Take Us to Your Economists: Teaching Economics Through a (Hypothetical) Alien Invasion

One of the greatest challenges that economic educators face is finding creative ways to bring the economic way of thinking to life. This paper introduces a creative way to engage students in the most important ideas in economics using a captivating thought experiment from science fiction: what can economics teach us about how our policymakers should respond to an alien invasion? Although this thought experiment was initially used as a debate topic for an economics club event, it has also been successfully utilized in principles-level classes. It even has applications to a variety of higher-level classes in international trade, game theory, and monetary economics.

Introduction

Economics has long been derided by its critics as the “dismal science” (Carlyle, 1849).¹1Interestingly enough, this pejorative label wasn’t originally intended to imply economics was “dull” or “boring,” as it is commonly interpreted today. Nor was it a reference to Thomas Malthus’s (1798) famously bleak essay “An Essay on the Principle of Population,” which argued that the earth’s finite resources combined with an ever-growing population would consign the vast majority of the world’s population to poverty and immiseration. The phrase was actually coined by pro-slavery Scottish historian Thomas Carylyle in 1849 as a criticism of prominent Scottish Enlightenment economists like Adam Smith, David Ricardo, David Hume, and J.S. Mill who argued both on moral and economic grounds for the abolition of slavery. Their arguments for individual freedom and laissez-faire reforms to the economy clashed with Carlyle’s pro-slavery position. He wrote: “Economics is not a gay science. It is a dreary, desolate and indeed quite abject and distressing one; what we might call…the dismal science” (Carlyle, 1849, p. 672). Unfortunately, far too many students would agree with this rather bleak assessment (Benedict & Hoag, 2002; Phipps & Clark, 1993; Soper & Walstad, 1983). There is a reason why the notoriously dull actor Benjamin Stein was cast to play the role of a soporific “Economics Teacher” in Ferris Bueller’s Day Off. Does anyone want to guess what Stein’s real-life job was prior to this breakthrough acting role? “Anyone? Anyone? Bueller…?” That’s right: An economist.

Given this not-so-flattering reputation, one of the greatest challenges that educators face is finding creative ways to engage students in the economic way of thinking. Thankfully, many dedicated educators have found innovative ways to inject some life into the dismal science using real-world examples and interactive games (Burns & Wyld, 2023; Geerling, 2012; Gold & Gold, 2010; Settlage & Wollscheid, 2019). This paper contributes to these efforts by introducing another “outside the box” approach to teaching students how to think like an economist. It does so, using not a game or real-world example, but a science-fictional thought experiment that will capture students’ attention and spark their imagination: a hypothetical alien invasion.

The specific question students are asked to ponder is: what can economics teach us about how our leaders should respond to an alien invasion? Students can choose a side in the debate–the hawkish approach (“we should attack immediately!”) or the dovish approach (“we should try to make peace”). Most importantly, they are asked to use economic ideas to defend their position.

Although this thought experiment was originally designed for an economics club debate between two economics professors, it also serves as a great teaching tool for principles-level undergraduate classes. It can even be utilized in a variety of upper-level undergraduate classes like international economics, international trade, game theory, and monetary economics.

This paper proceeds as follows. Section 2 explains how this topic was utilized for an economics club debate and how it could be used as an assignment in a principles-level class. Section 3 explores economic ideas that could be used to defend the hawkish position. Section 4 does the same for the dovish side. Because the authors (and most economists, we’d surmise) believe that economics makes a far stronger case for the dovish side, we dedicate more attention to that position. However, for the sake of argument (and since the primary goal is to teach students how economics can help them think through both sides of complex issues), we also explore how economics could be used to justify the hawkish side. Section 5 concludes with some additional thoughts on how this thought experiment could be utilized in upper-level economics classes.

Setting the Stage for the Debate

Using the Debate for an Economics Club Event

This thought experiment was originally designed for an undergraduate economics club debate in March 2023. The debate took place at Southeastern Louisiana University in Hammond, Louisiana, a regional university with students from a wide array of socioeconomic backgrounds.

At the start of the event, the following proposition was introduced: Suppose that you are an economist on the President’s Council of Economic Advisors. One day, an alien spaceship arrives outside Earth’s atmosphere. Based on your knowledge of economics, should you advise the President to immediately attack the alien spaceship or try to establish peaceful relations with the aliens?

This debate topic was not chosen at random. In early 2023, the topic of “UAPs” (Unidentified Aerial Phenomenon) captured headlines after formerly classified documents were released detailing several reported encounters (Lillis & Fisher, 2023). According to Google Trends data, the UAP craze peaked in July of 2023 after three military veterans testified on their alleged encounters with UAPs during a publicly televised House Oversight and Accountability subcommittee hearing at the nation’s capitol (Romo & Chappell, 2023). The ubiquity of the UAP discussion in pop culture and on various social media platforms made it an ideal topic for an event intended to attract students across the entire campus (not just business students).

The debate featured two economics professors at the University who, for the sake of argument (and entertainment), took opposing sides in the debate. For dramatic purposes, the debate was framed as an “ECON DUEL” (an “Economics Trial by Combat” where “two men enter but only one man leaves.”) A promotional flier is included in the Appendix. Alas, much to the dismay of many students, no economists were harmed in the making of this debate, and there was no significant bloodshed or mortal combat-style confrontation between the two tributes.

