Thoughts on the Operational Costs of the Death Star

The cost of the Death Star is near and dear to my heart. Recently OVO Energy has worked on calculating the operational costs of running the Death Star for a single day. The majority of these costs will come in the form of the energy required to use the weaponry and jump to hyperspace. That is, the cost with current Earth technology to produce the requisite power output.

However, the power output is a function of technology and not just raw materials. The mere presence of regular hyperspace travel proves that a new energy source is available at extremely low cost. Thus while the 1032J of energy required for the Death Star’s laser would cost approximately £4.1666667×1024 using current Earth technology, it would be a significantly smaller fraction of the Galactic economy to produce. Consider that the Millennium Falcon is a “piece of junk” and was abandoned on Jakku without being sold for parts, but it is still capable of hyperspace travel. This fact proves that energy costs are no longer the limiting factor and a much smaller fraction of the economy.

That being said: Excited for Rogue One to come out!

Estimates of the Operational Costs for running the Death Star. Credit OVO Energy.

Harry Potter and the Goblin Bank of Gringotts

Vault 687 at Gringotts Wizarding Bank
Vault 687 at Gringotts Wizarding Bank. Photo from Harry Potter and the Sorcerer’s Stone.

We know that Gringotts Wizarding Bank is the sole bank for witches and wizards in all of the United Kingdom. This makes it too big to fail. Though economics is not taught at Hogwarts School of Witchcraft and Wizardry, the magical world follows many of the same laws of economics as the muggle one. As muggles found out in 2008, if a too-big-to-fail institution is threatened with collapse, it can harm the economy beyond the financial sector. We look at one of the simplest policy proposals in regards to the problem of Gringotts size. Namely, what happens to financial stability if we split it up to make multiple smaller institutions?

To analyze this question we calibrate and simulate the wizarding economy. Due to the literature on the Wizarding World, we are able to find an official exchange rate of roughly £5/Galleon. But official exchange rates determined by the government do not tell the full story. In terms of purchasing power (comparing costs of newspapers), the more accurate exchange rate should be £376.90/Galleon (roughly $493/Galleon at August exchange rates). Then comparing the cost of Hogwarts to the price of other elite British boarding schools we are able to deduce a “true” tuition cost of roughly £2,500,000/year or $3,700,000/year (paid by the Ministry of Magic). Ultimately this leads to a GDP per capita in Wizarding UK of approximately $8,400,000, significantly higher than the $55,836 in the United States.

With these numbers, we found that breaking up Gringotts would be devastating during a financial crisis. By splitting it up the banks would require an external bail-out rather than the implicit bail-in that the single institution provides. The costs of a crisis would be 10%-50% of GDP more expensive after splitting up Gringotts depending on the stress scenario (for instance rumors of Lord Voldemort’s return or the threat of muggles discovering the Wizarding World). We note that this ignores the possibility that the split up institutions change strategies after they lose the too-big-to-fail designation and can no longer rely on a bail-out to save them.

That is, unless the goblins at Gringotts have an infinite supply of Felix Felicis to avoid any market downturn.

For the full story, see Harry Potter and the Goblin Bank of Gringotts.

Sharknado: The Deficit Spending We Need

Sharknadoes have struck thrice in the last 3 years, with a 4th coming tonight. In that time Los Angeles, New York City, and the entire Eastern Seaboard have been destroyed. These would be devastating natural disasters for the country. Hurricane Sandy caused approximately $75 Billion in damage from landfall in the NYC area. A Sharknado could well have been more costly… due to the sharks. In total this means we have witnessed, over three sharknadoes, damage in the hundreds of billions. On top of these headline numbers, natural disasters come with secondary impacts to the economy. It has been conjectured by some that the United States federal government would step up with emergency spending to avoid the lengthy court battles over whether damage was caused by weather (covered by insurance) or sharks (unlikely to be).[citation needed]

The US Government would have to issue more debt in order to afford this emergency aid. It is argued by many that increased government spending is contractionary during normal economic times. However, many prominent economists are arguing we are no longer in normal economic times. Larry Summers and Paul Krugman have been saying that we may have entered a period of secular stagnation, that is, a time where the growth in the economy naturally tends downward or flat. Japan has been fighting this economic environment for the last quarter century. During secular stagnation, government spending can be stimulative. Under such a circumstance, the Sharknado Stimulus could well be a net (long-term) benefit to the economy.

