Should Space Be Privatized? With William Megginson

Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Veljko (00:00):
Hello Kateryna

Kate (00:01):
Hi Veljko

Veljko (00:02):
So have you heard about 16 Psyche?

Kate (00:06):
16 Psyche sounds, sounds like a thriller or something like that.
No, I don't know what is 16 Psyche.

Veljko (00:13):
It does sound like a Hitchcock movie.
It's an asteroid.
And the 16 stands for, it's the16th asteroid to actually be
discovered, identified, and named.
Back in the 1800s.

Kate (00:26):
And Psyche?

Veljko (00:27):
Psyche, the Greek goddess of the soul.
I'm not exactly sure why.
Of course, celestial bodies wereoften named after gods and goddesses.

Kate (00:37):
That's pretty cool.
So, you know what caught my attention isthat in the 18th century they were able
to discover this asteroid, number 16.
That's amazing.
I mean, they had telescopes atthat times that were powerful
enough to see this asteroid.
How far is it?

Veljko (00:51):
It's actually floating somewhere between 250 and 300
million miles away from the earth.

Kate (00:58):
Amazing what people used to be able to do in 18th century.

Veljko (01:01):
This is the Italian tradition.
I don't remember the name ofthe gentleman, but he was an
Italian astronomer, so walkingin the shoes of Galileo.
Okay, so why is this interestingto us, finance people?
This is a major piece of rockthat's floating out there in space.

Kate (01:18):
What?
What does it mean major?
Define major.

Veljko (01:21):
It's a big ball of rock.
It's often been described as potatoshaped, and it's about 150 miles
in diameter, about 230 kilometers,so quite a big piece of rock.

Kate (01:35):
Big, but to put it in perspective, right?
St. Louis, Missouri to Columbia,Missouri, that's about 150 miles.
So slightly more than the rock.

Veljko (01:44):
When you put it that way, in my mind, this was "hugerer.
" You're absolutely right.
It's a big rock.
But this puts it into perspective.
It's about a chunk ofthe state of Missouri.
So the really interesting thing hereis that a bunch of researchers, a
couple of years ago, estimated thatthis rock is mostly made of iron and

(02:05):
nickel with some gold mixed in there.
They don't know exactly.
But they estimated based on their bestguesses of composition, then this rock,
if it were to be brought to the earthand mined, would be worth approximately
10,000 quadrillion US dollars.

Kate (02:24):
10,000 quadrillion

Veljko (02:26):
Oh yeah.
And in case you are strugglingwith putting a quadrillion into
perspective, you're in good company.
I'm lucky I have a big monitorbecause I'm literally looking at it.
It fits, but I'm not evengonna try to count the zeros.
One way to put this into perspectiveis that if you divide this 10,000
quadrillion by the world population,assuming that this wealth was equally

(02:49):
distributed, and of course thingsare never equally divided, we
would all be richer than Jeff Bezos.

Kate (02:55):
But, but, there's many big buts.
There's multiple issues there.

Veljko (03:00):
Well, there, there's many big buts, but there's
also big rock here, right?
So the, first issue, of course is if youwere to bring all these metals to earth,
all of a sudden you would increase supply.
And of course, the nominal prices atwhich we're valuing this thing are pretty
meaningless, the prices would collapse,it's a bit of a preposterous argument.
We all know that you bring a massiveamount of a particular good to Earth.

(03:24):
And the increase insupply lowers the price.

Kate (03:27):
I think I'm a lot more impressed with the ideas that humans can
actually bring something back from350 million miles away, dealing with
a lot of vacuum and space in between.

Veljko (03:40):
You would be right to be impressed because the truth is we cannot, this
technology doesn't exist and this isreally what we wanna talk about today.
We have these massive opportunitiesin space, in the space economy,
and they generally requiremobilization of large scale assets.
They usually require multiple,long time horizons to develop the

(04:03):
science, to develop the technology.
They're extremely riskyendeavors, and the benefits are
usually spread out to humanity.
The knowledge that youcreate, the science.
And so for all of these reasons,the exploration and the development
of space has generally beenleft in the hand of governments.

Kate (04:22):
Right.
It makes me think about also explorationof the earth whenever the early explorers
were still looking for America, et cetera.
The main motivation was amonetary one, obviously.
But, the amount of knowledge gainedin exploring, has been incredible.
So this knowledge generation followedin the footsteps of profit motives.

(04:44):
You can think about space explorationfrom a similar perspective.
People are hoping is gonna enrich them,but wonderful things that could come
out of it is just this amazing amount ofknowledge that we can gain through it.
But yeah, as you put it, is who isgoing to pay for this space exploration?

Veljko (05:01):
I love the parallel.
Because, if you're thinking aboutcolonization, we're talking about
the British Empire relying on these"companies." That were hybrid, that
were private enterprises, but withstrong connections, mandates, and
regulation from the government.
And in some sense we are gonna see thatnowadays we are developing some sort of
hybrid approach where venture capitalis financing a lot of the next phases

(05:27):
of exploration and development of thespace economy while the government
is still playing a major role bothin regulating and co-financing.
For all of this, we are gonnahave Bill Megginson today.
He's teaching a class on space flighteconomics at the University of Oklahoma.
A class that's unique in its own.

(05:47):
He's gonna give us a lot of theinstitutional detail, a lot of the
history, and hopefully a perspectiveon should space be privatized.

Kate (05:57):
I'm excited to learn more about space industry and financing
of space flight and what'sprofitable in there and what's not.

Veljko (06:06):
One of the things that I'm totally looking forward to is that
when you're teaching finance it'soften easy to become cynical about
what our profession really is doing.
There is a version of financial educationthat feels like we are endeavoring to
make the rich a little bit richer, andsometimes, it's hard to motivate our
students and I think that this is justa fantastic example of the good things

(06:31):
that financial markets can provide.
On one side, you have the needfor governments to mobilize
these large scale investments.
On the other side, we have a venturecapital industry out there full of
swashbuckling entrepreneurs readyto take risks and challenges, and

(06:51):
perhaps it's gonna be interestingto see can we rely on this private
sector venture capital, private equityfinancing, do we still need governments?
And I look forward to thisdiscussion with Bill, and I hope
our listeners will enjoy it as well.

(07:17):
Welcome to Questions in Finance,

Kate (07:20):
a podcast where we translate academic mumbo jumbo to answer
interesting questions in finance.
I'm Kate Holland.

Veljko (07:28):
And I'm Veljko Fotak.
Kate and I met when we were PhDstudents at the University of Oklahoma.

Kate (07:34):
Today we're university professors and we spend our days
teaching and researching companies,markets, and all things related.

Veljko (07:44):
Hello, Kate.
And hello, Bill.

Kate (07:46):
Hello everybody!

BIll (07:47):
Hi Veljko!

Veljko (07:48):
Well it's nice to have you both here today to
talk about the Space Economy.

BIll (07:54):
Space flight economy.
Not real estate space,but space flight economy.
Yes.
I've learned to make that distinction.

Veljko (08:01):
I have learned that too.
Preparing for this episode, I startedgoogling "space economy" and apparently
there's a lot of papers from the fiftiesand sixties that talk about geography

BIll (08:10):
or logistics or warehouses.
Yeah.
Space.
Right?

Kate (08:13):
We have to preface that there's not too many papers
out there about space flight.
And Bill is one of the very few peoplethat has a paper because our focus here
is usually to highlight research articles.
So today we're really talking to a personwho has the paper about space flight.
Another one is by Matthew Weel in asa Journal of Economic Perspectives.

(08:37):
But that's pretty much everythingthat we've been able to find.
And so Bill's paper really covers alot of the basic and not the basics,
and explains the industry really well.
So we are really glad tohave the expert here today.

BIll (08:49):
Thank you, Kate.
It turns out, if you're talking about thephysics or the engineering or the science
of space, there's an enormous literature.
Even if you're talking about certainaspects of the financing, the practical
venture capital, there's quite a lot ofliterature, if you're talking about the
financial economics or the industrialorganization of space, I was rather
shocked to learn when I was preparingmy course, there's just nothing there.

(09:11):
And the Weinzierl article is quite good,but again, it has a very specific focus
on really the government aspect of it.
So, I found myself having to actually,without being too grandiose, invent
the industrial organization frameworkfor analyzing space and the financial
economics of it from scratch,which I don't recommend to anybody.
This was not fun.

Kate (09:30):
Yeah.
We've seen a few things step uplike the OECD and World Bank.
They have published some of thestatistics recently too on this.
So, some of the big organizationsare stepping up and also
publishing some information.
But yeah, it seems to be a verynew field, especially in finance.

BIll (09:47):
There's been a couple of papers, there's one in JFE,
specifically about satellites and theinformation processing of satellites.
And they showed that with theinformation you get from space,
essentially government's, forecast ofoil inventories or other macroeconomic
factors, is really redundant withthe view you get from space, unless
there's clouds that cover it.

(10:09):
So it was, there's a few related aspectsthat have been published in top journals,
but really nothing on the financialeconomics or the industrial organization.

Kate (10:17):
So what's our main question today?

Veljko (10:19):
Kate, before we go there, just for our audience, I wanted
to take a moment to introduceor rather reintroduce Bill.
Bill is becoming a bitof a recurring guest.
We are blessed, on our podcast.
Bill Megginson is the Professorand Price Chair in Finance at
the University of Oklahoma'sMichael Price College of Business.
For our listeners who are curious,we did introduce Bill in our

(10:44):
episode on Sovereign Wealth Funds,and we invite our listeners to
go back and listen to that one.
We always need the downloads anyhow.
For the sake of brevity, Bill was adissertation advisor or co-advisor
for both of us, and he's been amentor, co-author, and a friend.
Thank you Bill, for the greatimpact you've had on our careers.
To get us started, we obviouslywanna talk about the space economy.

(11:08):
It's new, it's novel.
We all have some idea of what it means,and yet defining it precisely, it's
a challenge, I hope, Bill, you'regonna give us some perspective there.
We'll talk a little bit about the history.
I wanted to root our conversationin one main question.
When I was thinking about thespace economy, the most interesting
question for me remains the one aboutthe role of government versus the

(11:31):
role of the private sector here.
On one side, the space economyreally has a lot of the
characteristics of a public good.
The value can hardlybe fully internalized.
You have very large upfront investments.
You have payback periods thatspan decades or well, never
as we're gonna see, right?
Some of these investmentsare never profitable and

(11:53):
they carry substantial risk.
So for all of these reasons, youhave the market failures that may
justify government intervention.
On the other side, Kate mentioned,Matthew Weinzierl, I'm probably
mispronouncing his last name, this is a2018 Journal of Economic Perspectives.
To quote him, he describes thegovernment-driven NASA-centric US

(12:18):
system as being plagued by "weakincentives for the efficient allocation
of resources, poor aggregation ofdispersed information, and resistance to
innovation due to reduced competition."
Finally, he points out that "NASA'sfunding and priorities are subject
to frequent and dramatic revisions.
" We have arguments on one side, wehave arguments on the other side.

(12:42):
I really hope, Bill, by the end of thisepisode we'll hear where do you break?

Kate (12:45):
And I want to add to this is preparing for this episode.
Besides doing, some conventionalstuff of looking research and,
what's been published out there.
I've also talked to someteenagers , to get their take on
space exploration, Mars, et cetera.
And also some of our localprofessors in astrophysics
and physics to get their take.

(13:05):
So I got some unconventional views,but it's interesting that across the
board from teenagers to astrophysicists,one of the big worries that they
have voiced is the privatization ofspace and the 18 year olds here in
Columbia, Missouri, several of them areactually extremely worried about that.
So they understand the efficiencyargument yet, they have all mentioned.

(13:29):
And I was surprised to hear 18 year oldstalking about privatization of space.
Kind of amazed that theywere bringing those terms up.
But I think that it's on everybody'sminds from teens to all of us.
What is the role of government versusprivate enterprise in space exploration
and the space flight industry.