The event was an Oxford-style debate. This means that before the debate, attendees were asked to vote on which side they were on (the “hawk” or “dove” side). They were then asked to vote again at the end after hearing both presenters. The votes were collected in Mentimeter, which allows voters to use their cell phones to scan a QR code and answer poll questions directly; the interactive, real-time results were displayed on the screen to all. Per Oxford-style rules, the “winner” of the debate was determined not by who had a majority of the vote on their side of the debate but rather by which presenter convinced the most people to switch to their side.²2A quick note on scoring for this debate. This Oxford-style format for scoring is preferable to taking a simple majority vote because the initial results might be heavily skewed to one side. In this original debate, for instance, 39 of 50 students (78%) initially voted on the “dove” side of the debate. Basing the winner off a simple majority vote, then, would have biased the results to the debater on the dovish side since they started with such a sizable lead. The goal is not to win a majority of voters to your side but rather to move more voters to your side than your opponents. This levels the playing field and gives the debater on the minority side a fighting chance.

After the initial poll was taken, the two debaters flipped a coin to decide who would present first. Each presenter then had 10–12 minutes to make their case. Since the goal of the debate was to demonstrate how economics can help inform the way we think about a wide range of topics (including something as “out of this world” as an alien encounter), the presenters tried to deploy as many economic ideas as possible to defend their position. After these opening statements, both presenters participated in a 15–20 minute Q and A period. The final vote was taken after this lively and engaging Q and A period. Students were asked to vote based on how persuasive they found the respective arguments and, in particular, how effectively the presenters marshaled economic ideas to support their positions.³3In this original debate, there was a net move of one vote towards the dovish side of the debate (from 39 to 40 votes out of 50). However, results can and will vary. Subsequent versions of this debate featured much more movement. One of the biggest takeaways from the debate was how successful it was at generating student engagement. Students were challenged to think about this topic in an entirely new way–through the lens of economics. This prompted them to ask many creative questions and hypotheticals in the Q and A portion of the debate.⁴4Although this section has outlined one potential format for this debate, there are many different ways educators can alter this topic and format to elicit student engagement. Educators are encouraged to tailor the debate to their needs.

Using the Topic for a Principles-Level Economics Class

Although originally designed for a one-off event, this topic has also served as a useful and engaging thought experiment for principles-level economics classes. The following assignment prompt was used in the Principles of Macroeconomics class in the Fall of 2023: “At a congressional hearing in July 2023, three former US intelligence officers testified that the US government had for decades been concealing information about UFOs (now called UAPs) and potential alien lifeforms visiting Earth. Imagine that one day, a giant alien spaceship arrives right outside Earth’s atmosphere. Suppose that you are the chief economist on the President’s Council of Economic Advisors. You are asked to provide a short presentation to the President on what economics tells us about the likelihood that these aliens will be peaceful or hostile. The specific question your article should answer is this: Should the President immediately order the military to attack the alien ship (the “hawkish” approach), or should we try to establish peaceful relations with the aliens? (the “dovish” approach). Since you are writing this from the perspective of an economist, you must use economic ideas to support your position. Do your best to incorporate economic ideas we discuss in class, as well as any arguments from the textbook or your own research that might apply.”

It is strongly recommended that the educator emphasize that student grades will not be determined by whether they are “right” or “wrong.” Since students are expected to frame their arguments from the perspective of an economist, their grade should instead be determined by how effectively and persuasively they marshal economic ideas to defend their position. The goal is ultimately to teach students how to think through problems using economics, not what to think.

A nice feature of this assignment is that it can be tailored in many different ways. It was originally utilized as a bonus assignment. Students were invited to submit a six- to eight-slide presentation framed as a presentation to the President’s cabinet. The instructor then selected the best submissions on either side. The two selected students were asked to present in front of their entire class in an Oxford-style debate the next week. The two presenters were given five minutes to make their case to the class. The winner of the in-class debate received an additional bonus.

This assignment could just as easily be scaled up to a required assignment for an entire class. For instance, it would make a great group presentation topic (particularly in upper-level classes with fewer students). It could also be easily tailored into a writing assignment. One author crafted a short essay version of this assignment (roughly 500–750 words) where students were asked to provide at least three economic ideas and arguments to defend their position. As the concluding section of this paper notes, it could even be utilized in a variety of upper-level classes, including international economics, game theory and monetary economics.

The Hawkish Position: “We Will Not Go Quietly into the Night!”

“They are heeeere!” What do we do now? If Hollywood is any indication, the arrival of aliens is bound to go badly for us humans. Alien, Independence Day, Mars Attacks, Signs, War of the Worlds, the entire Marvel Cinematic Universe… the list goes on.

Thankfully, we do not have to rely on something as boring and vapid as Hollywood action films to determine our best course of action. We can instead turn to something far more riveting and informative: economics! So let us see what economics can teach us about why making peace with the aliens may, to quote the band REM, bring about “the end of the world as we know it.”

Scarcity

The hawkish case is rooted in one of the most fundamental truths in economics: scarcity. Scarcity is one of the first concepts students encounter in an introductory economics class. The lesson goes something like this. Human wants are infinite. (To quote the band Queen: “I want it all, and I want it now!”) Sadly, the means that we have at our disposal to achieve those wants are finite, i.e., scarce. (As the Rolling Stones sang: “You ca not always get what you want…”) The “fundamental economic problem” any society must overcome is how to efficiently allocate our limited means to achieve as many of our limitless wants and desires as possible.

