Category Archives: Economics

DIRECT Rebuttal Thoughts

June 1, 2009 Rand Simberg 25 Comments

I had missed this when they were posted, but the Chair Force Engineer had some thoughts on DIRECT a couple weeks ago, here and here.

“Wow.” Are we to believe that ESAS was designed with little or no consideration of what the supporting infrastructure would cost? It would certainly explain why we’re stuck with the unaffordable Ares I and Ares V.

I’d like to say that I’m surprised, but sadly, I’m not.

Further NASA statements such as “Ares I + Ares V uses 15 SRB segments, while two Jupiter 232’s use 16 segments” also reveal an incredibly simplistic approach to cost estimation. Such simple methods might be appropriate for pre-algebra students. Professional cost estimators ought to know better. That’s why cost estimation is so difficult; there may literally be thousands of dependent and independent variables that make up the true cost of the system over its lifetime. Saving a few million in rocket hardware may have bigger reprocussions with development dollars, standing army costs, and infrastructure costs. It’s best summed up on Slide 26, where Jupiter’s higher launch costs (measured in tens of millions per launch) are offset by the savings of billions in development costs.

We’d have to see a full life-cycle cost accounting with assumptions to know whether or not it’s a good saving to cut development cost at the price of higher ops costs. It depends on how much you’re going to fly. But I suspect that it probably is, because the up-front costs are in expensive near-term dollars whereas the flight costs are down stream and discounted, and the flight rate will probably never get big enough to justify spending more on development to reduce marginal cost per flight. That’s always the problem with expendables.

I really need to write up my talk on marginal costs from Space Access.

Business, Economics, General, Media Criticism, Political Commentary

The Other Michigan

May 31, 2009 Rand Simberg 23 Comments

Amid all the talk of bankruptcy of the auto companies, it’s easy to forget that there is another, very desirable part of the Great Lake State. The family of a friend of mine in high school had a cabin on the Au Sable River, and I remember how peaceful it was myself, in both summer and winter.

[Update a few minutes later]

Speaking of bankrupt auto companies, Kaus has some good questions:

How many of the UAW’s members are skilled workers? I thought one of the big virtues [of] assembly line work is that it can be done by unskilled workers. Even with all the fancy computer-assisted quality control systems, does most auto assembly work really require skills that can’t be learned fairly quickly?

The unnamed “task force official” implies that Chrysler’s work force (and GM’s) is so precious that it must be protected from sharing in the sacrifice of bankruptcy. Is it? If UAW workers are so distinctly productive then why do virtually all auto manufacturers starting production in the U.S. try to get as far away from the union as possible? Is there any doubt that if all Chrysler’s workers quit tomorrow they could fairly quickly be replaced by workers–from local communities–who were a) cheaper and b) just as good or better?…

Gee, you’d almost think that they were just favoring a Democrat political constituency that gives them lots of campaign donations. Here’s another one:

Why should the government tax unskilled workers making $18 an hour, who haven’t bankrupted their employers, in order to protect unskilled workers making $28 an hour, and who have bankrupted their employers, from having to take a pay cut?

Why indeed? Someone should ask that question of Bob Gibbs. It would be amusing to watch the logical somersaults, to the limited degree that he’s capable of logic at all.

Business, Economics, Media Criticism, Political Commentary

How The “Stimulus” Is Working

May 30, 2009 Rand Simberg 27 Comments

It isn’t:

As we know, most of the stimulus spending does not take place until next year and beyond, so the short-run gains are puny. On the other hand, the big increase in the projected deficit creates the expectation of higher interest rates, which raises interest rates now. These higher interest rates serve to weaken the economy.

According to this standard analysis, the stimulus is going to hurt GDP now, when we could use the most help. Much of the spending will kick in a year or more from now, with multiplier effects following afterward, when the economy will need little, if any, stimulus.

This is the flaw with using spending rather than tax cuts as a stimulus. The lags are longer when you use spending.

Of course, if the real goal is to promote government at the expense of civil society and to create a one-party state in which business success is based on political favoritism, then the stimulus is working exactly as intended.

Yup. But it’s a misnomer to call it “stimulus.”

[Update mid afternoon]

The “reality-based community” has a collision with reality:

Cohn reports how former CBO director and current OMB chief Peter Orszag pressured careerists to assume sizable savings due to proposed reforms. The problem is the bean counters did not believe the alleged savings were justified according to the available evidence…it is interesting that the reality-based Obama crowd, which promised to roll back the “Republican War on Science” is now arguing against what Cohn calls “a super-strict reading of the evidence.”

