Författare: John Hawkins Senior Lecturer Canberra School of Politics Eco

Economists may sometimes sound like they are speaking a language out of this world. But perhaps there are lessons about economics from a galaxy far, far away.

The Star Wars saga – the science fiction trilogy of trilogies that spun out of the original 1977 movie – tells the tale of a small group of rebels, led by the brave and wise Jedi Knights, who fight against a corrupt empire.

The films earned more than US$10 billion at the box office. Then there were profits from cartoons, comics, books, and even more from toys.

Legal scholar Cass Sunstein, best known as the coauthor of Nudge: improving decisions about health, wealth and happiness, estimated that since 1977 the Star Wars franchise has generated as much in earnings as the gross domestic product of entire countries such as Iceland and Jamaica.

This stellar performance is based on stories that themselves contain some economics lessons, on topics such as trade, money, automation, forecasting, cost-benefit studies and behavioural economics.

As the Jedi elder Yoda would put it, “about economics, it can teach”.

Galactic trade wars

The galactic federation in Star Wars has been estimated to have a gross galactic product of between five sextillion and 200 octillion US dollars. Much of this wealth is generated from interplanetary trade.

Indeed, the star wars started from an interplanetary trade dispute.
Interplanetary trade seems based on the resources each planet has in abundance, which may be some minerals or cheap labour.

Galactic trade is conducted by corporations but also by smugglers like Han and Chewbacca.

As smugglers, Chewbacca (left) and Han were part of the galactic trade network.
Twenthieth Century Fox/AP

There is a lesson here, both about the gains from trade and the risks of starting trade wars, which incoming US President Donald Trump should heed. If other countries retaliate against the large tariffs he is proposing, global trade may contract significantly. This will make the world poorer.

Digital currency vs precious metals

The federation, however, suffered from the lack of a common currency. Galactic credits, a digital currency, are the most commonly used and there are also planetary credits and dataries (Republic credits). But the credits lacked credibility. Han would only accept payment in precious metals.

Some planets, such as the young Jedi Rey’s homeworld of Jakku, use barter rather than any currency. Notably these tend to be poorer planets.

Another impediment to trade is trust, in the absence of respected legal systems. Han offered to take the heroes Luke Skywalker and his Jedi Master Obi-Wan Kenobi to the planet Alderaan for 10,000 credits. The agreement was instead 2,000 immediately plus 15,000 on arrival. Obi-Wan wanted to align Han’s incentives better.

These examples illustrate the conclusions from economic studies that have shown having a common trusted currency encourages trade. It is the economic motive for the euro project, that introduced a common currency to the European Union.

The automated workplace

The federation relies on droids for much of its work. The droids take the place of humanoids in an example of capital/labour substitution. And the droids specialise in different tasks, showing the division of “labour”.

Once the relatively peaceful federation splits into an empire and republic, military expenditure becomes very large. The massive planet-destroying Death Star demonstrates the empire devotes huge amounts of resources to it.

This could explain the apparent paradox of an economy with both highly advanced technology but much apparent poverty. While there are droids there are also manual workers in drudgery.

The impact of automation, even if we have not yet got as far as humanlike droids such as C-3PO being commonplace, is an issue in our world too. Economists are asking how will it affect jobs and incomes.

Cost–benefit analysis

The characters are sometimes faced with decisions requiring a cost–benefit analysis in uncertain times. Cost-benefit analyses usually involves comparing future benefits with immediate costs.

The droid robot C-3PO must decide whether to risk losing his memory to translate an important message. His droid friend R2D2 wants to beat the ape-like wookie Chewbacca at a kind of chess. But when Han warns of wookies’ temper, C-3PO’s wise advice to his fellow droid is “let the wookie win”.

Luke calculates the short-run costs of some further education will be exceeded by the longer-term benefits. He hopes to increase his human capital by attending the flight academy. But his uncle prioritises helping with the harvest. Later he seeks training in the “force”, from the initially reluctant Jedi master, Yoda.

Cost-benefit analysis is used by economists advising a company on whether to build a factory or a government on whether to build a railway.

The concept of opportunity cost is illustrated when Luke must decide whether to go to Alderaan with Obi-Wan. Initially he declines as he does not want to leave his aunt and uncle. But when he learns of their murder, the cost of going with Obi-Wan is much reduced.

The famous bar scene illustrates search costs. Obi-Wan and Luke go there because it has a concentration of potential pilots.

Characters in a scene from the original 1977 Star Wars. From left, C-3PO, Luke Skywalker and Ben Obi-Wan Kenobi looking at a hologram of Princess Leia.
LucasFilm Ltd/AP

The concept of search costs is used by economists to answer questions such as how long a person should keep searching for a job, or a romantic partner, before “settling”.

Negotiating

Negotiation is illustrated when Princess Leia negotiates with Jabba for Chewbacca’s release. Neither the original offer of 25,000 credits nor the asking price of 50,000 are acceptable but they reach an agreement on 35,000.

Another negotiation in which Leia is involved is when the evil Governor Tarkin offers her the choice of revealing the location of the rebel forces or watching her home planet of Alderaan destroyed.

But as it is not a repeated game, Tarkin is not concerned about his credibility and breaks his word. Even after Leia tells him (inaccurately) the location of the rebels, he still orders the planet’s destruction.

