Need help on a economics question

[Asbo Zaprudder]

In The Constants of Nature by John D Barrow (2002), it is stated that one observation against travelling backward in time being possible is that time travellers are not taking advantage of their knowledge of the future to make a killing on the stock market. The reason stated is that doing so would drive interest rates to zero. No further argument is given in the text for why that would be the case other than a reference to the article "Is Time Travel Impossible? A Financial Proof" in The Journal of Portfolio Management 13 (1986).

I don't propose that time travellers are the cause of the current parlous state of interest rates for investors -- the bank bailout and shoring up of capital are responsible for that -- but trying to work out the reasoning behind Barrow's statement is driving me nuts. So, economists, any ideas why perfect knowledge of future markets would lead to very low interest rates? I assume that the answer might be trivially obvious to experts.

BTW - Barrow appears to prefer Einstein's block model of space-time, where all past and future events are fixed, and even time travellers cannot change the future.

ETA - The reason is probably that a greedy time traveller could debase currencies entirely by continually going back into the past to multiply his wealth to ridiculous proportions beyond ordinary compound interest. Banks, or more likely governments, would be forced to lower interest rates to zero to counteract the growth in the money supply. Maybe.

 

[Myasishchev]

In The Constants of Nature by John D Barrow (2002), it is stated that one observation against travelling backward in time being possible is that time travellers are not taking advantage of their knowledge of the future to make a killing on the stock market.

That's not necessarily a good reason to believe it's not possible; I could go back in time and do well financially in the 1910s, but why would I want to? I'd have to stay in the 1910s to spend the money I made without doing some serious gymnastics to ensure it remains accessible to me and generates sufficient interest to defeat inflation through all the years till present. The 1910s, being absolutely terrible, would not be worth making a fortune in, unless I could parlay that into vast amounts of political power. I'd rather go back in time with uranium than gold.

Anyway, as I understand economics (vaguely) the interest rates would plunge to zero because perfect information means no risk. Interest rates are essentially a expression of the risk that an investment such as a loan will not return its principal. If all loans and all investments are made knowing they will never default or lose value, then the market couldn't charge interest--someone would always be willing to make the investment for less, down to a fraction of a percent above zero. You might be able to cover operating expenses and a small profit, and you could still sell ownership shares of an predetermined-to-be-successful venture to generate investment income, however.

How this disproves what would obviously be secret time travel, is beyond me, though. Generally, we wouldn't be talking about the millions of actors sufficient to create major changes in how things are done, just a manipulating markets with their secret pseudo-insider information. Right? Is time travel for the common man in the future?

And of course, the problem with Novikov self-consistency time travel is where the information comes from. Like, if you go back to 1850, knowing how to build a car, and build a car, where did you learn how to build a car?

 

[Asbo Zaprudder]

Yes, I like that answer but I'll have to go away, lie down, and think about. Economics and time travel are both subjects that can induce headaches. I think the answer also depends on whether or not the markets know that time travel is possible. If the path to the future is at normal speed of 1 second per second, perhaps the perpetual-motion ATM nature of the argument falls down somewhat.

 

[Alidar Jarok]

I think there's the idea of investing money and turning it into massive amounts of currency through interest, but, if time travel is secret, that shouldn't be a problem. Also, if everything's a pre-destination paradox and you can't change history because you were always part of it, that would also solve the problem. But that's not exactly an economics answer

 

[Botany Bay]

Hmm...well assuming we have time travel capable people among us now, the time traveller(s) go back in time a hundred years, deposit $100 in 1911 in a bank account at 5% a year, then zap forward to 2011 where it's worth $13,150, and they withdraw it instantly.

Then they get greedy, take their $13,150 back to 1911, return to 2011 where it's worth $1,729,242.

The interest rate (a reflection of the demand and supply for money), gets driven to zero throughout all of time as other greedy time travellers try it.

I think. Anyone else?

 

[Jadzia]

It's possible that by the age when time travel becomes available, knowledge of the economics of the 20th/21st century has been destroyed by...

(i) our descendents. There may come a time where people feel that some ideas and beliefs are contagious and pernicious to society, like a disease. And the only way to free humanity from that disease is to erase those ideas, which involves destroying pertinent information from their past.

(ii) a totalitarian world government. A government who aims to control society by erasing knowledge of other ways of running a nation ~ there is only their way.

(iii) an accident. Data is all slowly being moved online, leaving less physical documents. There may not be any physical documents remaining that record the history of the stock market. Then there's an incident which corrupts that data, such as a massive electromagnetic burst from the sun.

(iv) extinction. Humanity doesn't survive long enough to invent time travel, even though it is a feasible technology.

