Private Sector Space Exploration?!

Last night a space rocket landed back on earth upright. That in itself is hugely impressive (although apparently it isn’t the first rocket to do that), but what’s perhaps most interesting is that this was done by a private sector company, SpaceX. Our instinct when it comes to space exploration is to think about public sector bodies like NASA, or the European Space Agency, yet this is a private company founded by Elon Musk, described on his Wikipedia page as “South African-born Canadian-American business magnate, engineer, inventor and investor”. Musk is also the man behind PayPal, and Tesla, the electronic car manufacturer.

Is there any reason why space exploration needs to be public sector? This is one of the challenging questions as economists we should ask. Why do we think the private sector could not deliver in this area? Why do we also instinctively think that trains should be publicly owned? Why a National Health Service but not a National Food Service? Surely the food we eat is just as important to our health as any actions the NHS takes (maybe after we’ve eaten some bad food)?

We won’t touch on such issues in Intro Macro (EC114) next term, but you’ll have covered many of the building blocks for such an analysis in Intro Micro (EC113) this term – an analysis of markets and market failure. Under what conditions do we expect markets to succeed, and in what ones do we expect markets to fail? Some of the answers relate to information (do buyers and sellers have equal information?), some to power (do buyers or sellers have greater power?), and others still to the cost of mistaken choice (how costly is it?). You’ll get plenty of opportunities to think more deeply about what the state should and shouldn’t do as you go through your three years with us. Challenge yourself on why you think things should be done particular ways whilst you’re with us…

Back to that fiscal charter…

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Last night Vince Cable gave a very interesting and insightful talk on his time in government, most notably many discussions with George Osborne where he disagreed with the Chancellor. One of those areas has manifested itself in the fiscal charter, passed recently, and already causing the government great trouble when it comes to meeting it.

Yesterday this appeared on the Guardian website; a commentary piece by David Graeber with an apocalyptic warning: we’re heading for another crash. Cable asked as much last night. The level of house prices reached a new high relative to income levels in the years before the crisis, rising from a historical 3 to nearer 6 (as a multiple of average income levels). This led to a lot of unpayable debt being taken on by home owners. That level never really dropped during the crisis, and is starting to rise again – house prices are rising faster than average incomes. Probably the only difference at the moment is it remains harder to get a mortgage than it was pre-crisis, but the government’s many FirstBuy/HomeBuy schemes, where it provides a sizeable chunk of the deposit for willing mortgage takers.

Graeber makes another important point about the fiscal charter and tax credits (and general austerity): national accounting identities (relationships that must hold true at the national economy level, like 1+1=2 must hold true) tell us that the sum of all debt must be zero. Hence if the government reduces its debt level, the private sector, or households, must increase their debt levels. This manifests itself practically in measures like the recent tax credit cuts. If tax credits are cut, many families will be worse off, and will find themselves more indebted. The mechanism the government optimistically claims will make them better off is that all firms will be able to pay them the “living wage” that they’re mandating. Even if that happens, it’s a shift from government indebtedness to private sector indebtedness: either firms incur losses to pay workers more, or they don’t pay those workers more and households incur more debt.

Of course, a follow on question is: should the government take on debt just so that we don’t have to? That’s a blog post for another time. Or the subject of a lecture or two next term…