Recognizing that scarcity is inescapable brings us to a rather humbling (some may even say “dismal”) realization. Even if we want to be optimistic and assume that our extraterrestrial interlopers “come in peace” and seek to barter with us, would we be able to satisfy their demands for Earth’s scarce natural resources while maintaining our advanced civilization? Let us face it: we already struggle to meet the needs of our current population. Despite all the progress we have made over the past few centuries, 700 million people still live in extreme poverty (World Bank, n.d.). Moreover, the earth’s finite resources are in peril of being exhausted. None of this even takes into account concerns about climate change and the externalities associated with exhausting the earth’s scarce supply of natural resources. Given these dire stakes, how could we possibly afford to meet the demands of an alien civilization while also satisfying our own needs?

These concerns about the long-term viability of human life and flourishing on earth are by no means new. For centuries, economists and environmental scientists have warned about the perils of depleting Earth’s finite resources (even absent any imminent threat of an alien invasion). In the late 18th century, English economist Malthus (1798) famously argued in his “An Essay on the Principle of Population” that the earth’s finite human resources combined with the exponential increase in human population would inexorably consign the vast majority of earth’s population to a life of poverty and immiseration. Nearly two centuries later, biologist Paul Ehrlich revived Malthus’s arguments in his best-selling book The Population Bomb (1978). He famously predicted that because of the earth’s rising population and the increasing scarcity of its resources, advanced human civilization would likely cease to exist by the end of the 21^st century. Thankfully, Malthus and Ehrlich’s most dire predictions have not come to fruition (yet). That said, these fears remain enormously influential amongst policymakers and environmental activists who worry the earth is on a path to civilizational disaster. Many scientists and environmental activists today point to rising commodity prices, higher CO₂ levels and increasing inequality and social unrest as evidence that human civilization cannot be sustained on its current trajectory.

In short, scarcity is not just some abstract idea in your economic textbooks. It is an inescapable fact of life. If we can hardly sustain our advanced civilization without any existential threat from an alien invasion, why would we ever risk inviting these celestial strangers into our home and encourage them to help themselves to our finite natural resources?

Uncertainty and Risk Aversion

This brings us to the second economic argument for why we should not welcome these alien interlopers with open arms: uncertainty. Economist Thomas Sowell suggested we should always ask three questions when confronting a big policy question where the potential outcomes are highly uncertain (and I think ‘Should we attack aliens?’ would qualify as a “big” question!):

1. Compared to what?

2. At what cost?

3. What hard evidence do you have?

First, ‘Compared to what?’ In evaluating a possible solution, it is important to keep in mind that there are many possible courses of action that we can take (including ‘do nothing’). Economists’ go-to analytical tool is “marginal analysis.” Whenever we make a decision, we weigh the marginal costs and marginal benefits of each possible course of action.

Let us consider how marginal analysis might inform how we should respond to an alien invasion. Some might expect an alien invasion to bring about a utopian society here on Earth. With all of their obvious technological advantages and interstellar travel capabilities, perhaps the aliens improve human lives in every possible way (marginal benefit = positive infinity). It is also possible that it is the end of humanity as we know it (marginal cost = negative infinity).

One of the big lessons in the field of behavioral economics is that humans are “risk averse.” This means that we have a very strong preference for avoiding worst-case scenarios, even if they are highly unlikely. To take an example, terrorist attacks are incredibly rare. Yet most Americans support strict counterterrorism measures, even though they are far more likely to perish in a neighborhood traffic accident or choke on a chicken bone. To economists, this is not a sign that humans are “irrational.” Rather, it is a sign we have a strong preference for avoiding worst-case scenarios (understandably so, given the immense psychological toll and potentially cataclysmic outcome of a terrorist attack!). This risk aversion might mean we humans are a tad neurotic. But it also helps explain why the human race has survived (and thrived!) for millennia.

How does this all relate to an alien invasion? Even if the chances that an alien invasion goes sour and turns into an extinction-level event for humans are exceedingly small (say, 1%), there is a strong case that we should not risk it. If you think about it, we are actually doing pretty well here on Earth. Extreme poverty is down by more than 90% over the past two centuries (Roser, 2023). Humans are living far longer, more materially prosperous lives than at any other point in history. Sure, we have our problems. But we have made great progress on many issues! If the past few centuries are any indication, humans are likely to continue to see drastic improvements in our daily lives without any intergalactic assistance. Human innovation in areas like artificial intelligence and advanced robotics alone is likely to raise our collective standard of living without any reliance on extraterrestrial benevolence. With so many positives on the horizon, why would we risk it all on a roll of the intergalactic dice? There is no guarantee aliens can offer us a surefire upgrade over what we have. As NBA legend Charles Barkley eloquently said, “If it ai not broke, do not break it.” So do not overthink it! Risk aversion has served humans well so far. As such, it is likely better to blast the aliens out of the sky…you know, just to be safe.

Now, let us look at Sowell’s second question: ‘At what cost?’ What’s the first lesson in the first chapter of the #1 economics textbook? “There is no such thing as a free lunch!” (shoutout to Dr. Mankiw, 1998). Can we really expect the aliens to show up and just give away their knowledge and technology? Fat chance. Unless they turn out to be a bunch of intergalactic altruists, we will have to come up with bargaining chips. Tradeoffs will be necessary. This means we will have to weigh the opportunity costs. As Mankiw’s (1998) Principles of Economics text states, the cost of something is what you must give up getting it. Are we willing to give up whatever the aliens demand of us? If not, maybe it is best to blindside them while we still have the chance.

