Category Archives: Economics

A Reason To Have Voted For McCain

He says scrap the health-care bill. While his idea of taking away employer deductibility and giving individuals a tax credit wasn’t an ideal solution, it would be a hell of a lot better than what Obama wants to do. A key element of any useful reform is to level the tax playing field between individual and employer-provided plans, and get more people to shop for themselves, instead of making it part of an employment package.

Rich Gov, Poor Gov

Why Barack Obama can’t fix the economy:

Last night, as I reread Robert Kiyosaki’s 1997 Bestseller Rich Dad Poor Dad, I realized why Barack Obama will be unable to do what is necessary to fix America’s economy. It’s not just that he believes in government intervention in business, although that’s a big part of it. But what makes it even worse is that President Obama is Poor Dad.

Read all.

The Mysteries Deepen

There’s a lot to chew on in this Av Week article about costs of EELV versus Ares I:

A NASA-funded study found that a human-rated Delta IV heavy rocket could be a cheaper route to the International Space Station than NASA’s Ares I crew launch vehicle.

But the human-rated United Launch Alliance rocket would be less expensive only if the Ares V heavy-lift moon rocket development is deferred, the Aerospace Corp. study reports. And the Delta IV alternative could add two years or more to the “gap” in U.S. human access to orbit if it starts this year, according to the unreleased study obtained by Aviation Week.

I understand that Ares I was supposed to be a “down payment” on Ares V, and that if Ares I isn’t developed, but Ares V is on schedule, then Ares V has to absorb the development costs of those Ares I components that would have been book kept under it, thus increasing Ares V development costs. So it sort of makes sense that it will cost more overall if the money that would have gone into Ares I instead goes into “human rating” Delta IV, while much of the Ares I development costs would have to be paid in addition, with no Ares I for the money. I understand the theory. I think it’s bogus, of course, but it’s hard to know without (as usual) seeing the study assumptions.

Many observers, including me, find ludicrous the notion that a new rocket development could be ready sooner than “human rating” (I’m going to continue to use quotes on the phrase, because it’s meaningless, or means whatever NASA wants it to mean to justify whatever they want to do on a given day) an existing, reliable, insurable vehicle that already carries payloads worth hundreds of millions of dollars.

Ordered by Richard Gilbrech, the former associate administrator for exploration, the $500,000 study evaluated six different versions of the Delta IV heavy as an alternate to the Ares I, which NASA is developing in-house based on the solid-fuel first stage space shuttle boosters, the shuttle external tank, and the J-2 engine used in the upper stages of the Saturn V.

So, they spent about two and a half man years on the study. I wonder where they got the data for it? Presumably, they got Ares I data from NASA (wonder how much that was fudged?) and went to Boeing for the Delta data, as well as Rocketdyne for the engine numbers.

The study did not address the other U.S. Evolved Expendable Launch Vehicle (EELV) – a heavy-lift version of the Atlas V – because of “no clear advantages and several disadvantages,” including the difficulty in obtaining human-rating data on its Russian RD-180 engines.

Again with the “human-rating” mysticism. There is no such thing as a “human-rated” rocket engine. To the degree that “human rating” exists at all, it is a function of integrated system design, not individual systems.

Are they saying that they don’t understand the engine reliability? Or what? Again, this is a rocket that has an excellent record, with no in-flight engine failures of which I’m aware, and certainly none of a nature that would have prevented a safe abort. And as for whether or not they are “Russian,” Aerojet could establish domestic production fairly quickly any time the Air Force (or NASA) decided that was necessary, and were willing to pay for it.

And Atlas has better upper-stage performance than Delta (though probably one of the reasons that they looked at various new Delta configurations was to address the issue of the underpowered upper stage that was a concern during OSP). But if we want to have a robust transportation system for humans as well as cargo, it would make a lot of sense to invest enough to make Orion (or whatever) capable of launching on either vehicle. And I continue to believe, until I see a credible study with assumptions that indicates otherwise, that it would be cheaper to modify both EELVs to carry a capsule than to continue to move forward with Ares.

Now here’s where the numbers start to make no sense:

For the Delta IV heavy using a modified J-2X upper stage engine, the study found no real cost savings over the Ares I. But for the version using four RL-10s, Aerospace Corp. estimated design, development, test and evaluation would come in at about $2 billion less in fiscal 2009 dollars than the Ares I projections. Life-cycle costs for 14 flights of that version of the Delta to low Earth orbit would be about $16 billion, $3 billion less than Ares I in today’s dollars, the study found.

