The Economic Innovations Behind Space Travel
Getting to space is such a monumental engineering challenge. Just think of the problem of getting a rocket to orbit. I’m not an engineer, so I’m just going to make up numbers. The energy required to get a 1,000 kg payload into space is something like the energy potential in 2,000 kg of fuel. Well, now that the fuel is in the rocket, you have a 3,000 kg rocket but only 2,000 kg of fuel. So you now need 4,000 kg of fuel….which would then make your rocket weigh 5,000 kg. This frustrating back-and-forth is why fuel makes up something like 90% of a rocket’s mass.
But knowing how much fuel you need is actually relatively easy compared to all of the other engineering problems the rocket faces.
Naturally, then, when we see that the number of objects launched into space per year looks like a rocket itself, it would seem like this has come from big leaps in engineering.
But most of the innovations aren’t from engineering. The major innovations propelling todays rockets are from economics.
That’s what I learned recently from reading Ashlee Vance’s new book When the Heavens Went on Sale. I picked it up because I really enjoyed his earlier biography on Elon Musk, and I thought this would be the follow on with a deep dive into SpaceX.
But I was wrong.
This book avoids SpaceX. Obviously it can’t entirely avoid the biggest company in rocketry, but it focuses on the stories of four space companies that you might not have even heard of, yet you benefit from their services every day. The stories behind the companies are so interesting. There’s a guy in New Zealand who didn’t even graduate from high school yet has the second-most successful rocket company in the world. Another guy tried to synthesize the technologies from the US/Soviet space race. I loved learning about these companies.
Underlying all of it is this theme of the economic innovations behind New Space.
One of the innovations is in your pocket.
It turns out that consumer electronics have changed a lot since the Space Race of the 1950s and 60s. The Saturn V rocket took humans to the moon with a 14 KB computer. That is significantly less than what even the worst phones on the market have today. Speaking of that phone, we drop ours so much that no one wants a flimsy one. Producers made our phones so durable that they can withstand the rigors of space. That insight led to the new era of satellites, which are basically smartphones orbiting the earth.
While that sounds like an engineering innovation, it’s actually a very important economic one. Before, when we wanted to build space stuff, we had to custom build every part. That meant the cost to building satellites and rockets was really high. Once it was discovered that modern consumer electronics were just as good, we got cheaper parts through the miracle of economies of scale. And once the costs came down, it became easier for the private sector to start their own space companies.
But that wasn’t the only economic innovation. The other was even more important.
Imagine you’re a government spending tax dollars on shooting something into space. While it’s cool and a great way to dunk on other countries, it’s not cool if your rocket explodes. Especially since your space stuff costs so much to build. The nice thing is that you can reduce your risks by investing a ton into over engineering your stuff. This is one reason why you need custom parts for everything.
But investments in reducing risk, like everything else, exhibit diminishing returns. That means for every percentage point of risk you want to eliminate, you have to spend even more money. And while you can never get the risk of failure to 0, you can spend a lot of money to get close to it. That was how the government handled space: a dollar spent is not wasted if it reduces risk. The government was risk averse, and the cost of space stuff was enormous.
The second innovation was a shift in risk aversion. Private companies realized they could make substantially cheaper rockets and satellites if they accepted a higher risk of failure. And while failure sucks, there was compensation: the rockets got so much cheaper that it was still less expensive to blow up three rockets than it was to build a single government rocket.
This trade-off was the fuel for the modern space race.
I loved When the Heavens Went on Sale. These were just a few of the economics lessons I got from it. There is a whole discussion to be had on what the books says about innovations behind economic growth, but I’ll encourage you to read it for yourself to find those.
Links I liked
Regression Standard Errors, Translated Into English
You know economists are cool because their nerdy jokes are about standard errors. This article does such a fantastic job of explaining how standard errors work that I think it should be required reading for econometrics students.
The Global Market Miracle of the 99-cent Pineapple
Short write-up on how trade turned pineapples from a sign of wealth to a common summer treat.
Yale University Books on Sale this week
Academic publishers put their books at 50% off all the time, and Yale’s is live right now through June 24 (code Y23SUMMER). I don’t get anything for promoting it, just thought you might be interested in their selection. If you want more econometrics, you can grab Causal Inference: The Mixtape. I haven’t read this book on Austrian economics, but I know there’s a big following. Or you could broaden your interests. I’m getting this book on Haiti’s history.