Even if we avoid the worst-case scenario and the aliens do not immediately annihilate us, economics gives us plenty of reasons to believe that their arrival will still usher in an array of unforeseen and unintended consequences. For instance, it may very well have a negative impact on low-status males. As economists who study crime have long argued, a great number of societal ills (terrorism, criminality, chronic unemployment, substance abuse, etc.) can be traced back to fragile, low-socioeconomic-status males (Becker, 1968; Ihlanfeldt, 2006; Levitt, 2017). To make matters worse, what if the aliens take their jobs? The aliens and all of their new tech will undoubtedly displace many low-skilled workers, much like some economists fear low-skilled immigrants do today (Borjas, 2016). This will only exacerbate the problems we see from low-status males, who derive much of their identity and sense of self-worth from their occupations.

An alien invasion is also likely to generate more income inequality. Economists and politicians alike recognize the challenges of a widening gap between the ‘haves’ and ‘have nots’ in society. An alien invasion is very likely to increase this gap. Each new wave of innovation has simultaneously raised society’s overall well-being and widened the gap between the richest and poorest inhabitants of this planet. This will surely exacerbate our current problems.

Finally, Sowell’s third question: ‘What hard evidence do you have?’ In other words, show how your idea has worked on a small scale before we execute it on a large scale. Clearly, there is no precedent for an alien invasion. However, we can take lessons from our own species’ economic history. Colonization did not work out so well for the colonized. History is rife with examples of things going terribly wrong by allowing foreigners in (Trojan horse, anyone?). None of this even mentions the risk that inviting an alien species into our planet may introduce dangerous new diseases to our delicate ecosystem. Just ask the Incas, Aztecs, and other native civilizations how well exposing their immune systems to foreign toxins worked out for them. We can also take lessons from biology and the behavior of other species (Diamond, 1998). No organism leaves its current ecosystem for another unless it has exhausted the resources of the former. The aliens may only come here because they have no alternative but to leave their previous homes. Who is to say they wo not do the same thing on Earth? This raises another issue: aliens have the option to leave, but we do not. We have incentives to economize our resources to protect our home because we have to stay here. Aliens do not. For all these reasons (and many more!), it is best not to let aliens crash on our celestial couch. So, let us slam the door shut instead.

Even if we want to be optimistic and assume that the aliens are open to peacefully trading with us, there is also the pesky problem of how we’d even facilitate trade in the first place. What form of money could we use? Chances are the aliens wo not be satisfied to accept green pieces of paper with dead presidents or any other earthly form of money in exchange for their goods. Would we have to rely on barter transactions? How could we even determine prices and exchange rates for the goods that would be offered to us in trade? Presumably, visitors from another galaxy will offer commodities and various goods and services we have never encountered before. How could we meaningfully determine how to price these entirely novel goods and services?

Over time, we may arrive at valid answers to these questions. But these answers will likely take months–or even years!–to determine.⁵5This is especially true considering that we will have to first develop a language to communicate with our alien visitors, which itself would be enormously time-consuming (as brilliantly depicted in the 2016 film Arrival). The longer the aliens linger, and the longer we are unsure about their motives and aspirations, the more uncertainty will spread throughout the global economy. Any economist worth their salt will tell you that uncertainty is an economic killer. When uncertainty spikes, consumers stop spending, producers curb investment, and the global financial system comes to a screeching halt (Baker & Bloom, 2013). Given this reality, the simplest and best course of action would be to nip this problem in the bud before that uncertainty snowballs into a full-blown global crisis. In the long run, could we possibly find ways to coexist peacefully with the aliens? Perhaps. But I would not bet our species on it. As economist John Maynard Keynes famously said, “In the long run, we are all dead.”

In short, an alien invasion is no time to cower in fear or tuck tail and surrender. It is a time for us to unite as a human race and fight back. To quote America’s greatest (fictional) president, Thomas J. Whitmore (from the movie Independence Day): “We will not go quietly into the night! We will not vanish without a fight! We are going to live on! We are going to survive!”

Dr. Strange-Dove, or: “How I Learned to Stop Worrying and Love the Aliens”

The phrase “they are here” is enough to strike fear into even the most xenophilic person (I’m looking at you, Richard Dreyfus). Fear of the unknown is a deeply rooted human instinct. And there is no greater unknown than a direct encounter with aliens. After decades of watching apocalyptic Hollywood depictions, who could possibly blame us for wanting to go Sigourney Weaver from Alien on our intergalactic visitors? Thankfully, the dovish case is not rooted in fear or passivity. At its heart, it is a case for optimism about the aliens’ likely motives, one that is deeply rooted in economic ideas and the economic history of our own planet. In short, economic theory and lessons from our own planet's economic history give us strong reasons to believe that (a) trading with the aliens is a much better strategy for long-term peace and prosperity than direct conflict and (b) if aliens do arrive at earth’s doorstep, it is far more likely they’ll “come in peace.”

Aliens, Markets, and Gains from Intergalactic Trade

At its core, the dovish case for peace rests on one of the simplest yet most profound ideas in economics: trade is good! One of the first lessons students learn in an introductory economics class is that trade is not “zero-sum.” When a voluntary trade occurs, one side is not made richer at the other’s expense. Both sides are made better off! In economics parlance, trade is positive-sum.

Economists call the positive-sum nature of trade the “fundamental theorem of exchange.” For most of mankind’s existence, this insight has been overlooked. As evolutionary biologists have noted, the human mind is hard-wired to think of wealth in zero-sum terms (Johnsonet al., 2022). In primitive hunter-gatherer societies, every deer I kill leaves one less for you. Even in competitive sports today, one team’s success (victory) comes at the other’s expense (loss). The beauty of trade, however, is it creates “win-win” outcomes where both sides are made better off.