Obviously, since the J-2X is (despite its name) essentially a new engine, it will cost more than using RL-10s. But I don’t understand what they could be doing to the Delta that would cost as much as testing and resolving vibration and other issues with what’s essentially a new SRB first-stage for the Ares. It also seems to me that the Delta upper stage is simpler, because it doesn’t have to provide roll control for the entire stack, as the Ares upper stage does. Furthermore, I wonder if they assumed the same Launch Abort System for both vehicles, when the requirements for that of Ares are much more stringent, resulting in a much heavier and more complex system?

But the most amazing thing in this paragraph is an estimate of the “life cycle costs.”

In March, the GAO had an estimate of development costs alone for Ares I of $20B. So how can the total life cycle costs of fourteen flights be less than that? LCC would include not only development costs, but the fixed costs of operating over however many years those flights occur, and the marginal cost of the hardware for fourteen ships. If we assume four flights a year, that’s three and a half years of operations, for a dedicated pad that can’t be charged off to anything else. If the fixed costs are only a billion dollars a year, that adds three and half billion to the twenty. If the hardware costs only a hundred million per flight (I’m being very generous here, I suspect it will be higher) that adds another billion and a half, so we have an LCC up to twenty-five billion now (and a cost per flight of over a billion and a half each, or more than half as much again as a Shuttle flight — what a bargain). A lower flight rate would, of course, cost even more due to the extension of fixed costs into the out years.

On the other hand, we aren’t told what the “development costs” are for the Delta mods, but I would presume that it would continue to use the same pad that it currently does, which is shared with cargo flights, so fixed costs attributable to the crewed flights would be much less (though there might be some costs assigned from VAB ops in both cases).

Bottom line is that I find it hard to believe that the “life cycle cost” numbers are anywhere as close as indicated here.

Now, the last question is how it could possibly take longer to modify a Delta than to develop a new launcher. “Rocket Man” has a theory:

It was not surprising today, then, that Av Week would be handed a still unreleased report on the viability of EELVs to replace the mis-begotten Stick. Sure an EELV can do the job. And it can do the job less expensively. But guess what? It would take seven years to remake the rocket in human-rated form. Come again?

An already 8 for 9 rocket that carries multi-billion dollar satellites to orbit, has no problem getting insurance today. The design, development, and test phase has been paid for. Walk into your favorite EELV store and offer to buy several dozen and watch the prices fall.

But where to set the bar for human rating? If you are trying to get a new rocket built, and you’re paying for the study, you set the bar obnoxiously high. Only then can a real rocket fall behind in the race with a paper rocket. Without getting into the tit-for-tat arguments that the Italian Waiter’s minions are well studied for, there is only one more thing that our “risk is our middle name” astronauts would like to see over their heads at lift-off.

A reliable launch abort system.

And if a new one of those is going to take seven years to develop, shouldn’t we get someone else to take over the job from the current contractors?

(For the uninitiated, this blogger uses a lot of metaphors — Italian Waiter, for reasons unclear to me, is MSFC’s Ares manager, Steve Cook.)

Sounds right to me (and of course, as Bobby Block points out over at the Orlando Sentinel, this report is already obsolete, since it’s becoming accepted that Ares I won’t make its 2015 date anyway, which means that even if it really takes seven years to get a Delta ready to fly, it still doesn’t really increase the gap).

And this also ignores, as noted above the fact that a Delta LAS might be quite a bit less of a development risk than the one for Ares. It all depends on the requirements. And the assumptions. Something that we continue to not be allowed to see.

[Update a couple minutes later]

Oh, and as for Ares V being deferred? It’s already happening. Hopefully forever.

[Update a few minutes later]

Clark Lindsey wonders what ULA will do. I agree that now that Griffin is gone, the risk of Lockmart losing Orion out of political spite is much reduced. Boeing and ATK stand to lose the most if Ares goes down, but if there are Delta upgrades to be done, Boeing would benefit (and the jobs would be mostly in Huntsville, I’d guess).

[Update mid afternoon]

Clark Lindsey has further thoughts.

End Of An Extravaganza

John Derbyshire says that government human spaceflight was largely pointless, and likely to end soon.

I don’t actually find much in there with which to disagree (I’ve pointed out the Zheng He analogy myself) — we have gotten horrible value for the money spent over the past forty years, and I do think that the hope is for private space. Though if the Augustine Commission could recognize and articulate the value to the nation and planet of becoming truly space faring, for things like planetary defense, and put forth a realistic plan to do it, I suppose that it’s possible it will survive somehow, but it will have to have sufficient pork content, which will defeat the purpose. But it’s hard to see Constellation continuing to exist in its current form.