 

[Asbo Zaprudder]

Hmm...well assuming we have time travel capable people among us now, the time traveller(s) go back in time a hundred years, deposit $100 in 1911 in a bank account at 5% a year, then zap forward to 2011 where it's worth $13,150, and they withdraw it instantly.

Then they get greedy, take their $13,150 back to 1911, return to 2011 where it's worth $1,729,242.

The interest rate (a reflection of the demand and supply for money), gets driven to zero throughout all of time as other greedy time travellers try it.

I think. Anyone else?

Would a bank teller in 1911 accept dollar bills from 2011? I suppose you could transport gold back instead, though either method limits what you can can comfortably carry without attracting attention.

 

[Myasishchev]

Hmm...well assuming we have time travel capable people among us now, the time traveller(s) go back in time a hundred years, deposit $100 in 1911 in a bank account at 5% a year, then zap forward to 2011 where it's worth $13,150, and they withdraw it instantly.

Then they get greedy, take their $13,150 back to 1911, return to 2011 where it's worth $1,729,242.

The interest rate (a reflection of the demand and supply for money), gets driven to zero throughout all of time as other greedy time travellers try it.

I think. Anyone else?

Would a bank teller in 1911 accept dollar bills from 2011? I suppose you could transport gold back instead, though either method limits what you can can comfortably carry without attracting attention.

The gold wouldn't be worth significantly more. In fact, I'd think it would be worth less.

And no, a bank teller would not accept $13k in cash from 2011 without question. Without getting into serial numbers and such, it doesn't even look the same. It's effectively $13k in counterfeit money. Badly-done counterfeit money.

E.g., a 1907 fin:

You've didn't even put the right president on your phony money!

And anyway, I think you'd have severe problems trying to access a bank account whose last transaction was in 1911 in the first place.

 

[Holdfast]

So, economists, any ideas why perfect knowledge of future markets would lead to very low interest rates? I assume that the answer might be trivially obvious to experts.

Not an expert, but the answer seems fairly obvious to me anyway. Interest rates are a function of risk. Higher risk investments attract higher interest rates to compensate for the risk taken by the investor. This is true whether the investment is equity, treasuries or currencies.

Investment from the future would always arbitrage risk perfectly. No risk, no interest rate.

And disastrous economic stagnation, too.

(the above assumes amounts large enough to be the prime mover affecting markets, of course).

(an opposing argument would be that time travel would be hyperinflationary, leading to an explosion of the money supply by constantly creating money through risk-free credit. Interest rates under this picture would skyrocket to try to contain the inflation, but normal monetarist theories would fail to contain the money supply under this picture and you'd get stagflation instead. Back to the square one above).

 

[SmoothieX]

In The Constants of Nature by John D Barrow (2002), it is stated that one observation against travelling

The Vulcan Science Directorate has concluded that time travel is not possible.

 

[Myasishchev]

So, economists, any ideas why perfect knowledge of future markets would lead to very low interest rates? I assume that the answer might be trivially obvious to experts.

Not an expert, but the answer seems fairly obvious to me anyway. Interest rates are a function of risk. Higher risk investments attract higher interest rates to compensate for the risk taken by the investor. This is true whether the investment is equity, treasuries or currencies.

Investment from the future would always arbitrage risk perfectly. No risk, no interest rate.

And disastrous economic stagnation, too.

(the above assumes amounts large enough to be the prime mover affecting markets, of course).

(an opposing argument would be that time travel would be hyperinflationary, leading to an explosion of the money supply by constantly creating money through risk-free credit. Interest rates under this picture would skyrocket to try to contain the inflation, but normal monetarist theories would fail to contain the money supply under this picture and you'd get stagflation instead. Back to the square one above).

I'm glad we got to the bottom of this one.

I'm not sure you'd see disastrous economic stagnation, except in the short term as markets adjusted to the fact that perfect information is available. The hyperinflation wouldn't happen because the money supply should keep pace with the actual expansion of the economy, since none of those investments are going to go badly.

Of course, with a Novikov self-consistency model of time travel, you still have the problem of where this information is coming from. It's why Novikov time travel is trivially disproved.

A Deutschian, MWI model of time travel, of course, could work, although it would involve basically free riding on realities where shit did happen, but we had the good fortune of learning from the example of others.

 

[Asbo Zaprudder]

So are time travellers from a parallel universe f***ing up our economy? Send for Fringe Division.

 

[Holdfast]

So, economists, any ideas why perfect knowledge of future markets would lead to very low interest rates? I assume that the answer might be trivially obvious to experts.

Not an expert, but the answer seems fairly obvious to me anyway. Interest rates are a function of risk. Higher risk investments attract higher interest rates to compensate for the risk taken by the investor. This is true whether the investment is equity, treasuries or currencies.

