🚀 Space, the final economic frontier (and maybe a cure for 'secular stagnation')

'The expansion of economic activity in space may offer a uniquely promising way to escape indefinitely a state of self-fulfilling, persistently sluggish economic growth'

Quote of the Issue

“Platinum, iron, and titanium from the Belt. Water from Saturn, vegetables and beef from the big mirror-fed greenhouses on Ganymede and Europa, organics from Earth and Mars. Power cells from Io, Helium-3 from the refineries on Rhea and Iapetus. A river of wealth and power unrivaled in human history came through [the dwarf planet of] Ceres. - The Expanse

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The Essay

🚀 Space, the final economic frontier (and maybe a cure for 'secular stagnation')

“Why go to space?” is a question I frequently get, a question I attempt to answer in my new book, The Conservative Futurist. For example: There are good reasons to return to the Moon and stay there beyond national prestige:

While there may be a new Space Race happening—and it isn’t just America versus China, and not just governments competing—the goal this time is as much about geoeconomics as geopolitics. Which space superpower will have greatest access to the innovation, jobs, and resources that will eventually flow to and from this final frontier? “The moon is absolutely central to that incorporation of the inner solar system into the Earth’s economic sphere because it’s close, because it has low gravity, because it is resource-rich,” said defense and space consultant Peter Garretson in 2022. (And, of course, a moon colony would be proof-of-concept for a Mars settlement.) Success on the moon, like Project Apollo, might also politically enable more federal R&D spending on space, dollars that could help create the manufacturing and logistics systems necessary for a multitrillion-dollar space economy. The base might eventually turn into a colony and then America’s fifty-first state (as Newt Gingrich suggested back in that 2012 debate), while also becoming the gateway to the rest of the solar system and all its riches, both mineral and scientific.

But there are even more reasons for America to establish a true orbital economy … then a lunar economy … and then keep going! In a new analysis, “Expanding economic activity in space may offer a solution to secular stagnation,” Harvard University business professor Matthew C. Weinzierl makes a fascinating argument: Escaping Earth’s gravity well will also allow rich countries, including the United States, to escape the eponymous economic malady, which Weinzierl describes as “a state of self-fulfilling, persistently sluggish economic growth that has increasingly threatened high-income countries.”

But first: This is a story I tell early in The Conservative Futurist: Although America’s immediate postwar decades are now often described as a “golden age,” the economic forecasts at the end of World War II were far from shiny. Some experts worried that soldier demobilization and the end of wartime spending would mean a return to the Great Depression.

One version of the pessimistic attitude was the “secular stagnation” theory of Alvin Hansen, a Harvard University economist. In the late 1930s, he posited that the age of rapid US economic growth was over and the age of “secular stagnation” had begun. Slowing population growth, the closing of America’s geographic frontier, and the lack of business innovation had created a scenario where people saved more,firms invested less — resulting in long-term stagnation.

As a result, Hansen argued, America was a mature economy and needed to think more soberly about its expectations. Without the aforementioned incentives for new investment, its economic future risked a continuation of its late 1930s economic present. The rebound from the worst years of the Great Depression was, as he wrote, one of “sick recoveries which die in their infancy and depressions which feed on themselves and leave a hard and seemingly immovable core of unemployment. … [A] vigorous recovery is not just spontaneously born from the womb of the preceding depression. Some small recovery must indeed arise sooner or later merely because of the growing need for capital replacement. But a full-fledged recovery … requires a large outlay on new investment, and this awaits the development of great new industries and new techniques. But such new developments are not currently available in adequate volume.”

