All posts by Sam Dinkin

Economics

Not Trade Deficit, Capital Surplus

The Economist Friday said:

In a rare instance of economic consensus, almost everyone now agrees that the current-account balance, which was over $800 billion in the red at the end of last year, is unsustainable.

They should know that there is no such thing as a consensus of economists. I am not a macro guy, but if the US economy continues to generate capital (intellectual property, companies with lots of educated workers, houses, etc.) at a tremendous rate, then the capital surplus will result in other countries giving us non-capital goods in exchange for our capital goods. A capital surplus and a trade deficit are the same thing.

For all our regulation, taxes and flaws in our judicial system, most of the rest of the globe has less rule of law, higher taxes and more flaws in their judicial systems. The US is a great place to make safer investments like real estate and blue chip corporate bonds. Do you think the Norweigians and Saudis invest their huge current account surplus in their own respectively not so dynamic and not so productive economies?

As I said before, our human and physical captial stock is growing by a lot. Even though the average house price went down for one quarter, it has been growing at 6.5% in money terms for 43 years or 2.1% accounting for inflation. That leads to $440 billion in appreciation of the existing capital stock. The number of homes has also been growing. I estimate this by looking at the home ownership rate, the number of people per household and the growing population. Together they indicate we add another 1.8% a year to the housing stock in numbers. (This could be offset by less rental housing capital, but I doubt it.) So that is about $800 billion we are adding to the housing capital stock and residential housing construction is just 3-4% of GDP.

We can grow the US owned capital stock forever and have plenty left over to sell to foreigners.

Economics

Tax Thoughts for the Year

Every year, I do an annual column on taxes. It is a little later this year than last year and all I can say in my defense is that I filed an extension and that Austin is in the hurricane affected areas (at least according to the IRS).

I have a surefire way for taxes to be reduced. Republicans claim to be for low taxes. Democrats should be. Do Democrats really want Republicans to spend more than $2 trillion every year that they are in power on their own things?

Here’s the three point plan:

1. Express tax owed as a percent of the dollar you get to keep as opposed to the last dollar of “gross” income. I put gross in quotes because for most people everything beyond net goes straight to the Government in the form of payroll deductions. In my book, if you don’t get it, it’s not income.

In the top tax bracket (ignoring various phaseouts), if you take home $0.65, you pay $0.35 in income taxes for the privilege. That’s a 54% tax rate if you look at it like sales tax. If you add in medicare, it’s a 57% tax rate. You and your employer pay $36.45 for you to take home $63.55.

Government expenditure can be reported as 25% of private GDP instead of 20% of the economy.

Living in a city where more than 50% of property taxes leave the jurisdiction, I can say from experience that people get real mad when more than 50% of anything is going away (or more than 100% of what stays in the district). Framing it that way will reduce taxes.

2. Report employer “contributions” toward social security and medicare as a percent of net take home pay and lump it together as a sum. Paying 16.6% of take home pay seems more like a crisis than 6.2% and 1.45% of “your share”. I put “contributions” and “your share” in quotes because an employer considers the entire cost of an employee. If that money was not paid as taxes, that could be paid as salary and the employer would still be hiring.

3. Have all people file quarterly tax returns and write a check for their taxes. Dick Thaler has done research showing that the more often people consider their st0ck market portfolio, the more unhappy they become even if the daily fluctuations even out and people make a bundle. They turn out to be extra sensitive to small losses and become more unhappy frequently they consider them.

This can be turned to advantage for tax cutters if people are forced to consider the burden of taxes more than once a year. If instead of direct payroll deductions, taxes were put in a notional federal checking account and taxpayers had to write a big check every quarter instead of be pleasantly surprised by a small refund, we would see a lot of unhappy people.

Space

Why Make Spacecraft Safer Than Cars?

My contribution to the NPRM (which the vendors themselves can’t say):

The 30 expected fatalities of the uninvolved public per million flights standard is too stringent. If six families drive from Austin to Las Cruces round trip across half Texas to go to the Spaceport to watch the dads all take a flight together, together they will expect incur 150 deaths per million flights in auto accidents.

Economics

NYT and WSJ Agree
Kid You Not

Epstein in WSJ and Satel in NYT both say something needs to be done about kidneys (reversing the Ethicist’s stand). They both look to big payments to kidney sellers as a way to stop “6,500 excess deaths” due to lack of kidneys.

It is against the law to offer “valuable consideration”. Kidney buyers can take the matter into their own hands and not wait for a law change. Instead of a “valuable” consideration for a sold kidney, consider the following proposal:

  • Small payments to lots of prospective sellers upon death
  • A contract that pays a buyers organization a large sum of money from the estate if the organ sale is obstructed by family

It would work like life insurance in reverse. Kidney buyers would pay lots of people a consideration that doesn’t trigger the “valuable” language. In the absense of a kidney being delivered on death if one is available, the estate of the deceased would owe a payment. Some donors might sign the commitment without a consideration just to create a strong incentive for their family to honor their wishes with regard to donation.

The proposal is not sensitive to the needs of the grieving family, but I would rather have 3250 irate families than 6500 extra prematurely grieving ones due to a lack of kidneys.