Of course, debt that is issued eventually comes due. And it needs to be paid with interest. So, in theory, there is a risk that we would be strengthening the current economic environment at the expense of our children. However, interest rates for government debt are at historic lows. Adjusted for inflation, the United States government would pay out less in the future than it borrows today. This amounts to investors paying the United States to take their money and keep it safe (some conjecture it is from fear of sharknadoes[citation needed]).

The Sharknado Stimulus is just one of many ways sharknadoes impact the United States economy. In this election year I call on all candidates for the presidency to release detailed proposals on how they will deal with the sharknado threat, both as a natural disaster and as an economic force. It is time we know if our politicians will fight for the economy after fighting the sharknado.

Harry Potter and the Economic Catastrophe: The Rise of Voldemort

Hogwarts Great Hall
The Great Hall in Hogwarts Castle. Photo from Harry Potter and the Order of the Phoenix.

The rise of Lord Voldemort has been explained by his charisma, magical power, and desire for control. While the support of a few powerful members of the establishment, i.e. Lucius Malfoy, would aid in a taking over the Ministry of Magic, it is insufficient for total success. Popular appeal is necessary. [NB: Seemingly in the Battle of Hogwarts there were equal numbers on both sides of the fight, so some amount of popular appeal must have been gained.] We can discover a long-term hidden economic catastrophe in the background of the Potterverse which hints to the confounding popular appeal of Lord Voldemort. Let us take a detour through a wizarding census in order to get a sense of the demographic and economic situation of the Potterverse.

Recently a devoted fan came up with an explanation for a discrepancy in the number of students at Hogwarts. With an approximate census of 1,000 students at Hogwarts in the typical year we can estimate the number of wizards in the Potterverse because this is the only Ministry-sanctioned wizarding school in the whole of the United Kingdom. Thus there are approximately 1,000 young witches and wizards between the ages of 11 and 18 in the typical year. Let us consider the year 2011 as it is the most recent year for a UK census and assuming that demographics of the wizarding world are similar to our muggle world, the 1,000 students correspond to roughly 10% of the total population. Therefore we can estimate there are approximately 10,000 (total) witches and wizards in the UK in 2011. With a UK population of approximately 63.2 million (compared to global population of 6.987 billion), this corresponds to roughly 1,100,000 wizards in the world in 2011. This fits within other estimates of 338,100 to 1,127,000 for a census of witches and wizards [NB: The estimate in the prior link was updated to census numbers for 2011 from 2001.]

Based on the student population, the fact that all four houses existed from the founding of the school, and the Chamber of Secrets was created under the foundation of Hogwarts Castle by Salazar Slytherin and not discovered by the broader public until 1993 (which means the castle foundation was never expanded), we know that Hogwarts was built to house at least the 1,000 students currently enrolled. But Hogwarts was founded in 990CE. The population in England at the time was roughly 1.5 million. To consider the entire United Kingdom, we will increase our estimate to 2 million muggles. Assuming similar population statistics for the wizarding and muggle world as we have in the current era, then there are approximately 316(!) witches and wizards in all of the UK. Only a fraction would be school aged, and especially at the founding more witches and wizards would opt to educate their children the traditional way — homeschooling. This means the class sizes would be even further reduced. It would be extremely odd planning to build Hogwarts Castle with four distinct houses for such a small number of students. Additionally, Salazar Slytherin’sdisdain for muggle-born wizards becomes the sign of an obsessed mind — either the muggle-born students are nonexistent at the founding of the school or they are a significant fraction of the student population. As a comparison for how muggle schools function, the University of Oxford (founded in 1096) has had an increase in number of colleges since its founding to accommodate increased enrollment.