BIll (13:49):
Thank you.
Now, I came into it with a similar biasactually, and again, I've spent my career
along with you studying state versusprivate ownership and finding in general
private ownership is much more efficient.
So I came into this with the sameidea that, do we really want to
privatize space, space flight?
and quick answer.
Yeah.
It turns out this is far more efficientand it's not the privatization of space,

(14:09):
it's the privatization of space activitiessubject to extensive government
regulation, leadership, and funding.
So let me go ahead andkind of start with that.
Space activities, Whatis the space industry?
It's essentially the equipment weput up into orbit, the launch,
the satellites, the other stuff.
And then by far the moreimportant is the data that we
get in how we use it from space.

(14:30):
The entire space industry, spaceeconomy is about $600 billion of
total revenue around the world.
Three quarters of that is, private.
Three quarters of it is alreadyprivate, actually more than that.
Government are one quarter, andthat's steadily declining, but
government is absolutely centralto the activities of space.
They set the priorities, they providethe seed funding, at least some of it.

(14:52):
They're extensively regulatingit all the way through.
So first thing, threequarters of the $600 billion.

Kate (14:58):
So, so let's, let's put 600 billion into perspective here

BIll (15:02):
I'm sorry.
that's, my dog.
Do I need to go shoot the dog?

Veljko (15:04):
No, but you will hear a little bit in the podcast in
the back, when you're talking, I
can only edit it so

BIll (15:09):
basically

Veljko (15:10):
but
it's
not, it's not a problem

BIll (15:11):
Sorry.
we have a seven month old, St. Berdoodle
who's 50 pounds heading for a hundredpounds, and she likes to let people
know that she's around and not happy,

Kate (15:21):
The first visitors to space where the dogs, One one one have a
good ending and the other to came
back alive,

Veljko (15:29):
I think at some point we might play a game with our listeners, in our
first seven episodes, in each episode,Kate's cat appears at some point.
There is a hidden meow ineach one of the episodes.
We'll offer a free subscription toour free podcast to the listener
that can identify the meow in each.

Kate (15:46):
So just to throw in the names we're talking about Bill's dog
making an appearance on the podcast.
Leika was the first and mostfamous animal to make it to space.
Leika doesn't have a very good lifestory, we'll end there, but then
there's two other dogs, Bjelka andStrjelka, who were the first to
successfully return back to Earth.

(16:09):
makes, yeah.

BIll (16:10):
Well, Yuri Gagarin was the first human in space, and he
didn't have a happy ending either.
he was killed in a space spacewreck, several years later

Kate (16:17):
Let's actually talk a little bit about the history of this
industry, I would like to throwin several questions all at once.
I wanna put the 600billion into perspective.
I wanna talk a little bit about thehistory of space flight industry,
and I want to also understand therole of governments in the whole mix.
So there's three big things there.

(16:40):
Let's see how we can attack them.

BIll (16:42):
Okay.
Space economy is, basically the thingsthat the launching payloads to space

Kate (16:49):
Let's not step even back payload like that.
Not everybody knows what's a payload,

BIll (16:53):
Everybody knows rockets send things into space.
Turns out by far, the most commonpayload that you actually put on a
rocket to go to space are gonna besatellites of some type, or in this
case of Starlink and others, basically,transmitters for communications.
So payload is what you send to space.
Essentially the privatepart of the space economy.

(17:13):
We don't really see thegovernment part of it.
It's very important, the military part.
Probably part of the space economy isthe things that are loaded up on rockets,
sent into space, and then communicateback with, send data back to earth.
It's about a $600 billion totalrevenues of the space economy.
Which would also includewhat the government buys, the

(17:34):
military buys in an open market.
But what we don't include isweapons and there's a lot of
those that are launched, missiles.
So the space economy, $600 billion.
The total world economy isa little over 100 trillion.
So the space economy is lessthan 0.6% of the world economy.
It's a very flashy industry.
It's a very important industry,but in a macroeconomic sense,

(17:56):
it's really quite small.

Kate (17:57):
For now, the investment has been a small investment in it.

BIll (18:01):
In a macroeconomic sense, it's almost round off error.
In terms of the play that it gets andthe technology and the importance of
it it's vastly bigger than it looks,but as an industry, it's a relatively
small industry and since it's ahigh wage industry, it's impact in
terms of employment is even smaller.
But, so it's $600 billion per year.
Three quarters of that accruesto private investors.

(18:23):
Private providers.
So only one quarter of the $600billion is government contracts.
So three quarters of it's already private.

Kate (18:32):
So out of that, we've talked about this payload being satellites
how much do satellites take up?

BIll (18:38):
It's over 80%.
It's over 80%.
What we see, the really flashy part,the SpaceX launch or the Blue Origin
launches of rockets is criticallyimportant and absolutely vital, and
the cost that it's gone down is what'sdriving the entire industry, but it's
a small fraction of the total revenues.
Critical, but small fraction,80% of all the revenues in this,

(18:58):
over 80% of the revenues in thespace economy are from satellites.
And that's been the casefor quite a long time.
Now there's many types of satellites.
By far the most important are what arecalled the telecommunication satellite
or earth observation satellites thatbasically do what the name implies.
Telecommunication satellites arethe star link that communicate

(19:18):
with ground station and

Kate (19:19):
Provide G-P-S-G-P-S services to us,

BIll (19:22):
Well, GPS is military.
But it turns out GPS the GlobalPositioning System was launched by
the US Air Force in 1978, and theyactually didn't really want it,
but it turned out they put it upand it's, it is by far the biggest
commercial hit of the space economy.
Tremendous payoff.
Things we don't think of.
Uber is a space company.
DoorDash, all of the delivery companies...

Kate (19:44):
Apple.

BIll (19:45):
Apple, the first, Apple iPhone Eight, in 2008, was the
first one with GPS installed.
And since then, we couldn'tconceive of life without GPS.
GPS has been by far the singlemost important commercial
application of space.

Kate (20:00):
It's interesting.
The 80% is interesting.
That's a big part of it.

BIll (20:04):
And three quarters is private.

Veljko (20:05):
The three quarters private blows my mind to be honest.

BIll (20:08):
It's really surprising to everybody,

Veljko (20:09):
Yeah, my prior coming into this is, this is all government.
But about the headline number.
I see your estimate of the value of thespace economy to be at about $600 billion.
I found some other numbers.
Sometimes they're hard to comparethe Bureau of Economic Analysis
has a 2023 study that looks atthe US space economy specifically.

(20:31):
And they estimated in 2023to be at about $240 billion,
which I think is a bit smaller.

BIll (20:40):
But again, that's the US.
The other part of that is that the USis over half of the global space economy
with China being most of the rest interms of the total government spending.
Of the total spending, 600 billion, callit roughly 150 billion is government.
Half of that over, over halfof that is, US government.
In fact, I think it's higher than that.

(21:00):
NASA's budget, total budget is $25billion and it's been constant for several
years, and it's gonna decline this year.

Veljko (21:07):
The US you're saying it's about half or maybe slightly more.
Then you have China.
My prior here would be EuropeanSpace Agency, and then india?

BIll (21:17):
No, they're not even round.
Europe is not even round off.

Kate (21:20):
Soviet Union, ex-Soviet union,

BIll (21:21):
Russia's third after China.

Kate (21:23):
I have to give a shout out to China in terms of how they've caught up.
I think we're gonna go a littlebit back into history here.
But it used to be obviously a US-Soviet Union fight back in time.
And I think why we all think thisis so government oriented is because
the beginnings go back to military.
Because US in the fifties hadthe technology to launch rockets,

(21:44):
including nuclear warheadsinto any point of the planet.
But Soviet Union didn't.
So they needed to figureout a way to do it.
That's why they decided to go upinto space to allow themselves to
place the rockets anywhere to be ableto compete with the United States.
The beginning of this race wasthe Soviet Union US military race.

(22:06):
And I guess that's back, ofcourse, in the fifties and sixties,
but it sits fresh in our mind.
And at the time the Soviet Unionmade huge stride, as we know.
We've mentioned the dogs who madeit to space first, and then they
put the first human into space.

BIll (22:19):
And the first woman.
First space walk.
Yeah.
They did a lot of first.

Kate (22:23):
But US was very quick to catch up when they did jump
in and threw in some funding.

BIll (22:29):
It took a while, but they did catch up.
Yes, that's true.
Now i'm not sure we'd want to go wayback, but within the 20th century, the
first person to really do any spacework of any importance, is Robert
Goddard, an American scientist, didit basically with a Guggenheim grant.
But he basically was, not aloner, but he did this on his own,
and he developed liquid fueledrockets, which is controllable.

(22:50):
If it's a solid fuel rocket, not toget too technical, but a solid fuel
rocket, once you light it, it's gone.
It's gonna go.
You can't turn off.
A liquid fuel rocket, you can calibrate,you can start it up, you can shut it down.
So liquid fuel was critically important.
So Robert Goddard's set the basic patentsfor that, but then it was the Nazis,
particularly, von Braun and the Germansduring World War II developed the first

(23:12):
true rocket intercontinental rocket firstballistic missile, which was the V two.
Vengeance two rocket, whichbeginning in 1944, several thousand
of them were launched againstLondon and other allied cities.
That's really when it came into its ownis the Wernher von Braun and the German
rocket system from Peenemunde, Germany.
And then of course, at the end ofthe war, everybody knew this was

(23:32):
happening and all of the allies, theRussians, Americans, British, wanted
to capture the German scientists.
It turns that von Braun rationallydecided to be captured by the
Americans 'cause they had more money.
But the Russians got several, the Russiansgot a gentleman named Korlev, who was
the father of their space program.

Kate (23:51):
It's amazing how these key people play a huge role in space industry.

BIll (23:56):
That's exactly right.
And Wernher von Braun came tothe US with most of his team.
The US Army had to lie to get him in,'cause he was a member of the Nazi party.
But they basically brought him toTexas and they developed a US space
military rocket system from the V two.
The Soviets didn't have theaircraft to bring weapons to the US.
Nuclear weapons.

(24:16):
They had the nuclear weapons.
So they went to space anddeveloped these enormous rockets.
The first one was after I was born,it was in 1957 that they had Sputnik.
And this is when they sent thislittle bitty capsule that freaked
out the entire western world.
So very shortly thereafter, onecorrection, I actually have to note
for you, Kate, is that NASA, NationalAeronautics and Space Administration was

(24:39):
launched in 1958 as a civilian agency.
And it's kind of important to do that.
It was a, it still is a civilian agency.
Now, all of the early astronauts weremilitary test pilots and still the case
that most of the astronauts are eitherformer or current military officers.

Kate (24:56):
Well, I mean, you almost gotta have that training.
But back to the key people.
You mentioned Sergej Karilov.
He actually was tasked in Russia withcreating a platform for missile launches.
It's just that this guy, he was interestedin space, so he blended the two together.
So if he wasn't interested in space, whoknows what our story would be like today.

(25:20):
So it's the interest of this singleindividual back at the time in space,
of course, the convenience of achievingsome of his other military goals.
But what I'm saying is he couldhave picked another way to achieve
the military goals besides space.
It was his interest, pure interest inspace and understanding of space to
develop human knowledge, that was key.

BIll (25:40):
Wernher von Braun was the same way.
He basically was interested in space androckets in the 1920s, but the only people
with any money were the German army.
And they basically funded hisresearch, turned into weapons, but he
always wanted to go to the moon muchmore than he wanted to bomb London.
That was just a means to an end.

Kate (25:57):
Science oftentimes finds itself on the back of a commercial interest and
a military interest and explorations.
I think the exploration of many countriesback in the days was also tied together
with a lot of economic interest,and then the scientists jumped in.

BIll (26:11):
The same can be said , about great artists too, throughout history.
Of course, they've been patronsof rich people or the Church.
This is, where the money is andthis is where it's always been.

Veljko (26:20):
My highly intellectual contribution to this conversation was
going to be to clarify that the biggestinnovations in human history seems to
be always driven either by war or by
sex.
You guys are forgetting the big roleof pornography in the development of
communication technology and the internet.

Kate (26:38):
Is there a role of pornography in the development of space?

