All posts by Sam Dinkin

General

Never Give Out Your Creditability

Have you ever gotten a call from a credit card company purporting to be from their security department asking to verify a charge? Asking to call a special number for the fraud/verification department? With the person who answers asking for personal identifying information such as mother’s maiden name?

I have multiple times. I ask the credit cards to authenticate. Do the credit card companies authenticate? No.

They tell customers never to give out such secret personal identifying information to strangers. Now a stranger calls and asks for it. Oops.

A credit card fraud department, should ask the card customers to call the main customer service number on the back of their cards and press a button for the fraud department.

Otherwise, the bank may find its fraud department outsourced. Without permission.

Space

If You Don’t Like Nukes on the Moon

Mike Griffin has been calling for using nuclear power for Earth’s rocky Moon exploration rather than Jupiter’s Icy Moon exploration. Anti-nuclear activists should propose a cost-effective non-nuclear alternative.

Here’s an old idea for lunar nighttime power worthy of rediscovery: laser illumination of solar cells from Earth.

Space History

Saturn V a Cost Barrier?

Alan Wasser and I think that space property rights are the main thing holding back development of the Moon. Dwayne Day says (last paragraph) that launch cost is the main thing that is holding us back. I don’t think that was true when Saturn Vs were in production.

While high launch costs as a barrier may be temporarily true today, I think that cheap access would be developed to the Moon if it could be claimed legally and the property rights enforced (and may anyway if Elon Musk is to be believed).

The Saturn V Wikipedia entry cites these cost numbers. They add up to $6.42B peaking in 1966-7. The launch cost estimate in Astronautix of $431M is just $6.42B/15. While they list a bunch of R&D contracts that precede the Saturn V line item, they were sunk costs at the time of Saturn V deployment. If someone has a better number please comment. A summary of Schmitt comes up with $3B per launch including $500M in capital costs. Those costs should be written off as sunk (i.e., a company that incurred them would declare bankruptcy and emerge with no debt). The $2.5B remaining is the 2005 price of $431M in 1967 dollars.

Am I missing something? Is pad construction, tooling, design and so on not included in the original $6.4 billion? If non-recurring costs made up a good fraction, then it’s a way overestimate.

Griffin puts the marginal cost at $100M in 1970 dollars or about $500M today. That would give us $2000/lb to LEO. If we had continued to put $15B/year in current dollars into Lunar development, that would be about 87.5 million pounds to LEO in the last 35 years if 1/3 of the money was spent on launches or over 15 million pounds to the Moon assuming no improvement over 1960s technology (and to be fair no bureaucratic price inflation beyond the consumer price index). That is about 75 international space stations worth of mass.

No, I think the main reason we abandoned the Moon was lack of national will, not price. The price point for colonization can be achieved if the national (or subnational or even rich guy) will comes back. My proposition is that Lunar property rights would be the impetus to set these wheels back in motion. I dare you to prove me wrong.

Space

Virgin Galactic Update

I got a solicitation call from Virgin Galactic after getting an email reminding me I registered and asking to confirm my phone number and a good time to call. They say they are about half way through their group of “Founders”. The first 100 seats paying full price of $200,000. They are keeping two other queues. “Pioneers” are people who pay $100,000 and get to be one of the first 1,000 people in space on the whole planet. They project that will be 300-400 people depending on how many people their competitors and NASA put up into space in the mean time. Then they will start taking people who put down $20,000. All of these deposits are “refundable”.

In any case, that is about $10 million in the bank from the Founders. They did say that they are using the money to develop the product. I will seek further clarification from Virgin Galactic on whether that is just the interest and the money is in escrow or what. If not, it would really be a player mutual sort of like the one I proposed about a year ago in The Space Review. I will aim to post terms and conditions when I receive them.

You get a seat number in your queue if you put up the money. Could someone with $320,000 please put that up so I can get an exact count on the number of seats with deposits in each queue? They project 500 riders in their first year. That’s $100 million dollars. Pretty good revenue on a $100 million investment. That also means that the non-Founders and Pioneers will start flying no later than year 2.

If you don’t have the money, you will be pleased to hear that their skill game partner is Virgin Games. More about that next week depending on what I am told and what kind of non-disclosure terms I have to agree to.

