Economies of scale, and Mars

Paul Krugman talks about how even a million people living on Mars (as Elon Musk has envisaged) would not really make for an economy of the type we have come to enjoy on Earth.  He explains, with an example I hadn't heard of:

...in the modern world there are often huge economies of scale in production. These economies of scale make it efficient to supply the entire world market for some goods from only a handful of locations — sometimes just a single location — with international trade delivering those goods to customers in other countries.For example, a recent shortage of semiconductor chips — which seems, finally, to be easing — has drawn attention to the role of photolithography machines, which use light to etch microscopic circuits on silicon wafers. (Any sufficiently advanced technology is indistinguishable from magic.) The world market for these it turns out, is dominated by a single firm in the Netherlands, ASML, which has a complete monopoly on the latest generation of machines, which use extreme ultraviolet light to make circuits even more microscopic.

So how many factories does ASML have assembling these cutting-edge machines? One. (It has other factories producing subsystems.)

These economies of scale mean that no one country can reasonably produce the full range of goods required to operate a modern, high-technology economy. International trade is essential, and more essential the smaller the economy — which is why Canada is far more dependent on imports than the United States, Belgium far more dependent than Germany, and so on....

Now, given access to world markets, even small countries can have full access to the benefits of modern technology; life in Luxembourg is pretty good. But unless we actually invent the Epstein Drive or something, the realities of transportation costs mean that Musk’s hypothetical Mars colony would have to be largely self-sufficient, cut off from the rest of the solar system economy. And it wouldn’t have enough people to pull that off with anything like a modern standard of living.

As I said, I see Musk on Mars as a teachable moment, an unintended thought experiment that helps remind us of the positive aspects of international trade. Yes, there are downsides to globalization, especially to rapid change that can disrupt whole communities. But you really wouldn’t want to live in a world without extensive international trade. And you really, really wouldn’t want to live on another planet, cut off from the globalization we’ve created on this one.