BIll (26:42):
So far nobody's had sex in space.
We would've known about it.
So nobody's had sex in,

Kate (26:47):
it may be difficult physically,

BIll (26:49):
One of the things that I noted the paper is the question,
the mother of the first baby to beborn in space, is she alive today?
And if so, is she Chinese or American?
She's one of the two.
I actually think she is.
And she's probably atleast high school age.
It will happen probablyin the next 15 years.
And of course that person is gonna beone of the most famous women in history.
It's going to happen.

(27:10):
Nobody's been murdered in space.
There've been deaths, but all thethings that happen on Earth, earth
eventually will happen in space.
But they haven't happened yet.

Kate (27:17):
I would like to turn our conversation here in a little bit
into the funding of space industry.
Because to me, as a finance professor,things are always about cost and benefit.
And honestly, when I was discussing thistopic with some of the astrophysicists,
my approach to it was, the cost-benefitanalysis isn't very positive.

(27:38):
It's just very expensive to go intospace , and especially to Mars and what
is it that we're getting out of it?
A big pushback that I received wasthat we're getting knowledge and the
most valuable part of it is gettingknowledge, is understanding what's
happened to Mars because it looks likeit might have had some water or oceans
on there, and then its core died.

(27:58):
So perhaps we can, by learning aboutMars, prevent the same happening to Earth.
So the biggest astrophysics viewout there for the cost-benefit is
knowledge is extremely valuable andthey all want to get the knowledge.
They seem to not supportthe ideas of space travel.
They think that's wasteful.
They also don't think that extractingvarious minerals and bringing

(28:20):
them back to earth is worthwhile.
That's too expensive.
But the knowledge is what came up on this.
How has this knowledgecollection been financed?.

BIll (28:29):
Okay.
That's a very much anastrophysicist view of it.
And they're absolutely right.
That could be done farcheaper with unmanned probes.
We've been sending stuff toMars for a long time, since
the 1960s, the vast majority ofwhich failed in the early years.
It's only been the last few, thelast couple of decades, particularly
the last 10 years, that's Marsprobes have been very successful.

(28:49):
You've actually had a helicopteroperating on Mars for 72 flights.
You have a rover that's going around.
We know quite a bit about Mars.
What is strange about this, of themany things that are strange about this
industry, about who pays for it, , youhave two mega billionaires that are among
the richest people in world history,Elon Musk and Jeff Bezos, who want
to go to Mars and are paying for it.

(29:11):
So one of the things that youcan reassure your astrophysicist
friend, we're not paying for it.
Taxpayers are paying verylittle for space exploration.
Now, on the military side, we'repaying for some there, but you
can make a case that's necessary.

Kate (29:24):
We probably want to throw in the third one too, right?
Because he's gonna feel left out.

Veljko (29:29):
Richard Branson, Virgin Galactic.

BIll (29:31):
Basically the Virgin stuff has, one of 'em has gone completely belly up.
The others are limping along.
It's these two guys now of course,of which by far the most important
so far it's been Elon Musk.
Now Bezos and Blue Origin havefinally launched a rocket.
They finally put payload into space,so they are now part of the equation.
Jeff Bezos has invested over$12 billion of his own money.

(29:55):
Blue Origin is completelyself-finance by, by Bezos, and he's
now quit Amazon and is in charge.
This is gonna be a serious player,but the entire industry is SpaceX.
It's been completely driven by the companyand within the company by Elon Musk.
And it's been investor money.
They've had about $13 billion ofinvestor funding, 23 private equity

(30:18):
financing rounds which is extraordinary.

Kate (30:20):
I wanna throw in that SpaceX operates still in a lot of government
contracts because they wouldn't havebeen able to do what they do without
getting the government contracts becausethey are a big part of their financing.

BIll (30:31):
They always acknowledge that there's no question about it.
That's absolutely true.
And Musk is the first one to bea cheerleader for NASA, probably
at least as important has beenthe Department of Defense.
Those are critically important too.
But no, essentially Musk andSpaceX started privately.
They had three failed launchesbefore they got anything into space.

(30:52):
If the fourth one had failed, hewould've shut down the company.
It worked.
And then in 2006, they had thefirst private satellite into space.
2006, they got theirfirst contract with NASA.
So NASA's been absolutelycritical to the success of SpaceX.
And then by 2012, they were the firstprivate company to deliver a payload to

(31:12):
the International Space Station 2020.
They were the first privatecompany to deliver crew to the
International Space Station.

Kate (31:20):
And as we know, recently rescue the Boeing launched crew,
that couldn't come back for while.
But finally did.

BIll (31:28):
Yeah.
And what people don't realizeis that the International Space
Station's been up there since 1998.
US and Russia were foundational partners.
It's gonna be there until 2030.

Kate (31:39):
I'm glad that you're picking it up.
Yeah.
Let's go back to that history.
So at some point US and Russia team up,because they're both now at the same
speed and put out the InternationalSpace Station, which has been
orbiting, taking various measurements,research parameters, et cetera.
And it's launched jointcrews to the Space Station.

(31:59):
We also know that there's a separateChinese Space Station floating out there.
When was that created?
Let's talk a bit about that andthen let's talk about Artemis.
Can you tell us about that?

BIll (32:08):
The Chinese Space Station has been launched in pieces beginning in about
2016, but it was finally crewed in 2022.
And it's gonna be continuouslycrewed for the foresee future.
Some Russians now are goingto that, but it's separate
from the Western Space Agency.
Artemis, we will get to that is theUS and its allies in this, but, and

(32:29):
Russia has been working it, the SpaceInternational Space Station came after
the space race of the 1960s, which as youpointed out, the US ultimately won, but
once they won, they lost all interest.

Kate (32:41):
I think there's a couple of things that jumped into that mix, because I
think that while Russia remains thethird contestant in the space race,
, we're now in 2025, but a lot of thetechnology has progressed from 1960,
seventies, and eighties obviously.
And US is using the updated technology.

(33:01):
If you look on the Russian side though,a lot of the things that they use there
is still the old Soviet technologyshows how amazingly resilient it was.
But in terms of development,obviously there was a fall of the
Soviet Union in the early nineties,the lack of financing, et cetera.
So while we have this number threesport held by ex Soviet Union
slash Russia, they haven't reallyupdated the technology where US has.

(33:25):
And then China made thisamazing jump up to launch their
own space station out there.

BIll (33:30):
The space race today and for the foreseeable future will
be two countries, China and US.
that's everybody else isa player along with it.
But, the Russians actually the rocketthat they use now is a derivative
of the original, Soyuz rocket.
So that particular rocket hasbeen flown 2,700 times, far
more than any other rocket.
Again, it's reaching theend of its usefulness.

(33:53):
, And you can even go further that,and one of the things that happened
after the space race, got to the moon,went there six times, lost interest,
and then basically nothing followed.
You had this Sky Lab,but that was a one-off.
For the next 20 years, the US reallywasn't that concerned about space.
In 1981, they launched theSpace Shuttle, which we've all

(34:14):
seen, we've all heard of it.
Engineering masterpiece and economicand logistical white elephant.
This was just a dead end,and it really did not work.
It cost over a billiondollars to fly each flight.
It was at best refurbishablerather than reusable.
And it only lasted till 2011after it had two major explosions

(34:34):
that killed seven astronauts.
After the Space Shuttle ended in 2011, theUS had no way to get anything to space.
So until SpaceX came along, we had tosend payload cargo to the International
Space Station on Russian rockets.

Kate (34:52):
That's a good way to spend money.

BIll (34:53):
Kate, you'll appreciate that many of , the rocket engines that the
US used until very recently, untilreally two years ago for, Boeing and,
Northrop, the ULA, were Russian rocketdesign, but they were made in Ukraine.

Kate (35:06):
Coming from Purdue, I've had multiple discussions.
Purdue has a very strong aerospaceengineering program with several
of my friends working there.
So Alina is one of my friends,Alina Alexeenko, and she has been
always amazed at the efficiency ofSpaceX in terms of the ability to
cut costs and to actually get thingsdone a lot faster than NASA has.

(35:28):
She's always been a fan of both NASA andSpaceX, but she has pointed out that the
ability to cut costs and get things donequickly by SpaceX, the private company,
has taken them all by surprise, andthey're all big fans, at Purdue Aerospace.
Well, at least Alina was.

BIll (35:43):
Well, NASA is too, actually NASA is too, in many ways, the biggest
fans of SpaceX are the US military.
'cause they provided capabilities toput payloads into space and to do things
at cost that nobody can even imagine.
So lemme just take some of thenumbers and what SpaceX has done.
2011, the space shuttle ended.

(36:04):
There was no private rocket systemin the US that could reach the
International Space Station until SpaceXbasically developed the Falcon Rockets.
And they've steadily gotten better.
So until 2011 and the space shuttleended over that long period,
couple of decades to that, theaverage cost to send a kilogram of
payload to space was over $18,000.

Kate (36:27):
Wow.
Yeah, so let's throw in a yearagain, $18,000 per kilogram.
That was back in

BIll (36:32):
Up to 2011 or basically the 20 or 30 years until the end of the space shuttle.
That was the cost to sendthis payload to space.
And it fluctuated a bit.
Nowadays it's currently about a thousanddollars and when the Starship comes
fully online, it could go down to 200.
So 18,000 to 200, already 18,000 to1400 for what's already been contracted.

(36:56):
This has been a massive decrease inthe cost of sending payload to space.

Kate (37:00):
What has enabled this decrease in cost?
We obviously know the reusabilityof rockets, that Space X created is
one aspect, but what else can takesomething from costing $18,000 to $200?

BIll (37:13):
NASA admits that it would cost them at least twice as much to do it.
So SpaceX is a very particular company,and it's been uniquely successful.
Several, really three things go into it.
And how much you give Musk and orSpaceX... This is a driven company and
they have been incredibly efficient.
Two things.
First, the reusability came along,but the first reusable was 2015.

(37:35):
The first actually reuseof a rocket was 2017.
So before that, it was thiscontinuous improvement.
Everything was in verticalintegration, which as economists
we generally think is a bad idea.
SpaceX does everything.
They bring in steel, stainlesssteel, that's about it.
They buy the fuel.
Everything else is designed in-house.
Created in-house, andcontinuously improved.

(37:57):
They'll spin something up, it'll explode.
I'll figure out what happened, fix it.
And so there's been this continuousimprovement, continuous evolution
of both the rockets and the enginesand then eventually the payload all
driven by this desire to go to Mars.
Crazy.
Is an economically insane thing todo, but, I'm glad he's doing it and

(38:18):
he's using his own money to do it.
So there's been reusability, which cameout of it, and the analogy that Musk
uses is not having reusable rocketsis like building a 747 flying it from
New York to London, throwing it away,building another 747 to come back.
Yep.
That's essentially what you're doing.

(38:38):
And some of the rockets, the ULA,the united launch one, they use four
of the space shuttle engines thathave been refurbished, that were left
over each one of which is a hundredmillion dollars and you throw it away.
The Ariane 6, the latest Europeanrocket that they finally flew last
year for the first time after 10 years.
It's expendable.

(38:58):
All of the Chinese so far are expendable.
You throw it away, use it once.
So the only company that's been ableto do reuse so far has been SpaceX.
They've reused over 400 times.
One of their rockets, they've actuallyreused 25 times an individual rocket.
They're launching threeFalcon Rockets a week.

Kate (39:18):
And so these rockets are taking satellites up to space?

BIll (39:20):
They're taking satellites or they're taking the Starlink transmitters.
Which are satellites.
They're on the way.
They've got about 7,000 alreadystarlink satellites in orbit.
They're going for 42,000.
Other companies are waybehind, but they have a few.
The vast majority of satellites that go tospace go to what's called low earth orbit.

(39:41):
There's several orbits.
The original GPS and space satellitesand the ones that are used for
television broadcasting are in whatare called geostationary orbit.
This is 22,300 miles abovethe earth and in one place.
So you think about Turner broadcastingin Atlanta, or any broadcasting
in New York, they have satellitesdirectly above Atlanta or New York.