In microeconomics, students learn that when individuals trade, they are both made richer. In macroeconomics, they learn the same thing, which is true when nations trade. If trade within and between nations is an unalloyed good, there is no reason to think the same is not true of intergalactic trade. The laws of economics do not magically cease functioning at the edge of the earth’s atmosphere.

Adam Smith, widely regarded as the “father of economics,” famously elucidated how trade makes both individuals and society as a whole wealthier in his landmark treatise Wealth of Nations (1776). This flourishing marketplace set the stage for what Smith called the “division of labor” in society. Thanks to trade, individuals can specialize in producing whatever goods they are best suited to make and then trade with others in order to get the goods they wish to consume. This system of specialization and trade, Smith argued, allows people to attain a much higher standard of living than they could otherwise attain under autarky (i.e., a world sans specialization and trade). Being a “jack of all trades” is great if you’re stranded on a desert island, ala Robinson Crusoe. However, as Smith’s theory makes clear if you want to get rich in a modern market society, you’re best served by specializing in being a “master of one” craft trading with your fellow man.

Another key insight from Smith is that the benefits of specialization grow the more that trading networks expand. As he succinctly put it: “the division of labour is limited by the extent of the market” (Smith, 1776, Book I, ch. III). International trade gives us access to more trading partners. The more trading partners we have, the easier it becomes to specialize and trade. For Smith, the proximate cause of the wealth of nations was the deepening of society’s division of labor. The “invisible hand” of the market thus creates a virtuous cycle. The more we trade, the more we are able to specialize, and the more we specialize, the more stuff we are able to produce and trade.

What can an 18^th-century philosopher teach us about a 21^st-century alien encounter? If Smith were alive today, it is almost certain he would agree that the smart, economically-informed way to greet our intergalactic visitors is with open arms and an olive branch, not pitchforks and hellfire missiles. If expanding international trade was Smith’s best explanation for the rapidly rising wealth of nations he witnessed nearly 250 years ago, just imagine how much we could increase our wealth if we expanded those frontiers even further by embracing intergalactic trade!

Skeptics may be tempted to rebut: what about the job losses that opening up intergalactic trade might create here on Earth? Indeed, this is a perfectly reasonable concern. Nobody wants to see millions of humans lose their jobs due to intergalactic competition from actual aliens, especially given all the grave social ills that tend to accompany large-scale unemployment.

Thankfully, economics gives us good reasons to believe that intergalactic trade wo not create massive unemployment. To understand why, we need not look any further than the history of international trade on our own planet. For centuries, critics of trade have argued that restricting foreign trade would destroy domestic jobs and create a permanent class of the unemployed. Indeed, Smith wrote Wealth of Nations largely to refute the protectionist arguments advanced by the “mercantilists” of his day. His arguments proved prescient. Opening up trade did not result in an ever-growing class of the unemployed. In fact, the precise opposite occurred. Nations that embraced freer trade enjoyed lower long-term unemployment rates, higher growth rates, greater social mobility, and far larger reductions in poverty rates (Duttet al., 2009).

But what could we possibly trade the aliens that they’d value? After all, they’ve mastered intergalactic travel! Their technology is clearly far more advanced. They are likely better than us at making everything. So what could they possibly gain from trading with us mere earthlings?

Thankfully, classical economics also gives us a reassuring answer to this concern. Aliens may have an absolute advantage over us, meaning they are likely better (i.e., more productive) at making just about everything. However, as Ricardo (1817) argued, it is not an absolute advantage that determines who should produce what. It is a comparative advantage–being the lowest opportunity cost producer of a good or service. A key implication of Ricardo’s theory is that every person or nation will have a comparative advantage in something, no matter how poor or technologically underdeveloped they are! This is why poor nations are typically the greatest beneficiaries of trade, even if rich nations hold an absolute advantage in making everything.

How does this apply to intergalactic trade? Even if aliens have an absolute advantage in producing most (if not all) goods, we will always have a comparative advantage in producing a wide variety of goods and services. If nothing else, like Italian winemakers or Colombian coffee farmers today, chances are we would likely have a built-in geographical and cultural advantage in producing a variety of goods that aliens may have never encountered but would very much like to buy. What reasonable alien would not want to buy Louisiana gumbo, Cuban cigars, or Colombian coffee? Or Beyonce or Taylor Swift tickets? The possibilities for trade are endless.

Focusing solely on the potential disruptions to our economy that could be caused by intergalactic trade also causes us to ignore all of the incredible benefits that we’d get from trading with a technologically advanced species! One of the most common mistakes that critics of trade make today is focusing solely on the (real or perceived) costs of trade while neglecting (or severely underestimating) its benefits. Economist Caplan (2011) calls this the “anti-foreign bias.” Sure, trading with the aliens means that we will give some things up. But just think of all the amazing things we can potentially get from them in exchange! What if the aliens have developed, say, a cure for cancer? Clean energy? Anti-aging technology? It is a pretty bad negotiating tactic to launch an attack on them without hearing what they can offer us in return.

Whether we are talking about international or intergalactic trade, the lesson remains the same: both sides can be made richer through specialization and trade. For Smith and Ricardo, the specialization and division of labor that was made possible by expanding the frontiers of trade lies at the heart of the rapid rise in material well-being that so many nations experienced in their lifetime. Many economists today argue that it also explains much of the rapid economic growth that developing nations experienced in the first and second “golden age of globalization” before World War I and after World War II (Hubbard & O’Brien, 2008, ch. 7). Perhaps most reassuring for us earthlings, the biggest beneficiaries of globalization have been people in poor nations who, thanks to trade, could access labor-enhancing technologies and a wide array of cheap foreign products (Powell, 2014). Nobel laureate economist Hayek (1991) described the vast network of specialization and trade that characterized global markets as the “extended order of the market.” There is no reason in theory why this extended order cannot stretch across the galaxy!