Well, there’s science, and then there’s, you know, “scientific socialism.” Or maybe they’re just waging a war on math.

[Update late afternoon]

Wishful thinking, not a plan:

Congress is working on a health-care bill to expand coverage mainly by subsidizing insurance for tens of millions of households. This new entitlement is likely to cost $150 billion per year initially and grow, on a per capita basis, at a rate that is about 2 percentage points above GDP growth each year going forward. In other words, the cost of this new program will rise just as rapidly as Medicare and Medicaid spending has for decades now.

Orszag and others are saying, don’t worry, health-information technology, comparative-effectiveness research, more attention to prevention and wellness, and some very modest provider payment reforms in Medicare will make all of this governmental spending — on Medicare, Medicaid, and the new subsidy program — grow much more slowly in the future than it has in the past.

But this is an assertion — not a fact. Where’s the evidence to back it up?

“Wishful thinking” is a pretty good summary of Democrat policies in general, both domestic and foreign.

Business, Economics, Space

Rocketplane Resurrection?

May 29, 2009 Rand Simberg 8 Comments

I talked to George French briefly last night at the bar. He hasn’t given up on raising funds not only for Rocketplane XP, but is still hoping to revive Kistler itself. It wasn’t clear whether or not this was contingent on another bite at the COTS apple, but he’s hoping to have money reraised by August. Good luck with that in this economy. It would be nice, though, to see at least one reusable system going to orbit, after all these years.

Economics, Media Criticism, Political Commentary, Science And Society, Technology and Society

A Thought From Lileks

May 29, 2009 Rand Simberg 2 Comments

“Once again I say: any planet whose ecosystem can be wrecked by burping sheep deserves it. Darwin on a galactic scale. Man up, Mother Earth.”

[Late afternoon update]

Here’s the correct link, for those who were scratching their heads.

Business, Economics, Science And Society, Space

Financial Issues In Space And Hospitality/Tourism/Entertainment

May 27, 2009 Rand Simberg

First panel is to discuss the synergy between financing for space and entertainment. “Space is not a destination.” “Space is an enabler for a variety of business verticals.” “Space accelerates and expands business verticals by providing new, disruptive ways of doing business.” Using Internmet analogy with book sales. Space-related viability may exist in areas we haven’t heard of.

Four categories: launch infrastructure, R&D and manufacturing, system operations, end-user applications. latter includes entertainment. They build on each other. “Infrastructure” is categories of large-scale hardware systems, similar to railroad lines back in 1800s. Necessary for applications: healthcare, materials, science, media/entertainment, communications, governance, energy and mining, defense, transport operations. “Governance” is things like disaster relief and planetary monitoring.

Entertainment needs infrastructure beyond mere launch — more like real estate, with facilities in space. Near-term opportunities include media and entertainment, comm and governance. Other apps are longer term. Defining media and entertainment as space tourism, ground-based training and simulations, and documentaries and GPS-related games, live video feeds from orbit, real-time earth imagery, etc.

See suborbital space tourism as important near-term app which fits cleanly within hospitality/entertainment business that requires precursor infrastructure. Virgin Galactic embodies transition — selling one-week experience with suit and simulations, not just a flight. Shouldn’t forget orbital space tourism, which is further down the road, but Bob Bigelow’s modules are an early stage of the hospitality industry in orbit.

Providing an overview of structure of hotel investment business. Major hotel chains are no longer significant investors in real estate — they manage the properties for investor groups. So don’t look to them for financing of space hotels. Look for private equity funds, insurance companies, private investment trusts, investment banks both domestic and international, which are the current industry financiers. Current markets are impacted by the financial crisis, but expects people to come back in the water in the future, because it’s a good traditional model. Hotels will be interested in participating via franchise names (e.g., Hilton) but no as investors.

What drives terrestrial hotels? Business traveler, groups and meetings, leisure. What services are required for space travel? Have to consider similarities and differences with: cruise ships, all-inclusive hotels, suborbital/orbital travel. Consider advance deposits for space hotels. Consider scuba industry as a model. Preparation somewhat similar to suborbital training in length/time, understanding of technical issues/risks. Has been very successful, and training could become significant industry in itself, even for people who don’t fly, at destination resorts.

[Late morning update]

I got pulled off into some discussions, but Jeff Foust is twittering the panels (not a permalink).

[Afternoon update]

Doug Messier blogged this panel as well.

Economics, Media Criticism, Political Commentary