There was no Great Depression 2.0, of course, or even Hansen’s secular stagnation. The postwar American economy quickly made fears of another severe downturn a distant memory. Propelled by rapid productivity growth and tech progress. American living standards doubled from 1948 to 1973. The 1950s and 1960s, specifically, were the fastest-growing decades of the past century

Yet if the notion of secular stagnation sounds familiar, it’s because it popped up again in the years after the Global Financial Crisis. Economist Lawrence Summers said the slow recovery in the US and other rich countries made Hansen's concept of secular stagnation “highly relevant” in that these economies were suffering from a chronic shortage of demand and profitable investment opportunities, trapping them in a state of anemic economic growth that central banks couldn’t much help by lowering interest rates. What’s more, Summers thinks it is more likely than not that we will return to secular stagnation after the fight against inflation is concluded. Summers in the summer of 2022:

It’s 60-40 that we’re going back to something that’s kind of secular stagnation,” he said. Just as in the aftermath of the 2008-2009 recession, interest rates will be held down by increased savings resulting from an aging population and the uncertainty that comes after a crisis. Rapid technological development will again keep the cost of capital goods down. More savings and less investment means lower after-inflation interest rates are required to balance the economy.

There are a few things going on here: a slowdown in labor productivity (which I write frequently about) and a decrease in population growth over the past few decades, alongside a lack of investment demand. To address both supply-side secular stagnation and demand-side secular stagnation, policymakers might work on improving productivity and increasing population growth (such as through increased immigration), which would make business investment more appealing. Another strategy involves stimulating demand by encouraging people and governments to spend more.

So does space provide a solution here on both the supply and demand side? Weinzierl thinks it’s possible:

A concerted effort to expand economic activity in space has the perhaps unique potential, at least in principle, to address indefinitely both the demand and supply roots of secular stagnation. In brief, the potential is as follows. On the demand side, if the United States were to return to its historical peak levels of public-sector investment in space—as a share of federal government outlays or gross domestic product—it could directly add between $1.5 trillion and $3 trillion to demand over the next two decades and indirectly add, by inspiring private-sector investment in expanded space activities, potentially much more. On the supply side, space might serve as a new and essentially infinite physical frontier, spurring dynamism, innovation, and thus productivity growth as have frontiers throughout history, but this time with no end point. Similarly, expansion into space is humanity’s only real option for sustained population growth in the long run. As far as I am aware, only space offers this combination of attributes.

Space and the supply side

To dive a bit deeper into the argument, Weinzierl argues that expanded activity in space can address the key supply-side drivers of secular stagnation in high-income countries, namely low rates of productivity and population growth.

Moon colony in The Expanse

• For starters, he points out the important past technologies that space exploration has played a key role in developing, from LEDs to Global Positioning System and satellite-based communications. And there’s every reason to think this would be the case in the future, especially given the rise of commercial space due to the massive drop in launch costs. Weinzierl describes the phenomenon as the “shift toward a space sector that combines the power of public-sector investments in fundamental research and exploration with the market’s power to drive innovation and productivity” enabling humanity “to tap into resources in space–such as rare Earth elements, space-based solar power, and the unique research environment provided by the vacuum and microgravity of space—to drive economic development, as was the case for the US manufacturing sector in the early twentieth century.”

• Next, Weinzierl posits that space is the modern frontier, akin to historical frontiers in America, which is important if you think that venturing into challenging new physical environments spurs innovation and growth. He cites Frederick Jackson Turner's famous theory on American expansionism's link to dynamism as broadly supporting this view. The pro-innovation mechanism: First, exposure to frontiers cultivates rugged individualism, which can persist even after the frontier's closure. Second, academic research suggests individualism is correlated with increased innovation, economic mobility, and growth. Weinzierl: 

  Thought of as a “country” of its own, the commercial space sector that arose over the past two decades has a culture that prizes innovation and rewards individual success. … Hundreds of space startups form each year, funded by a growing space-focused venture capital sector that is moving space from an industry dominated by enormous diversified government contractors with steady growth to a fast-paced, rapidly changing sector with many spectacular failures and a few spectacular successes, much like the “technology” sector of the past few decades. The direct involvement of many of that technology sector’s leaders in space—and the increasing numbers of talented young people choosing to start space companies—suggests just the dynamic environment that the research on historical frontiers has identified as helping translate individualism into innovation.

