The Meaningless Economics of Star Wars¶
The main challenge in writing a critique of the economics in Star Wars is that it is so bad it is hard to know how to begin. Release order? In-universe chronological order? How bad it is?
Because of that, I will default to the release order. At the very least, it is predictable.
Star Wars – Episode IV, “A New Hope”¶
This is the least of the sins, but it is annoying. Darth Vader tells Leia that “the emperor has disbanded the senate”. This is news to her. While she has been involved in the mission to get the Death Star plans, this means it is a recent development.
The Death Star has been in production for a while. This has to be a huge fiscal drain on the empire. Even if the senate is only a rubber stamp at that point, this has to have gone through some level of authorizations. You would expect the emperor to disband the senate before starting the project, not after its completion.
Star Wars – Episode I, “The Phantom Menace”¶
The story starts with Naboo under a blockade. The reason? A taxation “dispute” with the trade federation.
First, it is not obvious why a blockade is a problem. Naboo seems to have a thriving local economy. Keeping a huge fleet in orbit has to be a drain on the trade federation resources.
The obvious solution by Naboo is to wait them out. It is, literally, a planetary-sized economy. Maybe a few luxuries only available from other planets will be unavailable. In the meantime, the trade federation needs to spend time and money keeping the ships in orbit.
It is also not obvious what kind of taxation dispute this is about. Is Naboo trying to collect taxes the federation does not wish to pay? Wouldn’t it be simpler to just…not pay them? If Naboo cannot break through a blockade, it probably cannot enforce tax collection either.
Is the trade federation trying to tax? This seems like a weird system where private organizations are allowed to tax. Usually even private organizations with specific mandates from the government are not directly involved in tax disputes. They might do tax collection, but then the dispute would be between Naboo and the Republic.
If the dispute is on the usage of specific trade routes, than it is not a tax dispute, it is an ownership and fee structure dispute.
Money exchange on Tatooine¶
The narrative reason for Episode I, such as it was, was to have a reason for the Jedi Council to become aware of Anakin. The reason Anakin becomes important to the plot is because Obi-Wan cannot use Republic credits to buy a part for the ship.
At this point in the story, the Republic is stable. There is no sign of the separatists. Tatooine is on the edge of Republic space. Why wouldn’t a trader take his money? Charge him a hefty conversion fee, if you can afford it.
Even if converting money was literally illegal (which is not indicated anywhere) Tatooine is effectively controlled by the mob. Every mob in this situation would have a thriving illegal money exchange. The fees would be high, but there is no reason Obi-Wan, a Jedi with the support of the council would not be able to afford it.
In fact, why is Obi-Wan trying to buy ship parts (probably expensive) with physical credits? Does everyone in the galaxy just walk around with physical credits in their pockets?
In a world that has a “banking clan”, nobody has heard about money orders, checks, or debit cards.
Star Wars Episosode II – Attack of the Clones¶
We learn that Sifo Diyas, behind the backs of the Jedi council and the Republic, has ordered a clone army from the Kaminoans. How did he pay for it?
He did not have private funds available. Count Dooku, though well-off, could probably not have afforded an entire army on his personal money – and if he did, he would have appeared more involved than he wanted to.
Palpatine, at that point, was only a Senator, so he should not have had the power to siphon money silently. Even if he could, this is a significant part of the Republic budget. What kind of controls were in place for preventing fraud or embezzlement?
Star Wars – Clone Wars, 2008 Series¶
This is where my existential crisis about the economics really hit. The basic question is: how is the republic funded?
Republics, or any kind of federations, can be funded in one of two ways. The can directly tax some activity done by private people and/or companies, or they can require a “state tax” or “planet tax” from each participating entity.
Of course, this would not be the entire details of the taxation policy. Also, as a temporary funding measure, they could also issue some sort of bonds. War bonds are common. The war bond can be “mandatory”, in which case it is closer to a new tax, or released in the open market to be acquired.
This is important because after the end of the events of Episode II, the Republic is in open warfare with the Separatists: these are the so-called “Clone Wars”. When a big war like that starts, countries will usually put the economy on “war footing”.
Among other things, it means that taxation will increase, in some form, to fund the war effort. Yet, a few years into the war, we discover the Republic has no economic plan.
In the middle of Season 3, an arc begings about increasing the number of clones ordered from the Kaminoans. Until now, presumably, the Republic has increased the funding to the Kaminoan Cloning plans.
At the very least, the Republic having taken over responsibility for training the army, they need to fund that. Yet, even in show which revolves, in a large part, around the senate, there have not been any debates about taxation policy.
How is the Republic funding this effort? We see, earlir, that they have problems supporting planets like Rodia because of the war effort. Is Rodia the only one? How has this not been debated in the senate?
It has not been debated off-camera: Amidala is clearly thinking about these issues for the first time when she visits Rodia.
But, presumably, until now, somehow without significant senate debate about budgets, the Republic has defunded most of the assistance plans in favor of diverting funds to the war effort.
When the war effort needs more money, the only economic solution on the table is to “deregulate the banks”. This is important: while Amidala objects to increasing the funding, nobody has any alternatives, assuming the bill goes through, to the suggestion that the only way to increase the funds is to “deregulate the banks”.
Later on, we learn that the deregulation apparently loosened limits on interest rates. This means that increasing taxes was somehow not even considered as an option – but taking out loans at higher interest rates was!
What about releasing war bonds on the open market? If you are willing to pay the Banking clan’s exortbitant interest rates, you can give a really good deal on a war bond. Yet this option is never discussed!
What is the endgame of the Banking clan here? Remember, at this point nobody knows that Palpatine is playing both sides. Are they assuming the Republic will lose? In this case, the interest rates do not matter, since they will default on their loans. Are they assuming the Republic will win, and than… what? How will they pay this exorbitant interest rates? If the Republic wins, the only chance they have is to pass a law nationalizing the banks or eliminating the debt.
The interest rates mentioned are also ridiculous. 10%-25% are mentioned. I can only assume that their standard convention is to discuss terms in “interest per decade” which is then calculated on a month-to-month basis.