(40:04):
So they stay in one place overthe earth, 22000 miles up.

Kate (40:08):
What I thought was cool learning is you need energy to propel you out of
the earth's atmosphere, but once you'reout in space, you don't need anything
to propel you, you just travel around.
And so these satellites arecontinuously falling onto the
earth

BIll (40:22):
Yeah,

Kate (40:22):
failing to fall.
And that's why they keep circling.

BIll (40:25):
That's exactly right.

Veljko (40:27):
Kate just discovered the wonders of physics.

BIll (40:29):
Newtonian Physics and economics, market Economics drive this entire
industry when you really get downto it, and in many ways, it's the
physics that are the most important.
Yeah.
So in geostationary orbit,it's falling towards earth.
But it continues to fall as the earthturns, so it stays in one place.
Others, that are also pollto poll are geosynchronous.

(40:49):
They're geosynchronous, they go around theearth, but they don't stay in one place.
Geostationary are the ones thatuse it for television broadcasting,
you only need one ground station.
But again, it's very costly to sendsomething that high in terms of
energy, the signal required, thesignal degrades with a square of
distance, so it's very hard to do that.
The vast majority of the satellitesin orbit now and where the growth is,

(41:13):
is in what's called low earth orbit.
This is basically 200 to500 miles above the Earth.
The problem is, of course, ifyou're Starlink satellite, it's,
call it 300 miles above theEarth going 17,000 miles an hour.
So in 90 minutes it goes around the world.
It's not staying in one place.
So to have a constellation ofsatellites that can continuously

(41:36):
service the world, any one place,you have to have a lot of them.
Because it's gonna stay in your frameof reference for less than an hour.
You're gonna have to find another one.
They're gonna have tocommunicate with each other.
So you now have 7,000 Starlink satellitesin orbit heading towards 42,000.
The Blue Origin Amazon KuiperConstellation is now starting,

(41:58):
it's gonna have to get toover 3000, within two years.
You can easily see where we would haveover a hundred thousand satellites in
orbit by 2030, but it's vast majorityof these are in low worth orbit.

Kate (42:10):
So it seems to me that in order to launch something into space, you
need to get government clearanceor some clearance . It almost seems
very similar to getting your rightsto drill in a certain area, but here
you're getting your rights to launch.
From what I hear there's somecompetition in this regulation
and many companies are trying togain ability to launch satellites.

(42:34):
But it seems like a bitof a wild west right now.

BIll (42:36):
Yes and no.
your friends that are worriedabout government, government should
be running the space program.
They don't need to worry.
SpaceX, all the other, the privatelyowned, are heavily regulated.
Every launch of SpaceX or any ofthe other rockets has to be the FAA,
Federal Aviation Administration.
They have to comply withsafety and environmental rules.

(42:57):
. So they're heavily regulated.
The spectrum is a finite quantity.
That's by something called theInternational Telecommunications Union.
The FCC, the American FCC licenseAmerican rockets or satellites.
But they do it throughthis international union.
That's becoming a real problembecause they've been filings
for over a million satellites.

(43:18):
Most of them will never happen,but still you have over a
million that have been filed for.
We have total of about 10,000 of allcategories, satellites in space now
heading for a hundred thousand by 2030.
Conceivably an enormous number.
And this is becoming a problem.
But that has to be done internationally.
So far, SpaceX is byfar the dominant player.

Kate (43:41):
One thing that scares me a little bit there is, and I want to
get your reaction on this, is thatSpace X has been using some political
power to prevent some other licenses.
For example, recently it's pushed backon Apple's license, which Apple has
been saying that they're using it foremergency communications on phones.
SpaceX stepped in tryingto restrict their access.

(44:03):
How do we want to think about

BIll (44:05):
Yeah.

Kate (44:05):
These power struggles?

BIll (44:06):
How about television broadcasters?
Anytime you have a finite electronicresource, you're gonna want to
guard what you have and make surethat there's not unauthorized
use for reasons, good and bad.
Signal quality, emergency use.
So I hadn't heard thespecific thing about Apple.
I've heard others complain about that.
That's gonna be a contest, that that'swhy you have elections in democratic

(44:28):
societies to make those calls betweenthe competing demands for spectrum.
It's a finite good and there'sincreasing demands on it.
And of course, there's the military,which is absolutely central and has
been the longest serving player that wedon't know about, but they have several
thousand , or heading towards severalthousand, just us not to mention the

(44:50):
Chinese and the Russians and others.
So it's becoming a fairly crowded place.
That said, you think about just how big200 to 500 miles of space above the entire
Earth is, this is trillions of squaremiles, so there's a lot of space there.

Kate (45:08):
We're still talking about satellites flying around the earth.
We haven't started talking aboutsending missions to Moon and Mars.
This is still all around theearth satellites, basically.

BIll (45:18):
Right, perhaps this is as good a time as any to talk about
Artemis, which you brought up.
I teach this space course atthe University of Oklahoma.
Started, taught it last year.
And the first of two courses, mineis the second, the first course
was taught by Jim Brindenstine,who was Trump's NASA administrator.
I sat in on the class, so saw itfrom the inside, from the, head
of NASA for four years . It washis idea, and he named it Artemis.

(45:41):
Artemis is the god of thehunt in Greek mythology.
And it's not a "treaty," it's the USand eight countries, including the
US, signed this "accord." It's not abinding treaty, it's an accord in 2020.
It's now up to 53 countries.
So it's mostly the European Union, Japan,allied countries that you would expect.
And it's a document,it has both specifics.

(46:02):
We want to go to the moon usingthese steps in this way using this
equipment and ultimately Mars.
But it's also as you go through the howdo you operate in space, one of the things
you don't even think about is you wannahave interoperable spacecraft, right?
In case there's an emergency whereyou can rescue another spacecraft.
So you want to havebasic operating systems.

(46:22):
This is all what Artemis does.
It has plans for specific missions, andit also has a general framework for space.
Now, one of the other things, Iget excited about this, but one
of the key ideas is the only legaltreaty governing space now is
the Outer Space Treaty of 1967.
Did two things.

Kate (46:42):
Dated.

BIll (46:43):
And this, uh, Yeah, but it's still the only law we have.
It's been universally done byRussia, China, everybody, 147
countries have ratified it.
It did two things.
It outlawed nuclear weaponsin space and said you cannot
claim any territory in space.
So you cannot claim
the moon.

Kate (47:01):
I think the teenagers are going to be happy to hear this.

BIll (47:04):
Now what that doesn't cover.
And you think about it,nobody can claim the ocean.
Now, but they can claim if they fish orif they find oil or they find minerals,
you can claim the proceeds, if youwill, the harvest from the ocean.
So the question that really was leftunanswered by the Space Treaty in

(47:24):
1967, you can't claim the moon orany part of it, but what if you go to
the moon and you extract resources?
Can you keep those resources?
That was left unanswered,Artemis answered it.
Yes, you can.
You still can't claim anything.
But if you get the resources from anasteroid, the moon or deep space, you
can keep them, which I think is correct.
In that sense, Artemis did that.

(47:45):
But they've also had a seriesof, we want to go to the moon.
So they've already done one,rather badly with NASA has this
enormous rocket called the spacelaunch system, SLS made by Boeing.
That's left over piecesfrom this space shuttle.
It's been a white elephant, butthis is what we're stuck with.
It's made one trip to the moonwithout any people at 10 years late.

(48:10):
The next one next year is gonna beArtemis two, which will send four
space astronauts around the moon.
So the Artemis two will send humans backto the moon, but don't actually land.
Artemis three and probably 27, 28ideally, will actually have two of 'em
go down to actually land on the moon.
And then from Artemis, four,five, and six is gonna be actually

(48:32):
building out some kind of permanentlyoccupied space station, first on
the moon, and then ultimately Mars.

Veljko (48:41):
And I'm sorry, but who is funding Artemis?
Perhaps you've said itand I just missed it,
but where is the money coming from?

BIll (48:46):
The US government part of it's coming from NASA's funding.
Fifties other countries are part of it.
The US is funding over half.
NASA's funding a chunk ofit over $3 billion a year.
SpaceX will be involved from Artemis two,and particularly from Artemis three on,
that's been developed by SpaceX, againwith some government money and contracts.

(49:06):
But it's basically been private fundingfor the equipment, developed equipment.
But yeah, government isinvolved in every aspect of it.

Kate (49:13):
But I think the recent pushback there has been a reconcentration
of efforts towards Mars, right?
Especially over the last year there'sbeen an idea put out there by Elon Musk
and others that missions to the moonmaybe are not as valuable to us as a
mission to Mars and we need to streamlineour resources to one core mission.
So I actually don't know if thesenext term missions will happen, or

(49:37):
whether the money will be redirectedto exploring possibilities of
getting, samples back from Mars.

BIll (49:43):
You have to go to the moon first.
Logistically and technologically,you have to go to the moon first.
That's gonna be hard enough.
The Starship, this enormousrocket that SpaceX has developed.
Over a hundred metric tons ofpayload, over a thousand cubic
feets in its second stage.
The cargo part of the rocket.
So, I mean, it's incredible.
It's the only way to actuallyget a lot of stuff into space

(50:05):
today at a reasonable cost.
But even with that, you can get therein many ways, but you can't get back.
You can use all your fuelto get there and then what?
There's no fuel there yet.
So to actually take a Starship tothe moon, what you're gonna have
to do is put a Starship up in orbitand then for the next 15 times,

(50:26):
put tanker Starships into orbit.
Refuel that one original Starship, whichwill then once it's full, and it'll
take at least 15 flights just to refuelit for a one-way trip to the moon.
That's what we'll actually take.
If it happens, take the astronautsdown to the surface, it'll stay there.

(50:47):
It won't come back.

Kate (50:48):
So what's the approximate cost of that?
If you were gonna put a number on it.

BIll (50:52):
The actual number to the moon.
I should know that actually.
We've already spent $50 billionon SLS, the launch system.
Basically a leftover rocket and arefurbished capsule from Apollo.
It really is what it is.
If you're looking for how badgovernment can do in space, the
Artemis one, SLS, is a classic example.

(51:13):
It's just been dreadful.

Kate (51:15):
So what happened in the meanwhile?
Armstrong landed on the moon and cameback, and , how much did that cost
multiple decades ago, and now we'restill struggling with the same issue.
What happened in the meanwhile?

BIll (51:26):
It was Neil Armstrong.
During the 1960s, NASA'sbudget was 0.7% of US GDP.
Now it's 0.01.
It had tremendous support.
The actual dollars at 50 billion,probably what that is in current dollars.
So it was expensive, butit was one time shot.
Again, no economic reason to do that.
There's no market on Mars.

(51:47):
There's no resources that youcan get there, or the moon that
you can't do much cheaper here.

Kate (51:51):
Back to the astrophysicist arguments is the knowledge that we're getting.

BIll (51:55):
We went to the moon to beat the Russians.
, It doesn't take a lot of historyto see this, but actually, of
course, that's exactly what it is.
Why are we going back now?
Because the Chinese aresaying that they want to go.

Kate (52:06):
Right.

BIll (52:06):
As an economist, satellites make sense.
The earth's orbitingspace economy makes sense.
Going to the moon makes no economic sense.
There's nothing there.
There's no resources, there's no market.
Much less Mars.

Kate (52:18):
So you are saying us is doing it partially to hold up
its role as the global leader

BIll (52:25):
Oh yeah.
A technological leader.
We would not be going tothe moon except for China.
If China was not going,

Kate (52:29):
We wanna be the coolest kid in town still.

BIll (52:32):
We wanna be the coolest kid in town with the best technology in town, yes.

Veljko (52:36):
But, but to be fair, we are not.
In a sense, we are not really trying,you just pointed out how small government
investment is , but I wanna get us alittle bit back to, we were talking about
the 600 billion, that headline figure,

BIll (52:50):
That's total revenues of the space economy.

Veljko (52:52):
I think you mentioned about 80% of this is satellites.
So what's the other 20%?
I have this idea that travel to Marsis not generating any revenue yet.
I have an idea that sometourism is gonna be there.