• Finally, Weinzierl sees space as a way to address declining population growth rates by eventually creating human colonies. Though this would not be a near-term way to address the issue, it might well be a long-term one. (I would note that in The Expanse book and television series, Mars has a population in the billions.) Weinzierl: “The possibility that space settlements could eventually drive humanity’s population growth may sound outlandish, but it took more than 250 years from the first British settlement of what became the United States for the latter’s population to exceed that of the United Kingdom; at 25 years, we are only one-tenth as far from when the first permanent habitation in space began aboard the International Space Station.”

  

  Concept for asteroid mining

Space and the demand side

• Any major expansion of space activity would require massive infrastructure investment: launch services, habitats, transportation, landing systems, spacecraft, ground facilities, manufacturing, debris clearing, resource extraction, and satellites. More ambitious, capital-intensive projects would include lunar and Mars settlements, space-based solar arrays, and off-Earth manufacturing. National security space capabilities would grow. In short, a space economy would need foundational infrastructure across many areas, involving huge public and private investment akin to developing any new frontier, such as the American West.

• Second, the level of investment could potentially be massive. Elon Musk's estimate for building a city on Mars alone is $10 trillion (or double the total current annual investment in the US). Where would all the spending come from? Weinzierl: “A dramatically expanded space economy—that is, one that can help address secular stagnation—would go far beyond satellites, as discussed above. In sum, while the private sector may be capable of funding these activities, public-sector funding would jump-start and accelerate their development, just as it did for the earliest days of space activity.”

• How much federal dough are we talking about? Weinzierl notes that the $28 billion spent on lunar programs from 1960 to 1973, adjusted for inflation, works out to some $300 billion in 2022 dollars, or about $22 billion annually. But adjusting for the growth of the economy and government since then gives a better sense of the magnitude of potential spending. Average lunar program spending from 1960-73 was 0.07 percent of federal  outlays and 0.01 percent of GDP. To match that today would require $62 billion to $82 billion annually. At its peak in the mid-1960s, space spending hit 3.2 percent of federal outlays and 0.5 percent of GDP, equivalent to $131 billion to $186 billion annually now.

  

  ,“Expanding economic activity in space may offer a solution to secular stagnation”

   Weinzierl: “In other words, spending $1.5 to $3.0 trillion over the next two decades to expand space activity would not be out of proportion to the spending on lunar programs at the peak of the first space race. Note that these numbers refer to public-sector investments only, which experience over the past two decades suggests would be magnified as the private sector capitalized on them to expand their reach and services for commercial customers.” Weinzierl also notes that had NASA spending stayed at the 1960s-70s levels, an additional $1 trillion to $5 trillion could have been invested in space.

He concludes:

An expansion of economic activity in space is far from the only attractive opportunity for large-scale public investment. In the United States, for example, alternative targets include updating the country’s aging physical infrastructure, effecting a conversion of the energy sector to renewable sources, and pursuing new opportunities in artificial general intelligence and nuclear fusion. Each of these options might yield enormous benefits to society and be worthwhile public investments. Moreover, from the narrower perspective of this paper, each of these options has features that would address aspects of secular stagnation.

Space, however, is unique. Expanding economic activity in space literally involves world-building and thus can credibly sustain capital-intensive investment and population growth at an unlimited scale. Moreover, it is an effectively infinite frontier, so it can postpone indefinitely the exhaustion of terrestrial frontiers experienced over the last century. While we can only speculate as to how a large investment in the expansion of economic activity in space would affect us, and it is imperative that we expand into space in a more sustainable and ethical manner than past settlers expanded into what they saw as their frontiers, space has a unique potential to usher in a new era of dynamism, innovation, and growth.

Why go to space? Why not!

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Micro Reads

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