Does Adam Smith’s invisible hand extend to outer space?

Alternative title: Review of Katherine Mangu-Ward’s “The case for space billionaires” and Mike Riggs’s essay on space insurance

This week, I have devoted most of my blog to several new essays about outer space that were published in the December 2022 issue of Reason magazine. Today, I will conclude my series with “The Case for Space Billionaires” by Katherine Mangu-Ward, who is the editor in chief at Reason, and “As Private Space Travel Grows, so Will the Insurance Market” by Mike Riggs, Reason‘s deputy managing editor.

Let’s start with Ms Mangu-Ward’s excellent essay, which responds to two well-worn objections to the efforts of “space billionaires” and their private companies to commercialize outer space. One objection is what Mangu-Ward calls “the ‘there are problems here on Earth’ complaint”. The other objection is what I shall call “the Bernie Sanders’s argument”: space billionaires like Amazon’s Jeff Bezos, Virgin’s Richard Branson, and Tesla’s Elon Musk are able to invest in space because they are not paying their fair share in taxes.

Mangu-Ward easily refutes the first objection by noting how small the commercial space industry is relative to the rest of the economy. She links to this infographic prepared by Space Investment Quarterly, which shows that the total private investment in the space industry is about $264 billion, or in the words of Mangu-Ward: “Not chump change, but also not enough to definitely end poverty, injustice, or other terrestrial troubles ….” For my part, I would add the following observation. If these space critics were serious about reducing poverty and income inequality, they could start in their own backyards, so to speak, by calling for the repeal of onerous zoning laws and occupational licensure restrictions.

What about the other objection: Bernie Sanders’s tax argument? Here, Mangu-Ward simply concedes that Bezos, Branson, and Musk don’t pay their fair share in taxes, but then presents a kind of thought-experiment in their defense. Imagine that these space billionaires did pay more money in taxes; let’s say $X more. Who do you think would more wisely or effectively spend those $X: Bernie Sanders or the space billionaires? Q.E.D.!

In addition to responding to these standard objections, Mangu-Ward also mounts a compelling defense of the private space sector in general and of Bezos et al. specifically. Among other things, she highlights the benefits of competition: “The billionaires are not duplicating each other’s efforts, each is building different tech to pursue different goals.” See, for example, the image pictured below. Moreover, as Mangu-Ward correctly notes, this characteristic of competitive marketplaces–i.e. Schumpeterian creative destruction–“has served us well when it comes to cars, snacks, and phones, so it’s no surprise [creative destruction] would happen in the space sector as well once entrepreneurial private actors are involved.”

Another benefit of competition is that open markets tend to expand economic opportunities by creating demand for new products and services. Here is where Mike Riggs’s essay on space insurance, the shortest piece in Reason’s December 2022 collection of outer space essays, comes into play. As Riggs notes, liability insurance for space flight did not exist during the original Apollo lunar missions of the 1960s and early 1970s. Today, however, space insurance “is now close to standard.” Citing this report prepared by the Aerospace Corporation, Riggs observes that as of 2018 about 2/3rds of all man-made satellites launched into orbit carried some form of insurance.

Why is this insurance market example so illuminating? Because the best argument in defense of billionaires (space or otherwise) is that well-functioning markets generally make everyone better off, one of the most original insights made by Adam Smith when he published The Wealth of Nations in 1776. In the spirit of Adam Smith’s invisible hand theorem, I will close with my favorite sentence of Mangu-Ward’s essay: “The beauty of functioning markets … is that sometimes they take one person’s frivolous dream and make it come true for tens or hundreds or millions of people who, it turns out, share the same dream.”

About F. E. Guerra-Pujol

When I’m not blogging, I am a business law professor at the University of Central Florida.
This entry was posted in Uncategorized. Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s