At roughly the 41-minute mark of this All In Podcast, Elon Musk discusses the economic benefits of colonizing Mars.
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He makes a spatial diversification argument, arguing that the Earth faces existential risks, such as nuclear war and highly contagious viruses. By creating viable alternative societies, humanity reduces our extinction risk by creating migration options to other planets. He is an adaptation optimist! Economists should read Chad Jones’ work on existential risks.
The standard Lucas Critique applies here. As the perceived existential risk increases, people and firms will reoptimize. Fatalists will believe that the end of the world is near and will “party like it’s 1999”! Optimists like Musk will invest in having a credible Plan B and this fuels endogenous innovation that benefits all of us.
An interesting public policy question in this age of industrial policy is whether society should subsidize Musk’s efforts to colonize Mars. If a subsidy increases the probability that his initiative succeeds and is viable sooner, how much does each American value this real option? How could a talented economist measure this? As our value of a statistical life increases, we should be willing to pay more to avoid existential risks!
Listen to the audio here.