Negative Economic Multipliers
Jim Bowery
of society these days, is the lack of recognition that you can do
damage to people and industries by giving them money. For example some
people are convinced that they should support the space station program
because the money would have gone to social programs instead of other
space activities. Aside from this being false, it presumes that
all dollars spent on space are beneficial to our long-term goals in
space.
I don't know how to deal with this problem exactly, but I think it is
a cognitive fallacy that underlies welfare state philosophies in general,
so the conservative think-tanks should have an idea of how to deal with
it (if they are doing their jobs).
Since our friends at RAND Corp., Aerospace Corp. etc. tend to come up
with studies that continually tout the "economic multiplier" effect of
spending on space, it is interesting there are no countervailing voices
that study the negative impact of spending on space even though it's
obvious to anyone who tries to invest in space that the majority of the
government's space budget is currently having a negative impact on the
competitiveness of the space industry.
The "economic multiplier" issue has been confused by our friendly
"economists" from places like RAND Corp., to the point that it includes
industrial policy, Keynesian economic growth and the supposed "spin-offs"
from crash programs. When you're paid to write for a credulous crowd that
wants government money for themselves and/or to see NASA get more money to
fly those neat rockets, you don't have to be very disciplined in your
arguments. You know your audience will say "Yeah!" and then emotionally
parrot the various numbers you've pulled out of the air when anyone is
critical of such programs. I don't have the luxury of such a credulous
crowd. That is why I must respond to each of these 3 aspects of the
"economic multiplier" argument separately.
INDUSTRIAL POLICY:
The response to the industrial policy argument requires the acceptance of a
few axioms.
1) Bureaucracy is good at enforcing standardization by suppressing novelty
and innovation.
2) Capitalism is based on the correct idea that people who earn money are
the best people to make decisions about productive investment of capital
by virtue of the obvious fact that they were productive enough to earn it
in the first place.
3) America's greatest strength resides in its pioneering spirit of
independent innovation and enterprise.
4) That pioneering spirit is the same spirit that will be most critical
for opening the space frontier, just as it was for opening and settling the
New World.
Conclusion: If you have capital which might be invested in space
technology, the the best way to waste it is to give it to people who
didn't earn it inside a centralized bureaucratic management organization
so they can be bosses over formerly independent innovators. This is the
nightmare of "industrial policy" enjoying a recent resurgence of political
support in the guise of "international technological competitiveness."
KEYNESIAN GROWTH (the origin of the "economic multiplier" idea):
One should certainly expect there to be innumerable economic benefits from
ANY expenditure of hundreds of billions of dollars. If all you did was
start a government program in which those dollars were scattered from the
bomb-bay of a B52 flying cross-country at high altitude, there would be
innumerable "spin-offs," jobs, etc. Gathering information on all the
various benefits to the economy would be almost as difficult as gathering
information on all the damage done to the economy by such a program.
In fact, in an economy like the 1930's, when capital centralized in
unhealthy ruts like debt instruments, as opposed to productive and job-
creating risk investments, such a random dispersal of liquidity is exactly
what you want to do according to economist John Maynard Keynes. There is
no problem with Keynesian economic theory and this kind of broad liquidity
dispersal under these limited conditions.
However, there are two ways "the space program" and "military spending"
since WW II have failed the conditions of Keynesian theory required to
stimulate economic growth:
1) Capital centralization wasn't at unhealthy levels and in unhealthy
forms of debt during the first 2 decades of the space program. It was only
as a result of Reaganomics that we have recently revisited this
pathological capital structure in our country. All that space program
spending didn't counter the centralization of capital in debt-instruments
under Reaganomics. It exacerbated it by issuing the most attractive debt-
instruments of them all -- treasury paper -- and then distributing that
liquidity to people who were relatively affluent.