This discrepancy can be explained if the amount of magic in the world has been decreasing over time, as in Middle Earth. So in the eras of our Hogwarts founders: Godric Gryffindor, Helga Hufflepuff, Rowena Ravenclaw, and Salazar Slytherin, the fraction of the population that is magical would be greater than at present. Not only may there have been more witches and wizards, but those that were alive may have even been more powerful on the whole. This also explains a related problem: how is Hogwarts Castle so advanced when advances in magic must have been possible in the subsequent 1000 years after its founding.

With the knowledge that the amount of magic in the Potterverse is decreasing — both from a smaller magical population and the weakening overall magical power — we can conclude that the wizarding economy has been in decades or even centuries long recession. The smaller magical population, if it gets too small, would decrease specialization and thus mandate that witches and wizards work in fields in which they are less productive. Perhaps even more importantly, those witches and wizards would be less productive because they would need to do the same work but with less power. This clearly points to a (slow-rolling) economic catastrophe. Over time the magical populace would surely notice that life used to be better — wages were higher and leisure time was easier to come by.

In the muggle world, during extended periods of economic turbulence, authoritarian tendencies may become pronounced in the general populace. This leads to support for demagogues and strong(wo)man leaders who promise to return society to former strength and protect the status quo. Demagogues will also stoke the fear of minorities as scapegoats as the cause of loss of greatness. Lord Voldemort would be just such a leader — rallying a segment of the population that is nostalgic for a more powerful (literally and economically) wizarding past through the scapegoating of the muggle-born minority. Thereby explaining why a leader who is a symbol of hatred and evil can gain so much power.

Avengers Assemble… An Insurance Bailout

Newspapers report destruction in NY
Newspapers report death and destruction in NYC. Photo from Daredevil.

We on the internet have talked ad nauseum about the destruction caused by superheroes in movies, see, e.g., [1][2][3][4][5][6]. Let’s do that again. But let’s look at the financial implications of that destruction beyond the simple dollar values of loss of property. Specifically focusing on the Marvel Cinematic Universe [MCU]. Before continuing, one important point about the MCU is that it takes place within a world functioning economically much like our world.

The Destruction

For point of reference, the Chitauri Invasion of Manhattan in The Avengers would cause an approximately $160 Billion in damage. This includes property damage, cleanup costs, and loss of life. It does not include the long term health effects of those in Midtown Manhattan, à la the health effects arising from the September 11 attacks.

In the MCU timeline, from 2010 through the time of this writing, there have been: 3 battles in New York City (The Incredible Hulk, Iron Man 2, and The Avengers), a battle in London (Thor: The Dark World), a battle in Johannesburg (Avengers: Age of Ultron), a battle in Seoul (Avengers: Age of Ultron), the destruction of Sokovia (Avengers: Age of Ultron), the destruction of three major economic centers — 2 corporate headquarters and 1 oil rig (Iron Man, Iron Man 3, and Ant-Man), and countless destruction of military resources (Iron Man [an F22 fighter jet], The Incredible Hulk [multiple pieces of equipment], The Avengers [heavily damaged helicarrier], Iron Man 3 [Air Force One], Captain America: The Winter Soldier [lots!]), amongst other human and infrastructure costs. This does not even include the various television shows within the MCU (Agents of S.H.I.E.L.D., Daredevil, Jessica Jones).

Paying for Damages

With damages over a 5 year period valuing well into the hundreds of billions on top of the usual claims, it is unlikely that the major insurance companies could survive. In 2008, the US government bailed out the insurance giant AIG to the tune of $180 Billion. Thus once losses reached into the hundreds of billions, which was greatly surpassed by the time of the events of Ant-Man, all insurance companies would need to be bailed out!

However, the insurance companies would fight to minimize their exposure. Surrounding 9/11, insurance companies went to court over the question of if the terrorist attack wereone or two events. Following Hurricane Katrina, insurance companies went to court to avoid paying out for damages. In fact, Hurricane Katrina has led to the tightening of insurance policy wording. In the MCU there would likely be very important court cases where the insurance companies would argue that the damages were caused by an act of war, an act of terrorism, and/or an act of God. Additionally, win or lose, it is quite possible that the superheroes could be sued for liability in the destruction.