An added benefit of immediately establishing peaceful trading ties with the aliens is that it would also significantly reduce the risk of future conflict with our intergalactic interlopers. As economists have long noted, nations that trade with one another rarely go to war. The cost of violent conflict rises (thus, the likelihood of war falls), and the more integrated and interdependent economies become through trade (Weede, 2005). The logic behind this “capitalist peace hypothesis” also applies to interstellar trade. The best way to reduce our risk of direct conflict with the aliens is through trade. As Hayek (1976) aptly noted, the Greek word for trade, “catallactics,” translates to “to turn from an enemy to a friend.” What better way to open up negotiations with our alien visitors than by pointing out that we can enrich each other by trading rather than going to war? To adapt a phrase from McCloskey and Carden (2020), “Leave us alone, and we will make you rich.” That is to say, do not attack us, and we will make each other rich. This would seem to be a much better bargaining position than threatening them by essentially yelling, “Get off our lawn.”

The ability of trade to make friends out of potential enemies is particularly relevant in light of the rather humbling premise of this thought experiment. Based on the hypothetical laid out here, the aliens found us and arrived at our planet first. This would imply that they have far more advanced technology than ours. It would also seem to indicate their weaponry is likely far more advanced. None of this bodes well for our chances of defeating them in a direct military confrontation. “Homefield advantage” does not do you much good when you’re fighting against space lasers. So, let us deal with reality. Given the aliens’ clear technological advantage, we stand no shot at defeating them in armed conflict. Making peace is not just an economically wise decision. It is the only viable option. Let us face it: if the aliens did not “come in peace,” chances are they would’ve swiftly sentenced us to the same fate as the poor people of Alderaan. And if they do “come in peace,” the last thing we’d want to do is start a fight with an alien species that has us intellectually and technologically outgunned. Practically speaking, making peace is not just an economically prudent choice. It is the only viable choice for the survival of the human race.

Reasons for Optimism or “How I Learned to Stop Worrying and Love the Aliens”

There is an obvious rebuttal to this admittedly rosy (perhaps even Panglossian) viewpoint. What if the aliens are not interested in trade? What if they are only interested in violent conquest and appropriation? Thankfully, economics gives us very strong reasons to believe that will not be the case. To see why, we do not need to travel back in time “to a galaxy far, far away.” In fact, we need not look further than the economic history of our own planet over just the past few centuries.

How did primitive societies amass wealth and power? They did so largely through violent conquest and appropriation. Travel back four millennia to the ancient Egyptian and Akkadian empires. How were these early empires built? Through violent conquest and appropriating the wealth of nearby tribes. Fast forward a millennium to the rise of the Persian and Macedonian empires. How did they attain their power? You guessed it: violent conquest and appropriation.

As vast and powerful as these empires were in their heyday, there are two things worth noting about them. First, none of them stood the test of time. What’s the status of the mighty Egyptian, Persian and Macedonian empires today? They’ve all been relegated to the dustbin of history. Second, none came close to achieving anywhere near the wealth and prosperity that even the poorest nations enjoy today.⁶6It is worth noting here that the Roman Empire is somewhat an exception to this rule that these ancient empires didn’t generate any appreciable improvements in the average person’s wealth and standard of living. As noted by numerous economic historians (see, for instance, Silver, 2007) and even as vaunted of sources as Monty Python’s The Life of Brian, the Roman Empire did, in fact, usher in a marked improvement in people’s standard of living: improved sanitation, irrigation, medicine, education, infrastructure, etc. The primary reason for these advances, however, was not violent appropriation or military conquest. It was that the Romans essentially established free trade throughout the entire Mediterranean region. It was trade, not conquest, that was most responsible for ushering in the halcyon age of progress that gave Roman citizens an appreciably higher standard of living than their contemporaries. Even at their height, the average person lived in abject poverty by modern standards. Even their ruling elites were poor by today’s standards. As economist Nye (2018) argues, the average person in the first world today enjoys a material standard of living “that would have made the greatest king of two hundred years ago turn green with envy.”

Economics can help explain why these ancient empires remained so poor. Empires built on violent appropriation are incapable of sustained or widespread economic growth. Why? To use the terminology introduced earlier, relying on violent appropriation is a “zero-sum” game. When one tribe–the ancient Akkadians, for example, led by King Sargon of Akkad–conquers another tribe and confiscates its land, labor and material wealth, they are not doing anything to increase the total stock of wealth in society. At best, they are shifting it from the hands of one group to another. On the net, no new wealth is created. One group’s gains came at another’s expense.

If anything, calling this “zero-sum” paints too rosy a picture. Violent appropriation is, in reality, a “negative sum.” In order for King Sargon to conquer a nearby tribe, many people will perish. Large amounts of material wealth will also be destroyed as villages are razed. Even the time and resources dedicated to the war represent a net (opportunity) cost to society. Absent war, the iron and steel that went into making swords and shields could’ve instead gone into making consumer goods that would raise society’s standard of living. When resources are dedicated to war and destruction, one side may “win”, but society as a whole is inevitably made poorer.

Fig. 1 depicts world GDP dating back two thousand years. If we ignore the last few centuries, what stands out? For the vast majority of human history, it is essentially flat. We’d see the same story if we extended this graph back 200 millennia to the dawn of mankind. Even if we cherry-picked GDP per capita for the great empires at the height of their reign, the trivial uptick would be imperceivable. Empires rose and fell, but the economic story remained the same. Even the richest rulers in the richest empires would be desperately poor by modern standards.