BIll (53:06):
No tourism is very small.
Over time it will becomea few billion dollars.
If you actually do go to Mars , orthe moon and you set up a recurring
mission there, it's like the interstate.
You don't have just theconcrete for the interstate.
You have all the infrastructure,the fueling stations, and the
rescue and everything else.
So , if we are actually gonna go andset up permanent civilian stations on

(53:29):
the moon and Mars, there's gonna bea tremendous infrastructure for fuel
and communications and repair andlaunch that's gonna go along with that.
SpaceX wants to send amillion people to Mars.
And that will be a hundredmillion tons of cargo to Mars.

Kate (53:45):
In astrophysics, thinking this is not a good idea, but it is
a good idea to bring samples backfrom Mars to get the knowledge.
So again, to them, knowledgeis a predominant issue there.
Yes.

BIll (53:58):
Now, this has never been the case.
The dominant issue in rocketryhas always been military.
It was first used in combat in the12 hundreds, the V two in World
War II, the ICBMs in the 1960s.
This has all been driven ultimately bymilitary or political competition and
the fear of being left behind, right?

(54:19):
And this is what's reallydriving with China.

Kate (54:21):
If Mars , billions of years ago was a planet like the Earth and then
something happened to its core, to createit a super cold place that it is now, if
we can figure that out and that can helpus somehow save our atmosphere and the
earth going forward, that would be worth,that knowledge would be worth a lot.

BIll (54:39):
You could reassure your astrophysicist friend that not even
his, his or her great-great-great,great great grandchildren
will have to worry about this.
If there's gonna be an explosion ofthe Earth's atmosphere, it's gonna
be, many thousands of years from now.
, We basically go , to space for political,military, or technological reasons.

(54:59):
And, all three are at play now.

Kate (55:01):
When you put it like that, I'm honestly surprised at how
underfunded this area is becauseanything that has that combination
of political and military in anythingusually would get a lot of funding.
While six billion or what was quotingeven more sounded like a small number.
Now it sounds like even a smaller number.
Why is this industry so underfunded?

BIll (55:23):
I have the numbers here in front of me.
The total US government budgetfor space in 2023 was 74 billion.
Of that, 43 billion wasthe Department of Defense.
So almost twice what you spendon the civilian side, you
spend on the military side.
The Chinese government spent 16 billion.
So of all government spending, it's about$125 billion and 74 billion of that is US.

(55:49):
50 billion of that is, is foreign.
So, about two thirds of thetotal government spending
on space in the world is US.
And of that well over half,closer to 60, 65% is defense or
reconnaissance by the military orby the reconnaissance agencies.
It's going up.
We created the sixth militarybranch in 2019, the US Space Force.

Kate (56:13):
I didn't know that.
Okay.
That's interesting.
So 2019, the sixth branch of militariesthat was added was the US Space Force.

BIll (56:20):
Trump did it, It was almost unanimous of both houses of Congress.
Not quite, but just aboutunanimous passage of this.

Veljko (56:27):
There are two pieces of new media that I think anybody interested
in this episode may wanna watch.
One is a show on Apple TVcalled For All of Mankind.
The premise is really interestingbecause it latches to something
that you guys were talking about.
It's an alternative history.
But in this alternative history,Russia lands on the moon right

(56:47):
ahead of the United States.
And that actually spurs the UnitedStates to really dramatically increase
its space budget because now theywanna be the first ones to get to Mars.
The show has multiple seasons andeach season follows a specific decade.
But by the time we get to the twothousands, the president of the United

(57:09):
States is a former astronaut and headof NASA that gets elected to President.
Space exploration is toppriorities by the year 2000.
Now we have flying cars andall sorts of greater advance.
But it's interesting that their premiseis that losing this competition to Russia
would actually spur a greater investment.
And then of course there is a comedyshow on Amazon called Space Force.

(57:34):
Steven Carrell is the main actor.
They actually take a littlebit of a mocking idea to the
necessity to prepare for Space War.

BIll (57:41):
They shouldn't.
That would be a real possibility.
Think about it, the most importantmilitary satellites are those
that monitor nuclear launches.
You wouldn't knowwithout these satellites.
What Trump has proposed this goldendome here for the Iron Dome for
the US, that could actually happen.
That's 10, $20 billion.
It's really not that much, butthis would be 400 satellites

(58:05):
monitoring Russia, China for launch.
And then 200 satellites that would beattack satellites of some type, either
missiles or the real weapons in space aregonna be electronics to either blind or
disable or jam other country's satellites.
And if you could do that, think aboutif the Chinese or the Russians were
able to, without physical damage, ifthey were able to blind GPS or jam

(58:31):
GPS, think of what that would do.

Kate (58:33):
Being the devil's advocate, there's a lot less technologically advanced ways
of monitoring and getting information.
We still have the stealth fightersand other planes that quietly fly over
all territories, foreign, and thenI'm sure other countries fly over the
US and collect information that way.

BIll (58:50):
You actually do not have aircraft that are monitoring China or Russia.
The SR 71 was retired 30 years ago.
U2 may do it occasionally,but no, it's rockets, right?
It's satellites.
That's how they do it.
The one called KH 11 or KH 12is the premier US Spy satellite.
Nobody knows much anything about it,except it, it looks a whole lot like the

(59:13):
Hubble Space Telescope and came out ofthe same factory as the space telescope.
And the space telescope is pointingout 500 light years into space.
The KH 12 is 300 miles above theEarth pointing down and you can
read a newspaper, not quite, butwhat you can do with surveillance
in space now is just unbelievable.

(59:34):
And again, this has not only justmilitary, but in terms of monitoring
crops and the weather and climate change.
This is all essential andit's all done by satellites.

Kate (59:44):
Gonna give me an opening here to talk a bit about venture
capital, because venture capital hassponsored a lot of these geo globes,
geo domes, flying balloons thatwill take pictures of the crops.
It's a part of this agriculturalinnovation to understand crops,
healthy crops, et cetera.
So we know that venture capitalmining isn't that, but that's

(01:00:07):
from the agricultural side.
we've talked about Elon Muskand Jeff Bezos contributing
their own personal money to thedevelopment of, space exploration.
But what is the role of venture capitalin this, and how much of it is it?
What is the role of venturecapital in space exploration?

BIll (01:00:24):
It's central.
It's absolutely central.
But the phrase that you'veheard me say is space is where
venture capital goes to die.
There have been very fewsuccessful venture capital
that still hadn't stopped them.
They're still, they're coming in, sixto $12 billion a year just for space.

Kate (01:00:39):
They're looking for that one out of a hundred

BIll (01:00:42):
I mean,

Kate (01:00:43):
It is just the one hasn't happened yet.

BIll (01:00:45):
But again, one of the things that we're all financial
economists, the three of us, andmany of our audience will be too.
So we know that in almostall industry, real industries,
technologically advanced, capitalintensive industries around the world.
Regular aerospace, even trucking.
Utilities around the world,shipping, all of this technologically
advanced capital intensiveindustries are financed in two ways.

(01:01:08):
They're financed by internal cashflow, retained earnings by companies.

Kate (01:01:11):
And capital intensive.
It just means, you have a lot of

BIll (01:01:16):
assets

Kate (01:01:16):
Steel and other very heavy stuff that you gotta build like highways
are a capital intensive industry.
Yeah.

BIll (01:01:21):
Or if that matter, a lot of computer technology.
So that anything that requires alot of upfront capital investment,
money being invested in the firm.
These are all financed either byretained earnings or by debt, bonds.

Kate (01:01:32):
Okay, let's translate, retained earnings to our listeners.
If you guys think back to the incomestatement, you start with sales.

BIll (01:01:40):
Yeah.

Kate (01:01:41):
Sales minus all of the costs, bring you down to earnings, and
then you get this retained earnings.
Retained earnings is everything that thecompany brings in minus all of their costs
and what they get to retain afterwards.

BIll (01:01:53):
Right.
And what they don't, pay out as dividends.
It's what's reinvested in the firm.
Around the world, two thirds of corporateinvestment is funded by internal
cash flow and retained earnings.

Veljko (01:02:04):
Just as you described, like any other corporate finance
project, most of the fundingis internally generated, right?
It's retained earnings, but most of thebusiness here is government business.

Kate (01:02:14):
are saying the sales are largely paid

BIll (01:02:17):
Yeah.

Kate (01:02:17):
for by government contracts.

BIll (01:02:19):
No, no.
no.
It's private.
And remember, most of the satellitesthat are up there are private.
All of the communication except forthe military, all the communication,
starlink is all private.
Most of the weather reconnaissanceare privately owned.
All the revenue that comes fromthat goes to private investors.
They pay for the satellites.

Kate (01:02:37):
The ownership is private there, but if you think about SpaceX as
a companies, like any companies,they have sales minus costs.
So what proportion of their salesrevenue is government related,
coming from government contracts.
Because then obviously if that's 50% or80%, that's gonna trickle down to your
retained earnings as 60% or 80% or more.

BIll (01:02:58):
Government is very important.
It's gonna fund it.
But again, for SpaceX, where'smuch of their revenue coming from?
A chunk of it is going to be NASA,but a much bigger chunk is gonna
be launching satellites or otherstuff for other players, right?
They have the three launches a week.
Falcon nine is their work horse,three a week, and it's doing

(01:03:18):
satellites and it's doing thingsfor other players, not government.
The ones that they're doingfor government are important.
The things they're doing fromNASA are important, but it's far
below half of the revenue forSpaceX is going to be government.
By far the most important singlesource of revenue and how they're
able to do this is their Starlink.
The 7,000 satellites, that's all private.

(01:03:40):
The government does some contracting.
The military now has what they'recalled a "Starshield." The
militarized version of Starlink.
That's still very small now, so nomatter how you cut it, government
is important in this, but it isoverwhelmingly private and driven by
private entrepreneurship, mostly aroundsatellites and data and communications.

Kate (01:04:02):
I don't know how much of Starlink funding or sales
are coming from governments.
It would be interesting to find out,because with the war in Ukraine,
the government was throwing ina lot of money to help finance
Starlink for military purposes,

BIll (01:04:16):
Ultimately, not at first.
At first the governmentwasn't paying anything.
SpaceX essentially opened it up to Ukraineand it was vital because the first thing
the Russians did when they invaded wasto take all the communication satellites
and destroy all the ground systems, forUkraine, which were fairly easy to do.
And then they turned on Starlink.

Kate (01:04:34):
Then the government, US Government, stepped in and
said, okay, we will pay for it.

BIll (01:04:37):
The analogy of that is think about why Taiwan is not being
serviced by Starlink and they don'treally have a satellite service.
So all of Taiwan's internet communicationsfor the rest of the world, and
the very technological advancedsociety is eight internet cables.
In the event of a Chineseattack on Taiwan, what's the
first thing they're gonna do?

(01:04:58):
They're gonna cut those cables.
So this is fundamentally, andultimately it's commerce, but ultimately
it's also defense of your homeland.
Make sure that you're not attackedby a bigger, stronger neighbor.
So government's very important.
Civilian, but also the military sideof space is in many ways, that's
where the most cutting edge stuff isoccurring, I'm an economic historian.

(01:05:21):
I love history, as you guys know.
You kind of search in, you gotta searchin vain, historically, for any company
that has had this kind of impact, orany entrepreneur that has had, Henry
Ford is the one that comes to mind.
But what Elon Musk has done betweenTesla and SpaceX dwarfs what Henry
Ford, bill Gates, any of the classicentrepreneur, Henry Kaiser, in what

(01:05:43):
they've been able to do in now intwo industries, but particularly
with space, how they have driven it.

Kate (01:05:49):
Yeah.
Let me catch you on that loveof history and help you maybe
advertise your class a little bit.
I'm honestly just curious and I thinkmaybe a lot of people are curious , you
are teaching a class on the space industryeconomy at the University of Oklahoma.
What is that class like?
Can you take us through, thefour or five or six main themes
and how you've structured it andwhat you present to the students?