I’m actually working on (or at least supposed to be working on) a longish piece for the summer issue of The New Atlantis on this subject.

[Tuesday afternoon update]

I will say that I think that “pointless” is too strong a word — as I said, we have gotten quite a bit of value, but not enough to justify the expenditure. And in many ways, Apollo has actually set us back from progress in space, by establishing a failed government-development model that lives on to this day in the form of Constellation. I hope that the Augustine Commission can finally fix this, but I fear that it won’t.

More History Lessons For Senator Shelby

Jeff Krukin’s piece has been republished over at the Commercial Space Gateway, with a lot of comments (including one commenter who doesn’t know where the Delta IV is manufactured, or where the Atlas V is planned to be).

[Update a few minutes later]

Actually, in rereading that comment (I notice now it was from the SSF’s Bob Werb, who presumably does know where the EELVs are built), it was probably sarcasm.

We Have Ways…

…of making you take the bus:

In this new religion, taking the bus, riding a bike, or walking instead of driving are pious good works. And there is no surmounting the religion’s faith in solving transportation problems by addressing every mode of transit but what most people actually use to get from point A to point B.

During Idaho’s last legislative session, the legislature was presented with information that our existing highways and bridges were in disrepair. One State Senate Democrat focused on the “need” for bike lanes even in rural areas, where riding a bicycle is not an option for most because of the distance involved. Yes, I’m sure there are some people that ride their bicycles in Challis (pop: 909) but does it really make sense to spend the money?

It seems that part of the faith is that these options — even if barely used — are good in and of themselves.

Of course, empty bike lanes are a waste of money. Empty buses are a waste of money and fuel. In the private sector, a company whose service was as unpopular as mass transit would carefully evaluate the service and the marketing, and figure out why people don’t ride.

Not so much with the federal government. Transportation Secretary Ray LaHood admitted at the National Press Club recently, regarding the administration’s policies: “It is a way to coerce people out of their cars.”

And here’s some more of this fascistic foolishness from the new Transportation Secretary:

The conservative columnist George Will recently denounced you as the “secretary of behavior modification,” in reference to your plan to have Americans give up cars.
When George came over here for lunch, I could tell from the tone of our conversation that he wasn’t particularly keen on what we were trying to promote here.

You first were elected to Congress out of Peoria, Ill., as part of the so-called Republican revolution.
I came to Congress in 1994. I had no idea I was going to be a part of the majority party.

Now you’re in the minority.
I’m in the majority.

But aren’t you a Republican?
I am. But I’m a part of the Obama team. And they’re the majority party.

Does that make for any awkwardness with your fellow Republicans?

Not one bit. I’ve had a lot of Republicans calling me asking me how they can get some of the stimulus money and how they can get their projects funded.

…But if Americans increasingly get around by rail, bus and bicycle, as you’ve planned, who will be buying cars in the future?
I think everybody will have an automobile. I think it’s amazing in America when you drive around and look at new homes that are being built, there are three-car garages. I don’t think you’re going to see families with three cars. I think you’re going to see families with one car, possibly two.

We will change our lifestyles to conform with the state religion of our moral betters, regardless of the economic madness of it, or the impact on our personal freedom.

[Update a couple minutes later]

And then there’s this:

It is a six-mile stretch of guardrail near a manufactured lake in a desolate patch of the Oklahoma Panhandle. There’s little reason for anyone to visit. Weeds are overgrown; the lake bed is virtually dry.

Yet repairing the guardrail is on a list of projects developed by the U.S. Army Corps of Engineers to tap into President Obama’s $787-billion economic stimulus program.

The country’s in the very best of hands.

“Pruning An Overgrown Tree”

“…so that it can fruit again.”

A story in the UK about shrinking my home town, Flint, Michigan. They might as well, if Lansing isn’t going to do anything to improve the business environment there. I suspect a lot of Wolverines were hoping that Obama would nominate the governor, to get her out of there. Not that her replacement would be much of an improvement. But they keep voting for them.

The Obama Surprise

Who were the rubes? They were the rubes:

The first surprise to many Valleyites is how innately anti-entrepreneurial the new Administration has turned out to be. Candidate Obama looked like a high tech executive – smart, hip, a gadget freak – and he certainly talked pro-entrepreneur. But the reality of the last six months has been very different. One might have predicted that he would use the best tool in his economic arsenal – new company creation and the millions of new jobs those firms in turn create – to fight this recession. But President Obama has instead appeared to be almost exclusively interested in Big Business as the key to economy recovery.

