Net Net: Promoting innovation and managing change
Net Net: Promoting innovation and managing change

The real story of the economics of 'Elysium'

Matt Damon in 'Elysium'
Source: Elysium

Last week, I finally watched Neill Blomkamp's "Elysium."

The film is set in a future in which the wealth gap has manifested itself in the most extreme way imaginable. The wealthy and the impoverished masses no longer dwell on the same planet. The rich have decamped for a orbital space station called Elysium while the poor dwell in decaying and overcrowded cities. There's no middle class to speak of, of course.

Yes, I realize the movie was in theaters months ago. But it's just recently out on the various streaming media networks and probably available on DVD (whatever those are). So no doubt many who didn't catch it when it was initially released (apparently most people) will see it now.

The plot is basically a heist. Matt Damon plays an ex-con who is trying to go straight. He's taken a factory job and is pursuing his childhood sweetheart, a single mother who is a nurse. The robot police and parole system keep coming down on Damon, and his former crime associates are trying to lure him back into the life.

Damon tries to stay on the straight and narrow until a workplace accident exposes him to high levels of radiation. What's more, the nurse's daughter has advanced leukemia. The only way for him and the daughter to survive is to break into Elysium and use its high-tech healing beds.

But to do that, Damon must enlist the help of his old gang, whose leader agrees to help on the condition that Damon assist in a billion-dollar high-tech robbery.

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"Elysium" generated a lot of debate over its politics when it came out last spring. Many thought it was a kind of space allegory for Occupy Wall Street. But if you look at the economic situation the movie depicts, things are far more complex.

The great divide: Economics of Wall Street
The great divide: Economics of Wall Street

The situation on earth is obviously one of severe depression. Everyone appears to be poor. Children beg for money in the street. Work is scarce. Factory conditions are deplorable, and workers are forced to take lethal risks for fear of losing their jobs.

The market square is bleak, with peasants in rags bringing pigs to sell. The available health care appears to be about what you'd find in an emergency room today, which I guess is meant to seem primitive in contrast with a future that holds easy space travel and beds that provide instant cures.

But this isn't simply a story of the wealthy exploiting the poor. The company that owns the factory where Damon works is not profitable. Its founder is forced to work under pressure from his board of directors to improve performance. Far from a fat-cat living high off the labor of the working class, he is a gaunt, joyless man who appears perpetually stressed out.

Things appear better on Elysium. The inhabitants are more comfortable, but there is a lot of underutilization of resources. Many of the homes appear unoccupied. The healing beds are so efficient at providing wellness that they go largely unused. Except for government officials, we see no examples of Elysium residents working. There seems to be no work to be done, in fact. There's no commerce.

Some obvious questions go unanswered. If Elysium is populated only by the wealthy and bars entrance by earthlings, who cleans the homes, mows the immaculate lawns, brews the coffee, and sweeps the floors? Who maintains the infrastructure of Elysium if the station has no working class? Where does their food come from? Perhaps the work is all done by robots, although the only robots we see in the film are engaged in law enforcement.

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At the end of the movie—in case the phrase "at the end of the movie" didn't already alert you, spoilers ahead—Damon's gang members turn into revolutionaries who liberate the Elysium healing technology and bring it to earth. Robot-staffed spaceships with healing beds land and begin the process of curing the world's ill.

What this means is that the economic situation of Elysium was even worse than it seems. It's not just empty houses, excessive leisure time and seldom-used healing beds up on Elysium but enough excess capacity for the entire earth.

So what's going on economically?

We see a failing private sector characterized by high unemployment and unprofitable businesses in both places. The residents of Elysium have universal health care and enough wealth to live in comfort, and they've created a robotic servant class.

But the board members' concern over profits indicates that all is not well on Elysium. There must be scarcity there, or else why the worry about earnings at the company where Damon works?

Reinforcing this idea of scarcity on Elysium, part of the problem seems to be inadequate productivity at the factory—and by extension, the rest of earth's economy—which is why the floor managers push workers to keep up production even at risk of life and limb.

In other words, both Elysium and earth are suffering from what former Treasury Secretary Larry Summers recently called "secular stagnation." The economy isn't producing enough jobs, goods or profits. Capitalists and the working class are suffering. Further, it appears that there's an excess of healing beds but a dearth of robots produced in Damon's factory.

It's tempting to say that market processes could easily resolve this situation. If Elysium has an unused abundance of health technology, the residents should sell this excess to the residents of the earth. Prices for the beds should fall to the point where they would be affordable to earthlings. And robot prices should be rising if there is such a shortage.

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Why can't prices do the work of coordinating production and consumption? Perhaps the answer is that there are no market prices. Everything is single-payer on Elysium. The robots are produced only for government contracts, which set the price. The healing beds also seem to be strictly controlled by Elysium's government, which must ban their export and subsidize their production.

Another possibility is that the money supply has become extremely tight. Perhaps relocation to Elysium involved paying a huge tax and requires ongoing high tax payments, making the residents hoard their wealth. This lowers demand for the earth's factory-made goods, and results in unemployment on earth and falling corporate profits.

The Elysium government pays for universal healing beds and robots that do the work, but it must tax far more than it spends on these things, creating a private sector deficit. It also must impose price controls or export taxes on the beds and robots to prevent their sale to earthlings.

Why can't the earthlings get their act together and run a decent economy despite Elysium's ill-conceived economic policies? Elysium appears to control earth's legal system, so perhaps it also controls its monetary policy and economic regulation. Money is extremely tight, depriving earth of the necessary liquidity for a functioning economy. The market square may work on barter, which is very inefficient.

Something should be said about the immigration rules portrayed in the film. Elysium is perpetually threatened by infiltration by "illegals" (as the earthlings who come to Elysium are called), which is creating politically instability between liberals, who want to treat the illegals humanely, and conservatives, who fear that the illegals pose a threat to the Elysium way of life.

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Both appear to be economically illiterate. The resolution in the film—double spoiler alert—is neither open immigration nor preservation of the status quo. It is trade. The earthlings are permitted to acquire the healing bed technology, which resolves Elysium's excess supply problem.

The healthier earthlings would then be more productive, allowing them to reduce the robot shortage. Trade would also reduce earthlings' desire to illegally travel to Elysium, as acquiring health technology is what mainly motivates that.

Which is to say, Elysium's economic system is one of capitalism constrained by a dominant political class that intentionally excludes the masses of the population to its own economic detriment. The solution is end of exclusion through economic liberalization.

—By CNBC's John Carney. Follow him on Twitter @Carney