Investment from the future would always arbitrage risk perfectly. No risk, no interest rate.

And disastrous economic stagnation, too.

(the above assumes amounts large enough to be the prime mover affecting markets, of course).

(an opposing argument would be that time travel would be hyperinflationary, leading to an explosion of the money supply by constantly creating money through risk-free credit. Interest rates under this picture would skyrocket to try to contain the inflation, but normal monetarist theories would fail to contain the money supply under this picture and you'd get stagflation instead. Back to the square one above).

I'm glad we got to the bottom of this one.

I'm not sure you'd see disastrous economic stagnation, except in the short term as markets adjusted to the fact that perfect information is available. The hyperinflation wouldn't happen because the money supply should keep pace with the actual expansion of the economy, since none of those investments are going to go badly.

Re: the bold part: very good point. I didn't think of that.

Re: the earlier bit about stagnation: I was thinking about the short-term economic stagnation caused the disjunction between investment and risk. It would be equivalent to large-scale but not universal insider trading, distorting the market beyond the ability of "domestic" (?"contemporary") traders, and therefore businesses, to flourish.

Unless the market was positively flooded with future money almost overnight, to the point of making domestic investment irrelevant, there would be a period of time where markets were increasingly inefficient due to this disjunction.

In the longer term, if near-universal, it should lead to an unprecedented boom, as the combination of my point about the money supply soaring, and yours about this matching the rate of the economy's expansion itself. Assuming of course you can do it in a way that doesn't alter the specific future of the time-travellers themselves providing the information by doing it. Which leads neatly onto...

Of course, with a Novikov self-consistency model of time travel, you still have the problem of where this information is coming from. It's why Novikov time travel is trivially disproved.

A Deutschian, MWI model of time travel, of course, could work, although it would involve basically free riding on realities where shit did happen, but we had the good fortune of learning from the example of others.

Way over my head in terms of the detail/terminology, but certainly intuively this makes sense to me. You would have to be continuously creating a new reality to permit this.

 

[Asbo Zaprudder]

Thanks guys. It's interesting to me how theorising about time travel has helped my limited knowledge of economics but not about time travel itself. I've always assumed that some underlying pre-space constraints prevent time travel but it annoyed as great a mind as Einstein's when Kurt Gödel showed that General Relativity theory allows time travel under some extreme circumstances. To me, that hints that GR is almost certainly incomplete.

 

[Tiberius]

Hmm...well assuming we have time travel capable people among us now, the time traveller(s) go back in time a hundred years, deposit $100 in 1911 in a bank account at 5% a year, then zap forward to 2011 where it's worth $13,150, and they withdraw it instantly.

Then they get greedy, take their $13,150 back to 1911, return to 2011 where it's worth $1,729,242.

Unless the coun try has been using the same currency for a century, how do you think that money from 2011 is going to be worth anything in 1911?

 

[Asbo Zaprudder]

In the UK, bank accounts are considered abandoned if no transactions take place on them for a period of much less than a century. I believe the UK government is expecting a windfall of about £1.5 billion (about $2.4 billion) fairly soon.

 

[T'Girl]

And anyway, I think you'd have severe problems trying to access a bank account whose last transaction was in 1911 in the first place.

A nice stock portfolio then?

 

[Myasishchev]

And anyway, I think you'd have severe problems trying to access a bank account whose last transaction was in 1911 in the first place.

A nice stock portfolio then?

I think you'd have the same problems with any device. There could be ways around it for someone more well-versed in the practice than me, though; I'm just figuring that someone would get suspicious about transactions decades apart.

You could pretend to be your own heir. That one worked for Vandal Savage and Hob Gadling.

 

[Botany Bay]

Ok, good point about the people off 100 years ago not being able to recognise our contemporary currency, but the timeframe doesn't have to be so big.

Go back in your time machine to 1991 with $1,000 in your pocket, put it in the bank at 5%, travel back too 2011, it's worth $2,653. Take your $2,653 back and turn it into $7,039. Do it over and over, and you're a very rich time traveller. Instant compound interest, but without the waiting!

The only problem is, you lower the interest rate every time you increase the "supply of loanable funds", and if everyone has the ability to time travel does it, interest rates keep dropping all the way to zero as everyone tries to get rich quick.

We assume here that time travel is possible and freely available to all (I'll leave that to brains bigger than mine to argue), the time travellers are interested in wealth (yeah, that's a safe bet), and that time travelling is worth the effort (is time-machine a cheap mode of transport?).

I know one thing for sure though, I live in a place with the highest interest rates in the developed world, so no time traveller has made it to Australia yet

 

[Robert Maxwell]

After seeing Primer, I'm convinced time travel would drive its users insane before they could really make a lot of money on the stock market.