a world with negative interest rates, we would be very keen to invest for the future in what seem like marginal projects, like irrigating the Sahara.
http://www.transaction.net/money/book/index.html
A lot of environmentalists and anti-globalisation types like his suggestion, including the Guardian’s George Monbiot.
If anybody else had read him, what do you think?
As for who is paying all those journalists on Battlestar Galactica…basically no one is working for a living. Each day or week you presumably get a ration to cover your essential needs so people probably need to find ways to kill time. Chatting about politics would seem to be a very good time killer as supplies are slowly munched away to nothing.
Tyler,
Your ‘negative rates of return’ hypothesis r.e. Battlestar Gallactica has got me intrigued. Unfortunately I am only a beginner when it comes to economics. Could someone spell out, in baby steps, for me “Negative Rates of Return in the BSG Fleet for Dummies” for me?
Here’s my crack at it. Can someone tell me if I have stuffed it all up?
“The ragtag fleet only has X resources which are, not just depreciating, but diminishing over time, despite some highly limited production. So the economic problem for the fleet managers is really one of choosing between different loss minimization strategies rather than profit max strategies. For example, if we continue our search for Earth we may loose (say) 25% of our accumulated Gross Fleet Product (?) or maybe Gross Fleet Assets, but if we colonise New Caprica we only lose 10% for 3 years with some possibility of growth beyond that. Of course this all has to balanced with the risk of Cylon detection and attack which is presumably lower with the Earth-search strategy than the New Caprica colonization strategy. The Earth-search strategy of course may require an open ended commitment as no one has any idea how long it would take to find Earth.”
“My recommendation would be to simply move into deep space, avoiding any Earth tracking stratgies (the Cylons could presumably follow the same clues and tracks) until the risk of Cylon attack has abated. Temporarily settle on some Caprica/Earth like planet until resources are replenished and repeat for a number of steps, perhaps multiple generations, until the Cylon risk is reduced to near zero. After that permanent or semi-permanent colonization could be considered with some kind of Earth search program as a long term investment”.
Have I missed something?
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