Economics

Ascendant Dragon

China is in the news these days for buying up Unocal, Maytag and IBM PC. If you check out the latest CIA world factbook you can see that China’s purchasing power is more than half of US with the second largest economy. If you project out the growth rates (9.1% and 4.4%) you can see China catching up to the US in 2015 when we both have $19 trillion economies (maybe $23 trillion adding in inflation).

Year China($B) US($B)
2004 7262  11750
2005 7923  12267
2006 8644  12807
2007 9430  13370
2008 10289 13959
2009 11225 14573
2010 12246 15214
2011 13361 15883
2012 14577 16582
2013 15903 17312
2014 17350 18074
2015 18929 18869

China will continue to grow its economy faster than US because its per capita income is still quite low ($5600 vs $40000 in 2004 est) and will still be less than 1/3 of US per capita income in 2015.

My favorite implication is for space policy. A China committed to space nostalgia (e.g., Moon landings) might get the US to devote thought to rationalizing commercial space policy. Mike Griffin started in this direction.

Social Commentary

Europeans Drop Suit

Reporting to you from Tenerife, Spain. It is a Canary Island in the Atlantic on London time with a decidedly Mediterranean culture. Tenerife claims to have the highest point in Spain, which I am told is the top of Mt. Teide the volcano, but the high point for me is the beach. This is my first trip ever to a European beach. I was in Denmark in the summer ten years ago, but it was not a “beach year” that year.

There are many people from the UK and the nordic countries that spend every waking minute in the sun. You can see hundreds of people sunning themself with or without (cloud) cover. Nothing tops (seeing) them.

The difference in the suit laws and custom explains many of the other cultural differences between Europe and the States. Topless bars are probably more lucrative in the States. US titillation in the movies plays ho hum in Europe. Foreign ho hum scenes titillate in the states. I prefer the pure tan to the Puritan.

Sundae toppings are also missing. One restaurant had 30 desserts including banana splits and a dozen ice cream sundaes and no chocolate sauce. I think that chocholate sauce has been devalued because Nutello (chocolate hazel nut butter) is what substitutes for peanut butter here.

Economics

Adopting Landing Slot Auctions

There is a good, but incomplete proposal for landing slot auctions at Chicago O’Hare at AW&ST, June 6, p.31. (Subscription required)

It includes the following:

  • Rolling auctions annually for 5 year rights
  • Forced reauction so that every airline must participate
  • Peak time pricing
  • Same price regardless of plane size

One thing that is not decided is “who should get the increased revenues that [the Justice Dept.’s] regime would likely generate or what should be done with them.”

My proposal is that the money go to the current rights holder for existing rights and the airport for new rights. That includes the auction winners. I.e., the rights would be resold and the former owner would get the proceeds. This gives the airport the right incentive to make improvements that allow more landings. It also turns the rights into capital assets. We might see better stewardship of them.

We might also see less screaming from existing rights holders because if they get the money, they are no worse off than under the current system. (Unless they were going to go bankrupt and stiff their creditors.)

Economics, Political Commentary

Don’t Quota Me

Chinese apparel have been slapped with a quota. Quotas are worse than tariffs, but first here’s a little background.

The rash of China bashing is well-timed to keep the Chinese buying dollars according to Yuan Answers? (WSJ, 6/10, subscription required). A triangular trade where US sends dollars and st0ck and title deeds overseas to the rich savers of the world and imports lots of stuff in one way shipping containers from China is not a bad thing. In fact, it can be sustained indefinitely with the US capital st0ck continuing to grow. It is a testament to how our laws are not quite as bad as everyone else’s.

In economics we talk about how tariffs and quotas both imply a “deadweight social loss”. When prices are artificially raised via a tariff, the customer prices rise and the supplier prices fall. The quantity sold also falls. It is this last part that is the first component of deadweight loss. By reducing the quantity sold, profitable trades without the tariff become unprofitable because they are not profitable enough to beat the “spread” between the supplier and customer prices induced by the tariff. All this is Economics 101.

A quota has an additional element beyond this kind of loss. In a quota, the supply price rises too. That means that any supplier who can produce at the new higher price will try to fulfill their quota. Thus suppliers who would have cut back production under a tariff will continue to produce to fulfill their quota. Everyone is cut back pro-rata (or according to some formula, e.g., 7.5% more than last year even if growth would otherwise be 500%) and not according to who is the most efficient. Coase might say that quota shares could be traded, but this entails higher transactions expense than the decentralized trade that occurs with a competitive market price.