Thoughts on the Court Cases

After brief discussion with lawyers, here are some thoughts:

  • An act of war is well defined in case law. War requires the engagement of (quasi-)sovereign nations and insurrection must have an intent to overthrow a lawful government. Under such a criteria the only cases, though expensive, that may qualify are from The Avengers and Captain America: The Winter Soldier.
    • In The Avengers, neither Loki nor the Chitauri ever expressed intentions to overthrow a government while surrounded by someone who could testify in court. Loki, in captivity in Asgard watched by his brother Thor, would also not be available to testify in open court as to his plans. Though Loki states his intentions to rule over Earth to his brother Thor, the closest statements that Loki makes to someone who could testify in open court are claims of wanting to free humanity from freedom and telling a gathering of people that kneeling is easier and their natural state. As the Chitauri invasion occurs in New York City, which is not the center of any government, the purpose of the invasion could be contested in court, and with good lawyers, could be decided either way.
    • In Captain America: The Winter Soldier, it is our heroes — Captain America, Black Widow, Falcon, and Nick Fury — who express interest in taking down the quasi-government entity of S.H.I.E.L.D.. However, since four soldiers generally would not be considered an entire army, and as they express no wish to rule in the place of S.H.I.E.L.D. (instead releasing S.H.I.E.L.D.’s secure documents to the internet), this also may not ultimately count as an act of war.
  • As per the Terrorism Risk Insurance Act, an act of terrorism would need to be stated by the US government (when occurring within United States jurisdiction) as a terrorist act. To qualify, the attack must be part of a scheme to change policy of the United States or otherwise coerce civilians. In my estimation, this would potentially apply to Iron Man 3, Captain America: The Winter Soldier, and Ant-Man.
    • In fact, since much of the destruction in Iron Man 3 is believed to be the work of a terrorist named the Mandarin, this is likely the outcome for insurance claims. This means that a government backed reinsurance contract would be called upon for large financial losses to the insurance companies. Even upon learning of the actual goals, i.e., the goal of Aldrich Killian, the terrorism designation will likely hold — Dr. Killian was attempting to coerce the actions of the United States government.
    • For Captain America: The Winter Soldier, it is a much murkier designation — similar to it being an act of war. Since an act of terrorism would, by definition, require a terrorist — and our heroes are free to continue rescuing the Earth in Avengers: Age of Ultron it seems likely that the US government never designated the events of that film as an act of terrorism.
    • Within the film Ant-Man, the titular hero — Ant-Man — along with fellow conspirators plan to, and succeed in, blowing up the Pym Technologies Headquarters. If this is viewed as an attempt at coercing the United States government in some way, then it would likely be classified as a terrorist attack. However, this is not a clear decision to make.
  • While act of God is a well understood legal statement, never before has an actual god (Thor, Loki) been available in person. In order to avoid liability, insurance companies might make an effort to claim any damage caused by the Asgardians (Norse gods) is in actuality an act of (a) god. In that eventuality the court system would rule on the question: Is Thor a god? Possibly the greatest court case for television ratings!

These court cases can go either way. The next question is: can those who have been damaged (individuals, property owners, insurance companies, etc…) sue the Avengers? Overall if it went to court our heroes would attempt to use Good Samaritan laws to their advantage. But more specifically:

  • Iron Man would potentially be personally liable for a large amount of destruction. Having unmasked himself in Iron Man and with a net worth of $12.4 Billion, Tony Stark would prove an obvious target for lawsuits. Additionally, while he works with S.H.I.E.L.D. and the US government on occasions, he is a private individual. Finally, he is a well-known alcoholic, which could color his attempts at a defense, even when attempting to invoke Good Samaritan laws (which will depend on the jurisdiction). On the other hand, his sometimes partner James “Rhodey” Rhodes (War Machine), as a member of the United States Armed Forces, would be protected from personal liability (though only to the extent he was acting in an officially sanctioned governmental capacity).
  • Thor would likely be protected from lawsuits by either being ruled a god (see above) or, since he is a prince of Asgard, through diplomatic immunity.
  • Hulk, who causes wanton destruction, is the alter ego of Bruce Banner. For the damage caused, Dr. Banner might claim insanity. In this instance it is unclear how successful an insanity defense would be in this type of civil litigation.
  • Captain America and his partner Falcon (Sam Wilson) may be able to use their positions within S.H.I.E.L.D. and the United States Armed Forces for liability protections (see War Machine above for limitations).
  • Black Widow and Hawkeye would likely attempt to use the liability protections likely offered by being members of S.H.I.E.L.D. (see War Machine above for limitations).
  • Ant-Man (Scott Lang) and Hank Pym, wealthy founder of Pym Technologies, may be personally liable for their destruction of the Pym Technologies Headquarters.
  • Scarlet Witch may be found liable for her actions, though as she joined S.H.I.E.L.D. at the end of Avengers: Age of Ultron, she may attain retroactive immunity for her actions in Johannesburg, Seoul, and Sokovia.
  • Finally S.H.I.E.L.D. and worldwide governments may face liability as well for their actions in the MCU.

The Financial Aftermath

In the aftermath of all this economic destruction there are two main possibilities:

  • The first is that the insurance companies are victorious in their court cases, in which case they avoid paying out damages. In this situation, having insurance may be worthless in the MCU. If you live in a major metropolitan area (especially New York) you can be rest assured that your insurance will no longer be worth the paper it is written on because of superheroes and intergalactic conflict, potentially involving gods.
  • The second is that the insurance companies are unsuccessful in court. In such a situation, the entire insurance industry would likely be on the brink of failure and would require government intervention to stay afloat. This intervention can consist of bailouts (as was done with AIG in 2008), government backed reinsurance (as with the Terrorism Risk Insurance Act in 2002), or full-on nationalization of the insurance industry (as with flood insurance).

In either case there would be extreme impacts to the US and global economies. First, with insurance either worthless or bailed out/nationalized, living in a major city would become impractical. The risks of death and destruction would be extremely high, and insurance premiums would have to reflect that. But with cities being the main driver of global economic growth, this mass migration to rural society would slow economic growth and potentially cause the end of globalization — causing economic stagnation not seen since the fall of the Roman Empire. On top of this, cities are often more energy efficient, thus by provoking a mass exodus from cities, the MCU may see worse impacts from global climate change — which, by causing more severe weather, would further impact insurance companies and the rates individuals and corporations must pay. This is ignoring the direct economic impacts of the destruction, but as points of comparison: the Dow Jones Industrial Average fell 14.2% and the S&P500 fell 11.6% in the week following 9/11 and a false report about a terrorist attack on the White House in 2013 caused a nearly 1% drop before the information was corrected 4 minutes later. Thus the entire financial sector would be severely impacted from the events within the MCU without government intervention!

The secondary effects are around the financial situation of our heroes. Most notable is the economic well-being of Tony Stark, who may end up defeated and bankrupt due to his own personal liability. And without his financial resources, he would not be able to afford to construct and maintain his Iron Man suits. Additionally, if he attempted to use the resources of Stark Industries, a publicly traded company listed on the New York Stock Exchange, for this purpose, he may be guilty of several felonies. Hank Pym would likewise be impacted, but his ability to influence superheroics with his wealth remain limited at this juncture. It could be that some form of “Superhero/Vigilante insurance” is created for such individuals, though the premiums would likely be set to such high levels to not be economically realistic — a death spiral would exist.

Who Wins?

So the attacks within the MCU are debilitating to the US and global economies. Is any corporation going to be able to take advantage? Yes! Damage Control, a company which handles the cleanup of exactly these events, is poised to become a global economic powerhouse. They may also become an overly dominant force in the construction industry, though due to the aforementioned exodus from major cities may focus solely on (so called) bridges to nowhere.

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