Fig. 1. World GDP over the past 2000 years (Source: Bolt & Van Zanden, 2020).

Now, focus on the tail end of the graph. Global GDP skyrocketed starting in the 17^th and 18^th century after the agricultural and industrial revolution that took place in Western Europe. We can see the effects of this more clearly by zooming in and analyzing GDP per capita in various regions of the world over the past few hundred years, as depicted in Fig. 2⁷7An important observation from Fig. 2 is that even though most regions of the world have experienced considerable growth over the past few centuries, that growth has not been uniform. Some regions (namely, the U.S. and other Western nations) enjoyed much faster growth. Annual GDP per capita in the U.S. exceeds $55,000. That is 20 times higher than two centuries earlier. It is also 20 times higher than the GDP per capita in Sub-Saharan Africa today. .

Fig. 2. World GDP per capita by region over the last two millennia. (Source: Our World in Data, n.d., 2023).

Economist McCloskey (2010) refers to the dramatic uptick in wealth after millennia of flatlining stagnation as the “hockey stick of human prosperity.” For McCloskey, this sudden surge in growth and material prosperity represents the “great fact” of economic history. How did modern societies achieve this exponential growth? Some may claim that they achieved it the same way as early empires: through violent conquest or its more modern manifestation, colonialism. But this begs the question: why has overall wealth increased so rapidly over this period, even in many colonized regions and for nations with no history of colonialism?⁸8Many classical economists argued that, if anything, slavery and colonialism stunted economic growth. Like violent conquest, slavery and extractive forms of colonialism are at best zero-sum, and in reality negative-sum, for the economy. All the labor forced into slavery would have been far more productive if it were free to engage in specialization and trade. These arguments, in addition to their now widely accepted moral arguments, undergirded Adam Smith, David Hume, J.S. Mill and other early economists’ staunch opposition to slavery and colonialism. It also explains why more modern colonial powers like the Soviet Union and nations that employ slave labor like N. Korea failed to grow while market economies like the United States and South Korea have prospered.

Economics teaches us that the main reason for this is that these societies adopted market-based institutions that protect private property rights and facilitate trade. “Institutions” are the formal and informal rules that govern a society. “Formal” rules refer to the statutory laws that govern a society (e.g., the US Constitution). “Informal” rules refer to the cultural norms and customs that shape how people interact (e.g., social mores, rules of etiquette, religion, etc.). Taken together, these serve as the “rules of the game” that govern a society and shape how its people interact.

Adam Smith emphasized the importance of institutions in Wealth of Nations. Smith, a renowned philosopher at the University of Glasgow during the Industrial Revolution, observed that some nations were experiencing much faster increases in the average person’s standard of living than others. The common factor uniting them, he argued, was not colonialism, military prowess or divine providence. It was the adoption of market-based institutions that protected private property and facilitated commercial activity both within and between nations.

Why did this shift towards markets result in an explosion of material well and prosperity in market economies across the world and the rise of the middle class? To harken back to an earlier point, unlike the case of ancient tribes and empires that engaged in violent expropriation, the wealth created through specialization and trade is not zero-sum. It is a positive sum.

Nobel laureate economist Milton Friedman aptly summarized Adam Smith’s key insight about the positive-sum nature of wealth creation in a market economy: The key insight of Adam Smith’s Wealth of Nations is misleadingly simple: if an exchange between two parties is voluntary, it will not take place unless both believe they will benefit from it. Most economic fallacies derive from…the tendency to assume that there is a fixed pie [of wealth] that one party can gain only at the expense of another. (Friedman & Friedman, 1980, p. 13)

Economists often decry this “fixed pie fallacy” as shortsighted. But wait, there is more! Markets do not just enrich the two parties involved in a trade. They also make society richer. By protecting people’s property and allowing them to keep the fruits of their labor, markets give people an incentive to develop innovations that enrich not just themselves but society writ large. Nobel laureate Baumol (1990) argued that market economies prosper because they harness the power of entrepreneurship and human ingenuity and direct it towards “productive” activities (making new products, etc.) rather than “destructive” ones (crime, rent-seeking, etc.). It is no accident the vast majority of scientific breakthroughs and inventions come from market economies. There is a reason why groundbreaking companies like Ford Motor Company or more contemporary ones like Microsoft, Apple and Amazon were founded in market economies like the United States and not Soviet Russia. Henry Ford, Bill Gates, Steve Jobs, and Jeff Bezos certainly amassed sizable fortunes. But their wealth did not come at society’s expense. In order to enrich themselves, they first had to enrich society. Nobel laureate economist William Nordhaus (2004) estimates that entrepreneurs only retain 2.2% of the value that their inventions create for society as personal income. So, markets are not just “win-win” for the parties directly involved in a trade. Markets create positive externalities for society writ large.

Earlier, the hawkish side alluded to Malthus’s (1798) and Ehrlich’s (1978) dire predictions about the future. In 1980, economist Julian Simon challenged Ehrlich to the most famous bet in economic history (Sabin, 2013). He allowed Ehrlich to pick a basket of commodities. If its real price rose over the following decade (thus providing evidence that those resources had become more scarce), Ehrlich would be declared the winner. If its price fell, Simon would win. A decade later, every single commodity that Ehrlich chose had fallen in price. Simon (1996) argued that Ehrlich severely underestimated the impact of human ingenuity. For Simon, the human mind is the economy’s “ultimate resource.” The key to unleashing this ultimate resource is a market economy that gives people incentives to innovate.