Space

XCOR flexibility

If XCOR achieves the turnaround time in the Economist article on suborbital adventure travel that Rand spotted of 4 flights per day, that puts them with higher capacity per plane per day than Rocketplane’s 3. (Full disclosure: I have business dealings with both firms.) Assuming that their two-seater does not take more people than Rocketplane’s to service, that should give them a revenue advantage in a Boom town scenario and a cost advantage in the Dullsville scenario. If Xerus indeed costs only about $10 million to develop vs. more than $40 million for Rocketplane (according to Chuck Lauer at ISDC), then they will have lower implicit interest costs too. Number of lifetime flights and flights per major overhaul are interesting questions that will also factor in. Since neither plane has flown, a 33% difference in servicing time per passenger is quite speculative at this point, but interesting.

This cost/revenue disadvantage per plane won’t be a problem for Rocketplane if it can fly 100 flights of 3 passengers in their first year and earn $60 million before any of the competitors can bring their planes on line (although Carmack is optimistic he will start flying next year according to what he told me at Space Access).

In a boom town scenario, RLI, Virgin, Armadillo, Blue, Masten, SpaceDev, XCOR and probably a few new players will all build more craft than they were originally anticipating. This will result in lots of business for the low cost/high value player, but probably several bankruptcies or mergers eventually.

Space

Buzz Aldrin Speaks

at the Texas Space Authority organizational meeting tomorrow in Austin. I am too. Email me at dinkin@space-shot.com or comment if you think we can do something for you from a business angle or want to see my slides.

— Update —

Buzz continues to promote Starcraft Boosters and his plan for many space adventurer orbiters on the same launcher. He asserts that orbital is “so hard that only 3 governments have done it”. That was also true of people to 100 km before Rutan won the Ansari X Prize. Number of governments that can go to 100 km without losing money=0. Number of governments that have a reusable craft that can fly again in less than a week to 100 km=0. He views suborbital as a dead end. He is still promoting lotteries to fund spaceflight. I asked him to join forces once skill games can finance orbital flights and he agreed.

I bet Buzz $20 that orbital craft would emerge without government funding.

Space

Boyle Reports on Big Space Contract

Alan Boyle reports at MSNBC.com that “several” vendors are in negotiations for $500 million in commercial orbital transport service (with the same acronym as commercial off the shelf):

Oklahoma-based Rocketplane Kistler and California-based Space Exploration Technologies, or SpaceX, acknowledged that they were finalists. Other sources, speaking on condition of anonymity because of the official NASA reticence, indicated that the Virginia-based t/Space consortium, California-based SpaceDev, Texas-based Spacehab and Andrews Space in Seattle were also on the list.

Before being bought by George French, owner of Rocketplane (whose flights I am offering as a prize at Space-Shot.com), Kistler had an agreement with NASA which was unawarded after an objection from SpaceX. In this competition, there are many strong companies and the winner may have a march on orbital adventure travel competition. I hope the winner chooses a fixed price agreement so it will maintain the discipline to compete in the private markets too.

Space

Peter Diamandis Cooking

How can a man top the creation of X Prize, X Prize Cup, X Racer and Zero G Corporation, International Space University, Starport.com, Students for Exploration and Development of Space and Space Adventures?

As keynote speaker at the International Space Development Conference last night, he forecast that he would be making a major announcement this year about a private foundation to support spaceflight to Mars. His expectation is that he could privately raise $3 billion dollars from 10,000 people willing to commit $100,000; 1,000 people willing to commit $1 million and 100 people willing to commit $10 million. He thinks with the right fund managers, this could earn 15-17% returns and double every 5 years. Within 10 years, the money would be sufficient to finance two or more human Mars missions.

These people would then play a game to determine who would be in the 100 person astronaut corps. That corps would be rigorously trained and tested and down-selected into 12 colonists for the first crew. These crew would then undertake a one-way colonization mission to Mars.

Earlier would come private exploration missions. Later would come private pre-placement missions pre-placing supplies, power generation equipment and habs. Then a cycler would take colonists to Mars who would use a lander to get to their pre-placed equipment. The bulk of the mass would head back to Earth to be refurbished, resupplied and reused if economical.

He calls it the ‘Mars Citizenship Program’.

Peter, I said it last night. I am in for $100,000. I am also willing to run a game for you to select from 100,000,000 people putting in $10.

Continue reading Peter Diamandis Cooking →

Philosophy, Space

Rutan and Safety

Rutan said anyone offering spacecraft for commercial service should demonstrate their confidence in the system’s safety by having their children be among the first fliers, as Branson has said he will do.

“Spaceship guru roasts his rivals,” Alan Boyle, MSNBC.com

Should cigarette makers force their children to smoke or withdraw their product? Should parachute makers force their children to skydive or withdraw their product?

This does not follow. People afraid of heights should be allowed to sell bungee jumping supplies without personally testing them. The deathly afraid maker might design better equipment than a fearless one. Makers of hazardous products do not have to partake and may be sending a clearer message if they don’t. That does not mean their product should be shunned.

It is ironic that Virgin Galactic will be required to disclose its product is quite risky. It will require flying thousands of times before showing a spacecraft is as safe as a military jet. Very little is learned from a single draw on a distribution. 98% of shuttle astronauts returned. All that Branson and his family flying prove by flying is that they are risk takers, not that his craft is safe. It is a greater disservice to create a false impression of safety than to put a product on the market where hazards are fully disclosed and no effort is made to express false confidence.

Rutan’s sentiment is a throwback to medieval food testers to test for poison. He is not alone–Transportation Safety Administration required people to take a drink of liquids they were carrying (at least in Austin). Weird.

We will have a choice of vendors for spaceflight. Some of them will fly the owners first. Some of them will fly with a pilot and others will be remotely operated from the ground.

Would Space-Shot.com customers like me to raise the price of an entry so I can fly personally before the first winner?