BIll (01:06:11):
Yeah.
There's an interesting history.
We have a well establishedaerospace and defence MBA program
at the University of Oklahoma.
Tinker Air Force Base, the biggestAir Force base of its kind in
the world is right outside.
So it's always been aerospace.
It turns out aerospace and eventsare the second largest employer in
the state of Oklahoma after energy.
It's an important thing.
Essentially a year and a half, almosttwo years ago, they wanted to do a

(01:06:33):
space certificate courses in spacethat they could give in this program.

Kate (01:06:37):
I like the synergies there because energy is taken up by Houston and they've
got a few universities down there, so

BIll (01:06:43):
Yeah,

Kate (01:06:43):
It's very smart of the University of Oklahoma to take their
advantage on the space industry.

BIll (01:06:48):
We're good in energy too, but the Air Force, that's basically what's here.
So it made sense that wewould do space or military.
It was logical to havethe space course come out.
Either I volunteered or wasvolunteered to do this, thinking
that it would be well established.
To our knowledge, there's stillnot a space finance course taught
any other university in the world.

(01:07:08):
There's already courses availableand Oxford, Harvard, several
other universities have spacestrategy or economics, or they
have space related courses.
But in terms of the actual financingof space, I had to invent it.
This is something that I didn't realize.
I thought it was just gonna beventure capital applied to space.

Kate (01:07:27):
right.
That's interesting.
I like that take.
So you honestly were initially thinkingabout it as a venture capital class, which
we know you've taught some VC classes.
I've taught some applied VC classes.

BIll (01:07:37):
How hard can it be, right?
It turns out it's notlike any other industry.
So I had to look at it, and this is wherethe spectrum, I've worked with you two
guys on state ownership and privatization.
As I really tried to grasp what wasgoing on in this industry, that's
how I crystallized structuring itand analyzing the industry along a
spectrum of private ownership.
The four sectors that I basically had tocome up with, is gonna be the science,

(01:08:01):
pure science and space exploration.
NASA, what NASA does, that'spure government, right?
That's gonna be funded by, originated,monitored, run by government, okay?
The second big sector was militaryand it's huge, but that of course
you want to be government, wereally don't wanna privatize war.
It's happened in the past.
But, so military sector is, again,state run, state funded, with increasing

(01:08:25):
private entrepreneurial input andmaking the equipment and driving it.
But those two are largelygovernment funded.

Kate (01:08:32):
So science, science, and military.

BIll (01:08:34):
Science, and military.
The first two that youcan kinda understand.
The third sector wouldbe human exploration.
The biggest part of that now isthe International Space Station.
And then everything aboutgoing to the moon and Mars.
It's very mixed.
The government plays a role.
Government runs the ISS, well, they did.
Since 2012, it's been a private contractorthat actually manages under contract

(01:08:56):
from NASA, actually manages the ISS.
And, any replacement is gonna beprivately owned from the very start.
In SpaceX for human exploration,it's a mix of government and private,
with a lot of entrepreneurship.
And the next one, the final oneis commercial, pure commercial.
That's mostly satellites.

Kate (01:09:13):
I like labeling stuff, so if I'm gonna relabel, throw in some
letters to it, I'm gonna say S forscience, M for military, H for human
exploration, and C for commercial.

BIll (01:09:25):
That's cool.
Okay.
I hadn't thought about that.

Kate (01:09:27):
SMHC is kind of like the setup here, but just listening to it, it
seems like, three-fourths would begovernment, finance, government interest,
and one fourth, the commercial is not.
But what we'll see, and I'm assumingyou're gonna talk about it, how this
one force became a much larger, moreprofitable sector out of this SMHC.

BIll (01:09:49):
The C is by far the biggest shock.
Government also plays a role.
They have satellites as well.
They pay for services, butthat's overwhelmingly private.
And the entrepreneurship is largelyin that historically government
dominated the early satellites.
They were all either GPS orcommunication satellites or monitoring
satellites for the military.
It's only as they became much morecommercial in terms of communications

(01:10:13):
and wireless and broadcasting.

Kate (01:10:15):
About these four main functions of the space industry.

BIll (01:10:18):
It made sense to analyze, on an entrepreneurial spectrum, And then from
a finance point of view, each one ofthese is gonna have a different finance
model for how it's going to operate, befunded, the revenues that it's going to
generate and where the entrepreneurshiphas the chance to play out.

Kate (01:10:35):
So then you try to talk about the entrepreneurship aspect
in each one of the fours there.

BIll (01:10:40):
Correct.

Kate (01:10:40):
I see.
Interesting.
S for science,

BIll (01:10:43):
Science is being cut.
One of the things, rightly orwrongly, probably wrongly, the Trump
administration's probably gonna cutthe science budget of NASA in half.
They're gonna whack thebudget from 25 to $20 billion.

Veljko (01:10:55):
This conversation about NASA's budget is interesting because we do
have a little bit of a problem or atleast a perception of a problem where
you have, SpaceX being so closelyinterwoven with the government
maybe we can address that later.
What I wanted to ask you rather about is,I have a quote from 2015 by Neil deGrasse
Tyson, where he was talking aboutventure capital in the space industry.

(01:11:19):
And in 2015, he famously predictedthat the first trillionaire.
Yes.
The first trillionaire was gonnacome from the mining of either
the moon or space asteroids.
We are not talking about mining at all.

BIll (01:11:31):
Not yet.
No.
The first trillionaire willprobably be related to space.
It's probably gonna be Musk or Bezos.
So, but it's not gonnabe from space mining.
It's gonna be from space satellites andbuilding the rockets that get you there.

Veljko (01:11:44):
So what, where Hollywood taught us that we were gonna get
rare earths by catching a couple ofasteroids, that's still deep sci-fi?

BIll (01:11:53):
It will happen 50 years from now and there will be space mining, but the
space mining will be looking for water.
In space water is farmore valuable than gold.
To make Mars or the moon habitable atall, you're gonna have to have water.
It's gonna be for one, forconsumption, for cooling, but
also what you can do with water?

(01:12:14):
I'm a chemist.
What you can do with water, you canhydrolyze it and electrolyze it, and
you can make hydrogen and oxygen.
These are rocket fuel.
The first thing we're gonna be lookingfor in space is gonna be water.
And that's gonna be the fundamentalboth for life and for fuel.
Over time.
Yeah.
50 years from now, we'llbe doing space mining.
But think about it, there's15,000 metallic asteroids.

(01:12:36):
There's millions of asteroids.
Most of 'em are rock and ice.
The 15,000 metallic asteroids innear earth, meaning within a few
light years of earth, they have one.
NASA is sending a probeto one called Psyche 16.
It's an asteroid, I thinkit's one or two miles wide.
The nominal value of this asteroidin terms of the gold and palladium
and platinum is 75 times world GDP.

Kate (01:13:00):
Wow.

BIll (01:13:00):
Right.
So it seems this huge thing.
How in the hell are you gonna get there?
Right?
You have to go, it's gonna take sixyears for a probe to actually make
it there, consuming all of its fuel.
Then what?
You get to an asteroid, there'sno gravity, there's no atmosphere.
How do you slow down?
You have to have fuel to slow down.
It's just, it makes no sense forthe foreseeable future to do mining

(01:13:23):
for anything other than water.
So I'll just leave it at that.

Kate (01:13:26):
I'm gonna jump back to your class.
You highlight the four main areasof space and you talk about how
entrepreneurship activities havepenetrated or influenced those four areas.
Any specific examples or two ofyour favorites for the class.

BIll (01:13:41):
By far the most important of any aspect, what has happened in
space in the last 15 years hasbeen the decline in launch costs.
Decline in launch costs,and the increase capacity.
This has opened up the abilityto send payload legislation to
send more and larger satellitesto space at far lower cost.
And of course, along with that, onthe satellite side, the capability

(01:14:02):
of satellites and the size requiredhas been going down steadily.
They now have what are called cubeSATs, which are several thousand.
This is four by four inch.
You could have real science done with fourby four, and you can load these things up.
So satellites have been the biggestuser, but also, the James Webb Space
satellite was sent up by, it wasn't bySpaceX, but this was actually sent up

(01:14:23):
as a origami had to unfold, now theycould send the whole thing in the SpaceX.
In a Starship, but when they launchedit in 2021, they couldn't do that.
So they had to do it onan Ariane European rocket.
, You now have the availability to send uplarge payloads, relatively inexpensively
or multiple payloads on a single launch.

(01:14:44):
The cost has gone down.
And the analogy I make in the class isto think about what was the impact on
commerce when you switched from sailto steam for ships or you shifted from
horses to rail for surface transportation.

Kate (01:14:59):
I like those comparisons.

BIll (01:15:00):
Even canals in the Middle Ages.
When you reduce the cost of transportationso much that it not only makes what
you're originally doing cheaper, but itopens up entire areas of new activities.
And this is what's happening in space now.
As the cost declines to oneor $200 per kilo, it's cheap.
You can send stuff up.

(01:15:21):
At some point, the environmentalimpact of having 5,000 launches of
rockets a year is gonna, you're gonnahave to deal with that at some point.
But down the line.

Kate (01:15:30):
How much stuff is flying around that is just trash?

BIll (01:15:33):
The identifiable as in, four inch square, they call those
identifiable by radar, it's 25,000 plus.
If you think the size of a boltor bigger, it's well over a
hundred thousand items in space.
And again, they're going17,000 miles an hour.
A bolt hitting something at 17,000miles an hour is gonna have the
kinetic energy of the largestcannon shell you can imagine.

Kate (01:15:55):
Interestingly, nothing has collided at all until recently.
There's just been oneincident where two objects,

BIll (01:16:01):
Yeah, 2009 an American and a Russian satellite collided.
It's the only one that's ever happened.
We would know about it.
And it released 3000 space debris items.
This is one of the problems withall, at least five countries have
anti-satellite missiles, whereyou can destroy a satellite, the
problem is, you create thousands ofpieces of debris from any kind of an

(01:16:23):
explosion, kinetic explosion in space.

Kate (01:16:25):
You gotta clean that up and that's gonna be a whole
other industry developing.
They're of course, very difficultto finance it because nobody
wants to clean things up.

BIll (01:16:33):
It's a collective action problem.
Again, that's one of thethings that everybody thinks
is gonna be a big industry.
I can't see how it's going to be.
Actually the economics of thatdon't seem to make any sense.
And remember, just lower earth orbit, 200to 500 miles up over the entire earth.
The average size of the 25,000 debrisitems is the size of a baseball.

(01:16:54):
You see these pictures of the earth withall this observable debris around it,
and it looks like it's very crowded.
Space is big.
There's been one collision in theentire history of space there.
Most of the satellites now aremaneuverable to some degree, and
they maneuver when you have a one10000th chance of a collision.
So, it's really easy to overstate just howdangerous the Kessler effect is, what it's

(01:17:20):
called, in space would be a collision,starting five collisions, starting 25
collisions, nuclear reaction type.
It's easy to visualize that, but it'simplausible given how big space is.

Kate (01:17:32):
It sounds to me like the commercial satellites are a key profitable part
so far of the business, but the newsheadlines are all about going to Mars.
Don't know why it's not Mercury or Venusor Pluto, but, it happens to be to Mars.

Veljko (01:17:49):
Because Mars is closer.

Kate (01:17:50):
Actually similar distance to Venus.

BIll (01:17:52):
It's the most earth-like of the planets.
But you know, Mars only every twoyears for a couple of months that it's
only 70 million miles away, six monthsone way travel by the fastest rocket.
If you get there, you have to waittwo years and have a way to come back.
There's so many things.

(01:18:13):
Going to Mars, sounds like it's plausible.
Technologically, we haveno clue how to do it now.
and economically there'sabsolutely no reason to do it.
But we had these two very richpeople who are willing to pay.
And so we're gonna do it.
We're gonna go to Mars,we're gonna go to the moon.
We're gonna have space stations,we're gonna have colonies.
We're just not gonna have to payfor it as taxpayers, so why not?