The additional inefficiency is happily born by international suppliers who receive a major benefit when a quota is imposed–higher prices. So the quota is a collusive bargain between the Government, the domestic suppliers and the foreign suppliers to raise prices on the consumers at the cost to the economy of two kinds of deadweight social loss. Diffuse harm, concentrated benefit. Can one file a class action law suit against an industry association that lobbies for selfish policy?

Political Commentary

Devolution of Federalism

We may have passed the High Water Mark of federalism as I predicted back in April. In Gonzales vs. Raich, the Supreme Court is basically showing that it is a political body just like Congress, the Executive and the Federal Reserve. There may be a longer time between turnover on the Court, but the Justices appear to be responding to conscience and not just the rationality of arguments on their face.

What this means for federalism is that as interests evolve to reflect the growing Republican demographic of a richer, but not too rich society. As more and more are better able to provide for themselves, they see that they give more to the government than they take out. Even as Republican Congresses and Administrations provide huge new benefits, they are still perceived as the party of less government. Nice image if you can get it.

Even if it is just poor execution by Democrats and a overevolved sense of fairness, we are likely on a long-term era of Republican Congress and Presidencies. If only for the reason that there is a whip effect of Republicans winning state houses, then redistricting, there will likely be a 20 year hangover in Congress even if imperial overstretch and an abundance of power splits the Republican party.

What this implies for federalism is that the proponents of the debate will flip. National legislation will be championed by the Republicans while state diversity will be championed by the Democrats.

It has become Democrats like Cuomo arguing that an elitist Senate (with small-state overrepresentation and a super-majority requirement) deserves more power than a populist president when it comes to selecting and approving judges. We will see strange coalitions of conservatives and liberals on the Supreme Court denying federalism on legacy issues. The conservatives to lay the groundwork for a future with much narrower states’ rights and the liberals to be true to principles and to salvage short term political victories (or at least hold the line) on individual cases having to do with the vestiges of challenges to Democrat-approved national legislation.

I predict that there will be a litmus test for new judges not to support federalism. If not by this administration, perhaps the next will get it. So those Justices like Thomas and O’Connor that support federalism on the merits will increasingly be joined by fair-weather federalists from the Left and opposed by the new appointees that will be expected to spread national Republican law throughout the land.

Economics

Auction H-1B Visas

The limit for H-1B visas is 65,000 this year and next down from 195,000 in 2001-2003 according to US Citizenship and Immigration Services. Since foreign technical service personnel are literally worth their weight in gold, this is detrimental to the US economy. The London fix on gold (according to WSJ–subscription required) was $418.25 per troy ounce Friday. Each troy ounce is 31.1 grams or so. The average weight of a US adult is 177.3 lbs according to CDC. That much gold can be bought for $1.08 million. A technical services worker costs about $47,000/year according to the Federal Reserve of St. Louis. If the relative prices stay the same, 23 years of work will net $1.08 million. Technical services are likely to become more valuable compared to gold over time.

In the New York Times today, John Tierney talks about Julian Simon’s research showing that war has become less lethal over the years as a leading cause of death and the trend has continued. Simon was also a big believer in the value of human capital as am I.

His argument in The Ultimate Resource 2 showed that while more births cost more at first (not counting the joy of parenthood), they resulted in more economic growth when they grew up. There is no delay associated with H-1B visas. The import of human capital will immediately speed US growth. These people were already raised overseas and represent a pure boon to the US economy.

There are individual losers, of course. US technical service workers earn less if people are imported from overseas. But protectionism always results in lower aggregate GDP than free trade. There ought to be a way to compensate US technical service workers for the wage loss they will suffer while still allowing the increase in foreign workers and have a win-win or at least a win/small loss.

My proposal is to have US citizens classify themselves into categories according to proof of training. Then the citizens can get some cash from the proceeds of an H-1 B visa auction if people are being imported in their classification. I also propose that the application process be a short form and that the only reason to reject a form would be the auction price and falsification. That is, any reason to immigrate would be fine as long as the auction price was right. The penalty for falsification would only be to make sure the auction proceeds went to the right people.

I would prefer that they just open the floodgates to a million or more immigrants per year with no evidence of need required. Just set the price so that the benefit of the marginal immigrant exceeds the cost. If Simon did the analysis, we would probably end up subsidizing immigration instead of discouraging it. We should continue to refine our tax code, regulations and improve our environment so the US is the most excellent place to live.