These aspects of game theory are widely used by economists in situations where outcomes are affected by how rivals respond. An example is a firm in an industry with a small number of rivals. The impact of cutting price will depend on how the rivals respond. Läs mer…

After two successive surpluses, the federal budget will be back in deficit in 2024–25, according to the much-anticipated budget update released on Wednesday.

Known as the Mid-Year Economic and Fiscal Outlook (MYEFO), the update shows the budget is forecast to stay in deficit in years to come.

The MYEFO is a little more downbeat than at budget time with lower growth and wage forecasts in the current financial year, but only by a quarter of one percent.

Overall, there has been little change in the economic forecasts. There is new spending, which increases deficits in the forward years, but again, this is small in percentage terms.

The path back to surpluses by 2034-35 remains much the same as previously forecast.

Heading back to the red

This year’s deficit was budgeted at A$28.3 billion (1% of gross domestic product) in the budget handed down in May. Treasury now expects the deficit to be $26.9 billion, a small decrease.

The deficit is forecast to increase further next year to $46.9 billion, compared with $42.8 billion forecast in the budget.

Treasury now expects $8.5 billion less company tax to be collected over the four years to 2027-28 than it thought at budget time. This is because it now expects mining exports to be more than $100 billion weaker than forecast.

The price of iron ore has fallen since the beginning of 2024 as the Chinese economy has slowed. China has long been Australia’s biggest importer of iron ore by a huge margin.

The falling price contrasts with most recent years when commodity prices turned out to be higher than Treasury’s cautious budget assumptions.

Treasurer Jim Chalmers had foreshadowed this impact in his recent ministerial statement on the economy and at a press conference on Monday.

Read more:
More spending and weaker revenue hits budget bottom line in some years: Chalmers

Government spending this year is now forecast to be $731.1 billion, $4.4 billion higher than in the budget. Numerous new payment measures in Wednesday’s statement including childcare, aged care, a remote employment service, and a raft of smaller initiatives.

Early childhood education is one of the highlighted areas. The government is investing $5 billion over five years – the biggest component of which is $3.6 billion for wage increases.

The government had foreshadowed an extra $1.8 billion in payments to veterans, and more spending on recovery funding for areas affected by disasters. But the budget update’s numbers could come unstuck depending on the nature of any future disasters.

The update includes a reconciliation table showing how much change since the last update is due to policy decisions and how much to “parameter variations”, that is, things outside government control.

In most updates, policy is outweighed by parameter changes. That is true for receipts in this economic outlook, but on payments the impact of policy is higher than parameters in 2024-25 and 2025-26.

The government’s critics have pointed out, in nominal dollar terms, this $42.7 billion deterioration from last year’s surplus to this year’s deficit, is the largest outside the COVID-affected years of 2019-20 and 2020-21.

Read more:
Deloitte predicts December budget update will show bottom line has worsened since May, in fiscal ’thud’

But inflation and economic growth mean almost everything is larger now than it once was. A more meaningful comparison is to look at movements in the underlying cash balance relative to GDP.

A swing from a balance of 0.6% of GDP in 2023-24 to -1.0% in 2024-25 represents a drop of 1.6% of GDP. This would still be a smaller deterioration than occurred in 1975-76, 1982-83, 1991-92, 2008-09, 2009-10, 2013-14, 2019-20 and 2020-21 and comparable to those in 1983-84 and 1990-91.

It is nowhere as exceptional as some breathless commentary suggests.

A pre-election war chest

The mid-year outlook includes payments of $218.6 million in 2024-25 and $828.1 million in 2025-26 for “decisions taken but not yet announced”.

Read more:
$16 billion of the MYEFO budget update is ’decisions taken but not yet announced’. Why budget for the unannounced?

This provision allows ministers to make new policy announcements after a budget or budget update without affecting the bottom line, because monies have already been allocated.

It’s incorrect to claim these are “already paid for”. These figures are merely estimates and future spending still needs authorisation.

It is reasonable for some spending decisions included in the contingency reserve not to be published for national security or commercial reasons. More troubling for honesty in budgeting is the use of this for political reasons.

Effectively, it means the government is holding off making announcements to maximise their political impact. Better practice, if a decision has been made, is to make it public.

There is no way to tell how much of the $828 million next year is commercial or security decisions, and how much is unannounced promises to be rolled out during the election campaign.

Economic activity outlook

Treasury has also updated the economic growth forecasts from the budget.

Real gross domestic product is now expected to grow by 1¾% (down from 2% in the May budget) this year and 2¼% (unchanged) next year. Donald Trump’s election in the United States will have created more uncertainty around these forecasts.

Read more:
What would a second Trump presidency mean for the global economy?

Inflation and interest rates

Inflation is forecast by Treasury to fall to 2¾% by mid-2025, and then stay within the Reserve Bank’s 2-3% inflation target band.

But much of the fall in inflation is due to temporary measures such as the electricity rebates, so there is a risk of inflation rising when these expire.

Will there be a budget before the election?

The government’s current parliamentary sitting program has a budget scheduled for March 25, 2025. This would be consistent with an election in May.

But the government is keeping open the option of calling an election for April and deferring the budget until after.

Either way, there will be a further budget update before we go to the polls. Treasury and the Department of Finance are required to release a Pre-election Economic and Fiscal Outlook after an election is called. Läs mer…