In summary, no society in human history experienced sustained growth and development by relying on violent expropriation. Sure, ancient empires amassed land and power. But they did not grow rich, especially not by today’s standards. Nor were they capable of producing the types of technology and innovations that led to vast increases in material well-being for everyone, not just the ruling elites. As history powerfully illustrates, the best (and only real) way to experience sustained growth is through peaceful trade under market-based institutions.

Recognizing this fact should give us enormous optimism about our alien visitors. If aliens developed the sort of advanced technology that enabled them to master intergalactic travel, it is inconceivable they could have done so under Ghengis Khan-style institutions of violent expropriation. It is also safe to assume our alien visitors wo not be a bunch of Red Dawn-style “space commies” with a centrally planned economy and a deep-seated aversion to free trade. Odds are they’ll be capitalists who appreciate the benefits of peaceful cooperation and trade.

How can we be so sure they’ll be peaceful capitalists and not space-travelling commies? One of the greatest economic lessons of the 20^th century is that centrally planned economies are incapable of producing anywhere near the level of wealth and technological innovation as market economies (let alone that would allow them to master intergalactic travel). Economics teaches us two main reasons why market economies thrived while centrally planned ones failed. The first has to do with incentives (as noted earlier). In market economies, people have an incentive to engage in productive activities that benefit society. This is true even if everyone is motivated primarily (or even exclusively) by a self-interested desire to enrich themselves. The only way to get rich in a market economy is by serving your fellow man. For all we know, Steve Jobs might’ve only started Apple to enrich himself. But in a market economy, the only way he could accrue his vast fortune was by first serving the needs of his fellow man.

In centrally planned (i.e., communist) economies, in contrast, people have very little incentive to invent new products or engage in productive activities. The means of production are entirely state-controlled, and all production decisions are made in a top-down fashion by the state. Even if someone develops a scientific breakthrough or new product, they cannot reap the fruits of their labor by growing a company or amassing a personal fortune. This explains why virtually all the technological and scientific breakthroughs during the Cold War came from the West and not communist nations (Kornai, 2013). It also explains why so many of the great entrepreneurs of the 20^th century came from market economies (and, in many cases, fled centrally planned ones).

The second reason why a centrally planned economy is unlikely to master interstellar travel is that its planners suffer from a knowledge problem. During the socialist calculation debate of the early 20^th century, Mises (1920) and Hayek (1937) argued that planned economies are incapable of generating the type of knowledge that is necessary to solve the fundamental economic problem of how to efficiently allocate society’s scarce resources. Boettke (2012) aptly summarizes their core argument: Without private property (particularly over the economy’s means of production), you cannot generate meaningful market prices. Without these market price signals, capitalists and entrepreneurs cannot calculate profits and losses to determine the best (i.e., most cost-effective) way to combine inputs into outputs. The root problem, then, is epistemic. As Hayek (1945) argued, the knowledge that is needed to engage in rational economic calculation is not given to anyone in its totality. It must be discovered through the competitive market process. It would, therefore, be impossible for a planned economy to develop the type of sophisticated technology necessary to master interstellar travel. Indeed, history bears this out. The Soviets might’ve put a few monkeys and satellites into orbit. But they were incapable of putting a man on the moon or achieving anywhere near the advanced space travel as the United States did.

What does this all mean for our prospects of establishing peaceful relations with our alien visitors? It means that it is highly likely that if they were able to master intergalactic travel to find us, they would hail from a market-based economy. This is great news for us earthlings because it means that our alien visitors likely understand fully that exchange is much less costly and more profitable than expropriation. If this is likely the case, why would we want to shoot them out of the sky? For all we know, aliens might have access to technologies that would help us combat climate change and defeat cancer. After all, it is a safe bet that a species that perfected intergalactic travel has clean energy technology and great medicine from which we could benefit. But we will never find out if we do not welcome them in peace.

Conclusion

Taught properly, learning economics can be one of the most exciting and transformative experiences that a student can enjoy in college. Keeping students engaged, however, requires educators to continually devise fun and innovative ways to bring the economic way of thinking to life. One of the most effective ways to do this is to apply this economic way of thinking to non-traditional topics (like an alien invasion) to show students how economic ideas can be used to help them understand issues they previously never would’ve even associated with economics.

This paper has introduced one creative way that educators can teach students to apply foundational economic concepts. Although it focused on how this topic could be used to teach principles-level undergraduate students or advanced high school students, it could easily be applied to higher-level college courses. Its lessons about the fundamental theorem of exchange and gains from trade, for instance, could easily be incorporated into any upper-level course on international economics or international trade. Its use of strategic thinking (“attack” vs. “make peace”) would also make a great thought experiment for a course on game theory. Another creative and thought-provoking application of this thought experiment would be to use it in a money and banking class to get students to ponder how intergalactic trade would likely unfold: would the two sides rely on barter transactions, or would they want to find some medium of exchange to serve as “money” to help facilitate trade and overcome the “double coincidence of wants” problem? What money (if any) would both sides likely agree upon to facilitate trade: fiat money, gold, or some other commodity or digital form of money? How would prices and exchange rates be set between various traded items, particularly if they involve entirely novel?

Although the potential applications of this thought experiment are manifold, the essential lesson remains the same: economics can be fun! Understanding economics can help students understand a wide variety of intricate real-world issues (and even some science-fictional ones!). In any case, engaging students and challenging them to use their imagination is a key first step to getting them excited about learning a new field and motivating them to become lifelong learners.