By comparison, almost every move the new Administration has made regarding entrepreneurship seems to be targeting at destroying it in this country. It has left Sarbanes-Oxley intact, added ever-greater burdens on small business owners, called for increasing capital gains taxes, and is now preparing to pile on cap-and-trade, double taxation on offshore earnings, and a host of other new costs. Even Obamacare seems likely to land unfairly on small companies.

Entrepreneurship has been the single most important contributor to the economic health of this country for at least a century now – and if you were going to systematically destroy that vitality, you couldn’t come up with a better strategy than the one Washington has put in place over the last six months. Indeed, you can make the case that the sole contribution the Obama administration has made to entrepreneurship in America to date is to force all of those millions of unemployed people to desperately set up their own businesses in order to survive.

But as he points out (and it’s a long-standing truism), big business has no interest in free markets:

…you may think that the competitive challenge that big tech companies fear most is from other big tech companies. You know: Apple v. Microsoft, HP v. Dell, Cisco v. Juniper, MySpace v. Facebook. But in fact, that isn’t the case. Sure, those are dangerous competitors; but far more threatening is that clever new start-up that seems to appear out of nowhere. That’s the threat that wakes up Fortune 500 tech CEOs at 3 a.m. That little start-up not only competes with you, it can render your entire business – even your entire industry – obsolete and you don’t even see it coming. Think desktop publishing and the printing industry, the iPod and the music industry – and just look at the terror that Twitter seems to be creating at Google and Facebook these days.

Once you understand this dynamic, a lot of the paradoxical recent business behavior in high tech suddenly becomes explicable. For example, why did the big tech companies embrace such regulations as Sarbanes and stock options expensing – even though they would cost them billions of dollars with no obvious gain? And why would they support a Presidential candidate who seemed to have little understanding of, or sympathy for, market capitalism and business?

Because it was the best strategy to crush the start-ups.

And for the most part, that strategy has worked. High tech has only seen a handful of new companies go public in the last five years – compared to hundreds per year before that. Less noticed is that this means most hot new start-up companies, instead of enjoying an IPO and becoming rich enough to compete full-on against the big boys, now can only grow to a certain size then offer themselves up to be bought by the giants. What had once been hugely valuable competition has now been reduced to a farm system for acquisitive mature companies. [And a side benefit has been the near-destruction of the venture capital industry, which big business always described as ‘vulture’ capital because it drew away their most talented employees.]

Now you see why the tech world joined the Obama team early on in the campaign. Not only did Senator Obama seem like their kind of guy, but each camp saw in him the President they wanted. The entrepreneurs thought they were getting a fellow entrepreneur, and big business thought they get a confederate in taking out the competition.

The entrepreneurs were suckers, but this is going to hurt the big guys, too.

ITAR is another example of this phenomenon. It really hurts the small companies disproportionately, because the big companies, like Boeing and Lockmart have a small army of compliance people in place who know how to work the system, and the costs of whom can simply get charged against their government contracts. This is in fact a big advantage of established aerospace contractors in general — that they have ongoing cost-plus contracts against which they can charge for the bureaucracy made necessary by government regulations, whether ITAR, or simply enforcing the FAR, plus they get an IR&D budget funded by the taxpayers. This makes being a startup all the harder, and this administration looks unlikely to do anything to make it any easier.

Which Is Worse?

Instapundit:

I don’t think Obama realizes — or, more frighteningly, perhaps he doesn’t care — what this spending is going to do to the economy. After all, the free market is just a rival power center. As Tim Noah says: ‘On Wall Street, financial crisis destroys jobs. Here in Washington, it creates them. The rest is just details.”

I’ll have more thoughts on this Munchausen Syndrome By Proxy tomorrow at PJM.

[Update a couple minutes later]

Glenn’s post was motivated by Megan McArdle’s thoughts on deficits, and who to blame for them:

The problem with the budget deficit is not any particular program, or even any particular tax cuts. It is not that George Bush or Obama is a bad person who does bad things. The problem with the budget deficit is that, unlike the deficits George Bush ran, the deficits projected under Obama (and beyond) are actually large enough to potentially precipitate a fiscal crisis. If our interest rates suddenly spiked up, perhaps because lenders were worried about the size of our budget deficits, we’d find ourselves in the kind of nasty fiscal jam that regularly plagues third-world countries. The difference is, no one has enough money to bail us out.

Obama is the one who will have to prevent this. Yet instead of plans, we’re getting fairy numbers from the OMB. That’s worrying, and it’s sure not George W. Bush’s fault. His OMB liked to inflate the deficit projections, so that they could take credit for a mostly imaginary reduction.

It’s almost like he wants to wreck the economy.