2) When they are needed, Keynesian liquidity dispersal programs result in
economic growth from "trickle-up" or demand-side pump priming. Greater
demand creates markets -- motivates investment of frozen capital -- starts
businesses -- creates jobs -- puts more wages in hands of consumers. You
don't start this off by having a highly selective system of employment, ala
space program and military contracting. You are trying to get the economy
to create and distribute necessities instead Shuttles and Ferraris. You
do it by taxing the capital sinks and sending that revenue to the
consumers -- the unemployed "Joe Six-Pack" preferrably while he is back at
technical school learning jobs skills. WPA was a lot closer to creating
this kind of dispersal pattern, but its real benefit was that it issued its
own "scrip" which was merely another form of liquidity.
The Keynesian "economic multiplier" is the amount of benefit you get from
dispersing a certain amount of liquidity in an economy with pathologically
centralized capital. But when is capital accumulating in the hands of
productive people, you actually damage the economy by taxing it or even
borrowing it and giving it to people who didn't earn it. That's what space
program spending did for our economy.
SPIN-OFFS:
If necessity is the mother of invention, then innovation is a "spin-off" of
efforts to serve real needs. Needs such as food, water, housing,
education and energy are far more fundamental than flags and foot-prints.
Agreed, once invention raises per capita capabilities to a certain point,
the "need" for recreation or adventure will result in flags and foot-
prints. But that means flags and foot-prints are the "spin-offs" of
invention, not the other way around!
The best example of flags and foot-prints as "spin-off" of invention is
Charles Lindbergh's historic trans-atlantic flight. The Kelly Act of 1925
opened up the market for serving a real need, air-mail, to the private
sector. This resulted in rapid innovation in aeronautics until Charles
Lindbergh simply took a plane that had been developed for air mail and flew
it across the Atlantic Ocean! Here we had privately financed technology
development driven by a real need resulting in a low cost but high yield
adventure. The first trans-atlantic spectacular was a very low cost "spin-
off" of innovation driven by the need for air mail. In many ways, it was
even more heroic than the Apollo program's triumph of socialism under Von
Braun. It was definitely far less expensive!
In reality, the overall "economic multiplier" of the budget for space
activities is a negative number.
For a look at exactly how large that negative number is, let us examine
what the world might have been like without this negative influence:
In the early 60's, before the Apollo program, NASA was barred from
participating in comsat development and operations. It was the only area
of space D&O from which NASA was barred. 3 decades later, it is the only
area in which the US leads the world in space commerce. It is a part of
our everyday lives. It followed the normal cost decay curves of any
reasonable industry. The same thing happened when we came to our senses
about air transport in 1925 and passed the Kelly Act, resulting in the
airline industry. There is every reason to believe that we could have had
weather satellites with capabilities well beyond our present capabilities,
earth observation sats from which Mission to Planet Earth would have been
a trivial by-product and a launch industry behaving more like the airline
industry, all with costs decaying exponentially rather than stagnating for
2 decades, if only we had excluded NASA from ALL areas of D&O and focused
them on R only. Research expenditures, by not competing with private
capital in D&O, are complimentary rather than parasitic.
Indeed, there is a very good chance solar power satellites would have
become economical by now were it not for the Apollo program and its
aftermath. Those "few" billions per year went a long way -- toward slowing
down the progress of innovation and enterprise in commercial space D&O.
Without competition, NASA's few successes could be portrayed as "glorious
breakthroughs" which were all the more glorious because of their apparent
difficulty. It's an old bureaucratic game -- all too familiar to students
of history.
>From this we can see that the "economic multiplier" of NASA spending has
become an exceedingly large negative number.
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Jim Bowery 619/295-3164 The Coalition for
PO Box 1981 Science and
La Jolla, CA 92038 Commerce
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sz...@sequent.com
>...you can do damage to people and industries by giving them money...
Whew, that was long. But _well_ worth the read. I highly recommend
this article to all those either interested in or fed up with the
recent NASA funding wars.
--
Nick Szabo sz...@sequent.com
"If you understand something the first time you see it, you probably
knew it already. The more bewildered you are, the more successful
the mission was." -- Ed Stone, Voyager space explorer