(01:18:35):
And the spinoffs are gonna be huge.
The technological commercial spinoffsfrom this are gonna be massive.
, Veljko: I think that the public at large might underestimate the
amount of technology transferthat comes from space exploration.
I worked in a patenting office a longtime ago, and I remember reading a little
bit about the history of the patentsthat were linked to space exploration.

(01:18:56):
And things like LCD screens wereinvented for the first space shuttle,
and then they made it into ourcommon life, for example, right?
So you have these technologiesthat in your mind, you don't
necessarily associate with space.
Solar panels.
Why would you need solar panels if youweren't outside this earth atmosphere?

Veljko (01:19:13):
That's correct.

BIll (01:19:14):
A lot of things are like that.
Yes.

Veljko (01:19:16):
Yeah.
On the other side, I also see thedanger here and I wanna talk about
jobs a little bit here and about perhapssome missed promises in the past.
I entered my undergraduate program atthe Rochester Institute of Technology in
the year 1996, it was also the inauguralyear for the new Space tourism program

(01:19:38):
at the Rochester Institute of Technology.
And I actually knew a coupleof people that enrolled in
the space tourism program.
I dunno what happened to them,but I strongly doubt that they're
working in space tourism nowadays.
You want to admire somebodythat's forward looking, but

Kate (01:19:53):
They were probably Elon Musk and Jeff Bezos.

BIll (01:19:56):
Musk is only 51.
I'm not sure how oldBezos is, but Musk is 51.

Veljko (01:20:01):
But , a anyways, how many jobs does the space economy create nowadays?
And what is your expectationabout this trajectory?
Do we have a headline number?

Kate (01:20:12):
Given the focus that you've put on the infrastructure, I wonder
how many jobs it could bring to theUS based on infrastructure, since we
wanna bring manufacturing jobs back,why Instead of creating couches, we
don't create some space infrastructure.
What is the number of jobs there?

BIll (01:20:27):
SpaceX, they built everything themselves.
They bring in literally stainless steel,and they have designed everything.
What you don't think aboutis Uber is the most valuable
publicly traded space company.
Nobody thinks of Uber as aspace company, but with a little
thought, you see, there's noway they would exist without it.
Airbnb, DoorDash, all of the deliverycompanies are ultimately a space company.

(01:20:48):
Now, Apple with itsiPhone is based on this.
All of the communicationsare based on GPS.
So space is pervasive in impact.
It has not created that many jobs.
But when all said and done, howmany jobs has the semiconductor
industry directly created, right?
So anything that's technologicaladvance is gonna create a relatively

(01:21:09):
few PhD level or master's level jobs.
But the spinoff, the ultimateimpact is gonna be huge.
Transportation, logistics, all of this,measure and optimize the delivery of
trucks, the delivery of ships, thescheduling of aircraft, what is gonna
be the economic impact of positioningand navigation and scheduling?

Veljko (01:21:32):
So I found a report in 2023, by the Bureau of Economic Analysis, they
actually have a 373,000 in 2023, butthey're taking a more conservative
approach than what you are advocating for.
They're looking at direct jobs created.
They say full and part-time, 373,000,but most of the direct jobs they

(01:21:54):
claim here are manufacturing jobs.
So the manufacturing of rockets, themanufacturing of satellites, but
they're not taking into account whatyou're talking of this spillover
into other... we don't think ofApple as primarily a space company.
And yet, where would Applebe without satellites?
We don't think about Uber asa space company, but where

(01:22:14):
would we be without GPS?
And yet I I don't think thatsaying a hundred percent of the
workforce of Uber is space economyworkforce is a fair assessment.
I don't think zero is a fair assessment.

BIll (01:22:25):
It would not exist without it.
The other side of that ishow many people are in the US
automobile manufacturing industry.
There's only 50,000 UAW workers.
Even if you multiply that by four withall the transplants, you're talking a
quarter million people total that actuallymanufacture and assemble cars in the US.
And yet would we consider theUS automobile industry trivial?

(01:22:48):
Of course not.
The direct is gonna be a part of it,and that's what the most visible and,
but no, the ,spillover of the carindustry, of the space industry...

Veljko (01:22:58):
I am not that old, but I'm old enough to remember a
specific world with our GPS.
And, between 1992 and early two thousands,the entire Balkans and Northeastern
Italy did not have operational GPS.
At first it wasn't operationalat all, and then it was greatly
handicapped, and that was largelylinked to US military operations.

BIll (01:23:20):
It was a position, navigation and weapons delivery technology.
It was to be able to drop weapons.
For the first many years it waspurely military, purely US military.
What changed, some ofyou may remember this.
Certainly you, you may not, 1982Korean Airlines flight double-O,
coming from Seattle to go to Seoul,straight off course, and went over

(01:23:42):
the Kamchatka Peninsula in Russia,a navigation error 'cause they
didn't have good navigation tools.
And the Soviet shot it down, shotthe airplane down, killed 250 people.
It was then that President Reaganopened GPS up to first Commercial
Aviation immediately after that.
So for a few months, or a year orso, it was just commercial aviation.

(01:24:04):
And then it became so importantthat it opened up to everybody.
But essentially, that is amilitary technology that was
opened up to make airline travelmuch safer because of navigation.
And then it became just ominipresent.
All over and all the spilloverindustries that came out of it.
You never know.
The telephone.
I guess my favorite example is with theprinter, photocopy or printer, when that

(01:24:28):
was developed in the 1930s, forties andfifties, the original estimate was this
was gonna replace printing machines.
And there were gonna be five in thewhole world that you would need.
That's not what it was used for.
it became how many in youroffice do you have now?
So there's spinoffs and there'sderivatives from technology that we

(01:24:49):
really literally can't imagine, andthis is gonna be certainly one of them.

Kate (01:24:52):
It sounds like there's just a lot of uncertainty about
how many jobs this can create.
It could create a lot of jobs,it could be very few, they're
for sure going to be valuable.
But it sounds like we really don't knowwhat will be the job outcome of the
space industry over the next 10 years.

BIll (01:25:08):
That's probably safe.
On the other side of that is how manyjobs does the defense industry create?
It makes the country safeand immune from attack.
How valuable is that?
In many ways it's gonna be the harmkept away by what satellites can do
is gonna be one really big part of it.
Do you really want the Chinese to win,to have the cutting edge technology and
be dominant in space to be able to blockall the transmissions to be able to

(01:25:31):
disable Allied or American surveillance,which is certainly a possibility.
Or be able to negatecommunication satellites.

Veljko (01:25:41):
But Bill, all I hear here is a very good case for the government
to finance the space economy, right?
We are talking about military,but we are also talking about the
difficulties for the private sectorto extract an economic profit, right?
You're shaking your head, butyou mentioned this is where
venture capital goes to die,

BIll (01:25:59):
Right, so far, some of them make money.
Not many, but they keep coming.
But they keep coming.
They think they will, in time.

Veljko (01:26:06):
I, fully embrace your point that if there are a bunch of wealthy CEOs or
owners that wanna spend their money toadvance humanity in the exploration of
space, by all means we should embrace it.

BIll (01:26:17):
Taxpayers are gonna pay some, obviously.

Veljko (01:26:19):
But let's say that you're not Bill Megginson, the finance
professor, but you're BillMegginson, the portfolio manager.
Would you allocate any of yourprivate sector investments to
the space economy, or would yourecommend your clients to do that?

BIll (01:26:33):
now I would, that one of the things that's happened in the last
two or three years is venture capitaluntil Ukraine, shied away from defense.
Now Anduril and Palantir aresome of the most valuable venture
capital backed companies in defense,you have a tremendous amount of
venture capital going into it.
A big chunk of that willultimately go into space.
The other analogy is what wasthe computer developed for?

(01:26:57):
What was the very firstENIAC was developed for what
?Veljko: Ballistics, missiles trajectories.
It was paid for by the US Army

Kate (01:27:04):
Oh wow.

BIll (01:27:05):
to do artillery shell projections.
That's in 1946.
That's what it was for because, do anartillery shell 20 miles down range.
You have to account for weather thecurvature of the earth temperature.
That was what the computerwas developed for.
Is it now just strictlya defense technology?
No, it became commercial and hasrevolutionized our lives and has

Kate (01:27:27):
allows us to do the podcast.

BIll (01:27:29):
Allowed us to do the podcast.
What was the airplane developed for?
You said it yourself.
The military has pushed technologiesincluding the care of wounds, medical
technology, battlefield technologyis where most of the advances in...
penicillin was commercialized duringWorld War II for the Allied forces.

Kate (01:27:46):
I love all of these examples, that show how, some government inventions and
innovations have spilled out into hugecommercial successes in unexpected ways.

BIll (01:27:57):
The internet was basically completely funded by DARPA, the military.
In case there was nuclear attack thattook out the telecommunications network.
You would have decentralized that was...

Veljko (01:28:06):
But it was founded by the government, right?
These technologies are necessary andyet it's not clear to me why these are
not the perfect example of basic sciencethat should be in the hands of government.
The traditional model of financing, basicscience is usually through the government.
Because you have a very hardtime internalizing all the

(01:28:27):
benefits of basic science.
And because of that, the privatesector generally under funds.
And it seems to me like this hasall the characteristics of the type
of scientific inquiry that would beunderfunded by the private sector
and would need, government support.

BIll (01:28:43):
Yeah.
Basic science has often been andusually been done by the government.
Telephones.
In 1980, the only country inthe world that had a private
telephone system was United States.
If you look at every country, howdid they, how did the telephone
system come into society?
Where did it come from?
In every case?

(01:29:03):
Well, essentially every case,it was the Army Signal Corps.
That's where the technology withinany country came was by that.
And then it was of course,commercialized and disseminated out.
So every technology is, almostevery technology has a government
origin or all modern technology.
At least it played a major role, whichthen it's commercialized, often with

(01:29:27):
payment of a fee to the government. For many pharmaceuticals, the basic
science was funded by the government.

Kate (01:29:33):
Let me take us back to this financing question.
We talked a little bit how space isa hugely capital intensive industry
because you have to create theserockets, lots of equipment, and that
usually you finance capital intensiveindustries or projects with retained
earnings, the monies that the companymakes after costs are paid and debt.
I want to better understand howmuch debt do we have coming in?

(01:29:55):
Is this coming from venture capital?
How much government financingand how much retained earnings
in this industry as a mix?

BIll (01:30:02):
Yeah.
There are no retained earnings, right?
None of these firms are profitable.
The only one, SpaceX may be, Starlinkmay be cashflow positive now.
It has a $350 billion valuation.
Private valuation.
That with zero net income.
It's all in the future, and thisis what venture capital does.
It finances industries thathave tremendous potential, but

(01:30:23):
no current cash flow, right?
So this is where venture capital isplayed an absolutely essential role.
You can't have debt.
With a little basic financeknowledge or even intuition,

Kate (01:30:33):
Gotta have collateral.

BIll (01:30:34):
What do you have?
You have to have something that'scollateral realizable, right?
It has value in and ofitself that you can seize.
Vast majority of the new tech that'screated in space is gonna be very
specific to that particular company.
Most of it's going to fail.
Even if it's successful, it willbe obsolete within a year or two.
You can't collateralize the assets.

(01:30:55):
You can't collateralize brains,so you can't collateralize the
assets of the space industry.
This is all the future, and it's alltechnology and it's all , patents
to a degree, but it's mostly, notthings that you can borrow against.

Kate (01:31:09):
So our two main sources of financing retain earnings
and debt out of the window.

BIll (01:31:14):
Yeah, by and large it's out of the way.
It's venture capital andgovernment contracts.
Government contracts , are very important,particularly the early stages of
space exploration and new technology.
even if it's 25% of theactual development, I'm
sure it's higher than that.
I don't have the numberon the top of my head.
The government contracts are central.
They're absolutely critical.
It's just, once it becomes asan industry the heavy lifting

(01:31:37):
is done by private capital.
And that's largely throughone extraordinary company
that is unlike any other.
I really do not want tobecome a Elon Musk fanboy.
This is just the last thingI would ever wanna do.
But the more you look at this industry, atthis company, SpaceX, it's hard not to be.
They've done extraordinary thingsand we overuse that term, but

(01:31:58):
there's literally no comparison intechnological history, economic history.

