Paul Krugman, nobel prize winning economist and author of several books on the required reading list when I was in college, said on CNN last week that an impending invasion by aliens could help rescue the beleaguered US economy. Krugman made the remarks during an appearance on GPS, hosted by Fareed Zakaria, in which the economist was asked to comment on the possibility that major infrastructure investment by the government could lift the country out of recession. Krugman agreed, although he suggested that circumstances would require an immense investment, such as the effort required to fend off an extraterrestrial threat: “If we discovered that space aliens were planning to attack, and we needed a massive build-up to counter the space alien threat, and inflation and budget deficits took secondary place to that, this slump would be over in 18 months,” he told Zakaria. This is not the first time that Krugman has expressed an interest in the economic effects of cosmological phenomena. In 1978 we wrote and later published an academic paper, The Theory of Interstellar Trade, in which he argued that interest rates would adjust downwards if humanity developed near light-speed travel, to compensate for the time-dilation effects experienced by observers moving at relativistic speeds.

So, would contact with extraterrestrials be a net positive or negative for the economy? Krugman’s assessment is reasonable, although it is unfortunate that he focuses on the narrow prospect of alien invasion to make his point. I would contend that any contact with extraterrestrial intelligence would result in profoundly positive economic growth for G-20 countries on Earth. This contact could include (at the less productive end) reception of radio signals from a distant star system, to (at the upper end) open synchronous contact with a spacefaring civilization. Following an initial shock, which might involve reflexive panic selling and a flight by investors to secure refuges like gold, the realisation would soon creep in that contact would be advantageous to certain sectors and firms. Ironically, if our interstellar visitors possess molecular nanobot technology, precious substances like gold might turn out to be among the least secure investments. Instead, a range of traditional human activities would continue to produce economic gains, albeit enhanced by intellectual and material trade with ET. Consider for example the impact on transport industries as they incorporated new composite materials, or the potential benefits to computer hardware manufacturers with added insight about molecular-scale quantum computing. Due to the aforementioned nanobot technology, it is unlikely that aliens would be interested in our natural resources. However, contact may open up vast new markets for Earth’s unique cultural products such as media, entertainment and fashion.

The downside of this economic stimulus is that it would almost certainly be unevenly distributed. Countries that led in industrial output and global trade prior to contact would continue to do so in the aftermath. Poorer countries with low levels of economic activity and outdated communications infrastructure would risk being left behind by accelerating economic growth in places that were better positioned to benefit from contact. In short, places like Silicon Valley would fare better than peripheral countries like Haiti in the event of extraterrestrial contact. However, Earth’s populace might find that at the cosmic scale, we occupy a peripheral position compared to other more economically productive civilizations.