Kate (01:32:04):
Let me cycle you back to your paper and I want our listeners to know, about
William Megginson's paper titled "TheFinancial Economics of Space Flight."
I would like for you to highlightsome of the big takeaways from there.
One is going to be, and I'm building upon your discussion of Elon Musk right now.
One is going to be a huge decline incosts, as you've mentioned previously
from $18,000 to 200, which waslargely achieved through SpaceX.

(01:32:28):
So that's one big takeaway thatI know you've mentioned, and it's
probably highlighted in your paper.
But

BIll (01:32:34):
Mm-hmm.

Kate (01:32:35):
For our listeners who haven't read your paper, what are some
of the other big key points thatyou'd want for them to remeber?

BIll (01:32:40):
Right.
Three quarters private is theother one that really comes out.
The fact that it's a glamorous, gets a lotof press, industry, but in a macroeconomic
sense, it's well under 1% of GDP.
It's a relatively smallindustry going very rapidly.
It's driven by both commerceand political competition.
It's largely a two countryrace between the US and China.

(01:33:03):
The US is still significantly infront largely due to SpaceX, but
China's a formidable competitor.
It's a competition between thesetwo countries that's going to drive
much of it and the commercial.
The amount of money and brainpower that's being invested in
space is going to drive this.
It's going to grow much fasterthan the overall economy, even
though it's relatively small now.

(01:33:25):
Those would be the most important features

Kate (01:33:27):
Okay.

BIll (01:33:27):
satellites the overwhelming importance of of satellites.
From a financial point of view, it isa very strange industry, in the way it
has to be financed and its cash flowsand the fact that it's so difficult to
finance with traditional financial means.
But, if you go back to the semiconductoror the internet, many nascent industries

(01:33:48):
in their early years struggled with this.
They didn't have established cash flows.
So venture capital has alwaysplayed an important role in new
technologically advanced industries.
It's just outsized role here.

Kate (01:34:00):
For my friends who are interested in anthropology and sociology and ethics.
So we are talking aboutthe space industry.
We, as finance professors are mostlyinterested in how one finance it,
and the cost benefit analysis.
What is the profitable part here, butwhat if I'm in sociology or anthropology
or ethics, what am I looking at whenI'm thinking about the space industry?

BIll (01:34:21):
Political competition would be the first thing that came to mind.

Kate (01:34:24):
Interesting.

BIll (01:34:25):
Why did we go to the moon?
It's a touchstone.
It was not for science.
It was basically to beat the Russians.
Many things in a society will bedriven by overarching values rather
than direct economic competition.
The technology spinoff and the wayit's impacted our lives, right?
Pick up your cell phone and look athow much of that is enabled by space,

(01:34:48):
it tells you exactly where It is.
The precision timekeeping is based on GPS.

Kate (01:34:52):
Has enabled a lot of parents to see what's happening to their
children at one, two, and 3:00 AM

BIll (01:34:57):
It has this huge impact on our lives in ways that we don't even think about.
Of which location and GPS is by far themost important, but also, communications.
Not to mention it keeps us safe from somenasty players in the world who would do
us harm and we wanna be able to do moreharm to them than they're doing to us.
I don't mean to keep coming back to themilitary, but the Space Force, it's been

(01:35:21):
in business now for six years until veryrecently all it talked about was defense.
We wanna protect American assets.
They've now switched this year, likeall the other military services, if
there's a conflict, we're gonna win, soa war fighting, a war winning strategy.
So it's become one of oursix warrior, services.

(01:35:42):
and you want to have that if you'rea democracy in a world with sharks.

Kate (01:35:45):
Interesting political angles, interesting things
that I wasn't thinking about.
Hopefully, our friends in sociologyand anthropology take some ideas.
It seems like a lot ofthings to develop there.

BIll (01:35:56):
They have little to fear from private ownership, that's really
an important thing to get across.
It has been not only efficient,but it's highly regulated.
Nothing happens that is notapproved by democratic lawmakers
and democratic government , atleast on the US side and its allies.
It's just much more efficient, butit is ultimately answerable to

(01:36:17):
elected bodies just like everythingelse we do in a democratic society.

Kate (01:36:22):
I guess it's good for people to be cautious, for
example, our teenagers about it.
But it's also good to have theanswers that at least for now,
everything is being well developedin terms of space in private hands
and has been largely well regulated.
If we look back in to the past, we'vehad collaborations between Soviet
Union and the US previously thathave created these global alliances.

(01:36:43):
So we'll see how thisworks into the future.
Who knows, maybe China and the USand other countries will collaborate.

BIll (01:36:49):
Yeah.
We did after the first space shuttledisaster in 1986 for 12 years,
the US NASA contracted with Chineserockets to take our stuff to space.
And it was an American amendment in2010 and then every year since has
prohibited NASA from cooperatingwith the Chinese in any way.
So it's not like the Chinese cut us off.

(01:37:11):
We said, and still say, no, youcannot cooperate with the Chinese.
They then went their own way and hadto develop everything on their own.
This is essentially a self-inflicted woundin terms of the competition with China.

Veljko (01:37:24):
The geopolitics are really fascinating.
you often hear this narrative about howwe lost a little bit of the plot in space
exploration after the collapse of theSoviet Union and the lack of a competitor.
Perhaps this might be one of the positiveoutcomes of competition with China.

BIll (01:37:39):
But why are we doing this?
We're economists, is there an economicreason to go to the moon and Mars?
No, we are gonna do it essentiallyto beat the Chinese, and we have very
rich people who are paying for it.

Kate (01:37:51):
I'm going to have a more benign view on this because it could
be viewed in a more benign way.
Think about what is the point of listeningto a beautiful opera, seeing a beautiful
piece of art, or going to a national park.
It's just like the enjoyment that you getfrom it and the knowledge that you derive
from listening to certain music, seeinga certain piece of art, seeing a certain

(01:38:12):
area of the country and its nature.
So I think the same can be attributedto space and space exploration.
Humans are interested in it forthe pure knowledge and for the
development of the race and forthe beauty that comes with it.

BIll (01:38:25):
Kate, I'm very glad to see you haven't become cynical as you
reached close to middle age asyour, mentor, your professor has.
Hopefully you won't become ascynical and jaded as I have.

Kate (01:38:36):
I'm a true believer that beauty is really ultimately what most humans want
to aspire to, because what else is there?

Veljko (01:38:42):
I have been following closely the debate last year about the Indian Space
Exploration Program, and it's doing well.
It's doing it on the cheap.
And yet there was a huge civilsociety pushback in India because
there was this perception that thiswas a misallocation of resources.
That food for the soul is still lessimportant than food for the stomach.

BIll (01:39:03):
Katie Perry got such feedback from going up on the Blue Origin Rocket.
You can always make that case.
Is this something you should be spendingmoney on while you have poor folks?

Veljko (01:39:13):
But you're looking at India running, a huge deficit.
Some of it's financing the space program.
I think this is a strong casefor the private sector, right?

BIll (01:39:21):
yeah,

Veljko (01:39:22):
the end of the day, somebody should be free to spend their own money

Kate (01:39:25):
Interesting perspective, yeah.

BIll (01:39:27):
In any capitalist society, if you have freedom and you have the
choice of where you wanna investand what you wanna do, you're
gonna have a lot of things created.
Some money's gonna be wasted, butyou're gonna create wealth, you're
gonna create technologies thatotherwise would not be created.
It's basically positive.

Veljko (01:39:42):
I wanna ask you one last question, Bill, before we wrap up.
At least on my side, I don't know ifKate has any, but a private sector
space industry seems to be rightnow a purely US phenomenon to me.
Am I misinformed, or?

BIll (01:39:55):
That's one of the reasons the Europeans have fallen so far behind is
it's basically, Europe falls behind inalmost everything, but in this, it's
because everything they have to docollaboratively, 20 countries to get it
done, and they have to coordinate it.
It's government run.
Yeah.
Airbus is a private company, Ariancespaceis technically a private company, but
it's all the money comes from government.

(01:40:16):
Now they're trying to, now that they'vehad this political split with the US.
They're really panicking and don'twant to be dependent on SpaceX.
They don't want to be dependent on GPS.
So yeah, military.
This year things have happened in theEuropean context that, they may get their
act together and become a player Again.
I don't think it'll happen,but it certainly could.

(01:40:37):
Japan is mostly government, althoughthey just had a very large private, IPO.
India's mostly government.
China now, the private sector,to the extent that you really
have a private sector in China,is getting involved with space.
So it's all over the world.
They're becoming, Rocket Labs is the onlyother American company that's routinely
launching that was in New Zealand.

(01:40:58):
It's now been moved the US So yeah,the action is on the private side.

Veljko (01:41:03):
Can, I just as a proud European push back on that statement a little bit.
We are falling behind on some thingslike booking cabs, but when it comes
to beauty and food and fashion, we arenot necessarily behind in everything.
And I will just say, I had a chanceof seeing one of the SpaceX launches

BIll (01:41:21):
Did you really, okay.

Veljko (01:41:23):
It was fascinating.
it really was

BIll (01:41:25):
Yeah.

Veljko (01:41:26):
Bill, before we close, is there anything else to mention
that we didn't ask you about?
that we left out?

BIll (01:41:31):
Last night I did the exits from the industry, IPOs, mergers
and acquisitions, things like that.
The night before I did a financing venturecapital, and then I've done the law.
Then last one is gonna be thefuture, the next week, is gonna
be , is there a future for mining?
No.
Is there gonna be afuture for space cleanup?
Probably not.
Are we going to Mars and the moon?

(01:41:52):
Yeah.
Whether we should or not.
We're going and there'll be thetechnology built out for that satellites.
It always comes back to they're gonnahave a ton of satellites being put
into space, increasingly capable,increasingly sophisticated, and we'll
have a hundred thousand of them by 2030.

Kate (01:42:06):
Wow.

Veljko (01:42:07):
Awesome.
That's a good way to wrap it up.

Kate (01:42:09):
Let's summarize for our listeners who just jumping in towards the end
of the episode, what does the severalkey takeaways from space industry?
I can throw in one.
The costs have declined significantlyfrom 18,000 to 200, a kilogram
to launch something into space.
Huge cost reduction.

BIll (01:42:28):
Huge cost reduction, huge expansion in the capability
of putting stuff in space.
And with the cost reduction andmassive increase in demand currently.
But in the future, as the costs are builtin the industry, every time you have
a massive reduction in transportationcosts throughout history, you've had a
massive expansion of economic activity.

Kate (01:42:46):
So number two, we're hoping this will lead to an
increase in economic activity.

BIll (01:42:51):
It already is, it will continue throughout history.
That has been the case.
It's far more private thanis generally perceived.
Three quarters of space is private.

Kate (01:43:01):
Especially for satellites.

BIll (01:43:02):
Government is still playing a very important role, critical role.
It's not going away.
It's also bearing some of the costs.
But basically government is involved.
It's just the real actionand the entrepreneurship is
coming from the private sector.
It's overwhelmingly satellitescurrently and will remain so.
It's a US and Chinese competition.

Kate (01:43:21):
There's two key players right now.

BIll (01:43:23):
Two key players.
You summarized it well.

Kate (01:43:25):
You were summarizing.
Thank you.
Very, very interesting.

Veljko (01:43:29):
And for our listeners, as always, please click on that like button.

Kate (01:43:34):
Please take a look at Bill's papers, "The Financial Economics of Space Flight."

BIll (01:43:39):
Thank you and thanks for the SSMH C. I like that.
I'll try to figure out acute little acronym for that.

Veljko (01:43:46):
Thank you, Bill, for visiting with us, we look forward
to chatting with you on someinteresting topic in the near future.

BIll (01:43:52):
You bet.
Take care guys.

Kate (01:43:54):
right.

BIll (01:43:54):
Bye-Bye.

Veljko (01:43:55):
Appreciate it.
Bye-bye.
Bye-bye.
Bye-bye.

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