Appendix D: Principal Questions on Economic Conjugation

One idea introduced in the New Frontier Playbook that seems conceptually interesting and potentially new is the idea that an ‘economic conjugate’ can be created in Near Earth Space and that said conjugate represents a parallel economy operating at a higher (plural) tense of prices and wages to its domestic Earth-bound twin.  The brief discussion earlier in this essay suggests that at scale several positive outcomes may be possible from creating such a conjugate.  This appendix attempts to explore a few more questions related to economic conjugation and to at least sketch its boundaries, shape, and potential ramifications for future analysis.

I will confess at the start that I am layperson when it comes to economics.  There are limits to how far I can take this exploration.  Deeper analysis must be the provenance of trained economists rather than an amateur’s musing about what may be possible.  That said, it is my hope that the discussion below provides a starting point for more thorough analysis and thinking in the near future.

Context

The premise of an economic conjugate is based on a simple realization.  Earth, our home world, is a lush oasis of abundance and this reality underlies everything about our contemporary economies.  We often take for granted this bounty and its implications.  We get it intellectually, but we don’t really feel it or realize its importance in a bedrock economic sense.  Here is what I mean.

Water literally falls from our skies and flows in streams and rivers past our homes, our farms, and our towns, virtually free for the taking.  Water is the essence of life on Earth and we are blessed with this gift of Nature’s abundance. Water is an essential building block of life and you also need it for almost everything we do. You need it as drinking water for survival, to grow the food we eat, to manufacture almost every type of product we use, and it goes into every material (from wood to cement) we use to construct just about everything we build.  Water is an underlying, fundamental input to almost every economic activity.  The extraordinary truth is that everything we drink and eat is modest in cost in all but the most extreme cases of shortage, extravagance, or mismanagement because they are grown, raised, or made based on the foundation of an input (water) that is essentially or nearly free for the taking as a gift of nature.

You could say the same about air.  It exists all around us and we breathe it without thinking.  No matter how rich or poor a person is, no matter where they live, no matter their station or circumstances, the air they breathe at the place they are standing in that moment of time is free for the taking in all but the most extreme micro-climates or situations.  We are at least that equal.  (Although where you are standing determines what you breathe and the where is certainly not always equal.)

Space will be different.  When you have to squeeze every drop of water you drink from a carbonaceous asteroid ferried from millions of miles away or harvested from Lunar regolith and transported to point of use, every drink you take and every bite you eat will cost exponentially more.  This fact is inescapable.

The air a person in space breathes will also have to be manufactured and transported.  This comes at a cost.  Currently, that cost is extraordinarily high, but even if we break out into Near Earth Space at scale and produce that air ‘locally’ from local materials (e.g. in situ), the cost of every breath taken will never be free.  It will be inherently and forever more expensive than what we breathe for free today in the atmosphere of our home world.

Given the realities of extraordinary expense built into the foundation of every good and service in space, the question becomes:  Can we create a self-sustaining economy in space in the face of such extraordinary cost?  Counterintuitively, are there potentially very big advantages to doing so?  I think the answer is yes to both questions, but it will take a concerted effort by economists to truly answer these questions satisfactorily because this is new.  There is no parallel in human history on Earth in which water is as scarce and expensive and that operates at large scale.  Civilizations and settlements have always grown up around free sources of water that can support life, grow crops, and nurture a community and economy and they have withered away when those sources dry up, disappear, or become overly expensive.

With that as a context, what are the defining topics and boundaries to use to sketch out what we mean by a conjugated economy and how will it relate to its domestic singular tense on Earth?  Here are some categories to explore:

  • Market Economy
  • Cost of Living
  • Wages
  • Property Rights
  • Printing Money
  • Leakage & Inflation
  • Inequality
  • Baumol’s Disease.
  • Transition

We’ll take each in turn:

1)  Market Economy

In space, everything from a glass of water to a loaf of bread to the air you breathe will have to be manufactured at very high cost.  There will be no freebies.  As a result, these higher costs will cascade throughout the space economy requiring wages to be higher in comparable measure.  In turn, that will drive the cost of any services delivered by people, no matter how basic, to extraordinarily high levels (in Earth terms).  Getting a haircut in space by anything other than a robot or a friend will seem frighteningly expensive from afar.

Some will argue that this makes no sense and that we can simply pay good wages at Earth rates (with a risk bonus) and supply basic goods to the workforce centrally.  I think of this as the Astronaut Model.  In the Astronaut Model, we pay our astronauts an Earth-based wage and we supply everything they eat, drink, consume, or use free of charge.  The astronaut effectively banks their salary (or continues paying the bills at home).  This works because their visits are short, transitory, and in small numbers and all goods, services, and mission materials are produced on Earth and budgeted and covered centrally.

This model works fine in small numbers.  However, it quickly collapses at scale because it is neither politically or economically sustainable.

Here’s why:  Someone has to pay the difference.

If an astronaut is paid $100,000 in wages, benefits and bonuses, but the actual cost of sustaining that astronaut in space is $5,000,000 per year, then someone has to pay the difference.  Even if we collapse that cost dramatically over the course of a generation to $500,000 per year, the gap between cost and what an astronaut earns has to be covered by someone.  None but the most far-sighted and deep-pocketed private sector actors will sign up for losing money like this in the short-term, much less at scale (without a compelling cost/benefit/risk rationale).  That leaves space the provenance of the public sector and implies the taxpayer has to cover this cost by default.  However, taxpayers facing competing priorities and austere budgets won’t fund the Astronaut model at scale when you reach tens or hundreds of thousands of people in space and hundreds of billions of dollars in annual expenses.

The Astronaut Model is a path to nowhere.

Because a subsidized model at Earth prices won’t work in space at anything like scale, it is likely that we will want to create a market economy that allows goods and services in near Earth space to be bought and sold at their true cost and those costs will have to be borne by the residents of that space-based economy.

Ultimately, if workers have to pay their costs of living in space, the taxpayer does not bear this burden directly.  In addition, a market economy has the virtue of creating incentives for dramatic innovation and productivity gains in a way that the astronaut model does not.  If prices reflect costs, then these are signals for innovation and entrepreneurship. If we have these signals paired with ownership and entrepreneurialism, then there is the potential to create a powerful dynamic to inspire competition and drive costs lower.  This is what a market economy is all about.

Therefore, a fundamental conclusion is that the first characteristic of a future space-based economy is that it must be built based on or at some point transitioned to a market economy where prices and wages reflect actual costs and this is the most likely way to create a self-sustaining economic presence in space at scale.  I think of this market economy as an economic conjugate because it will inevitably be at a plural tense to its domestic Earth-bound twin in relation to prices and wages.  The cost of water, everything you grow and eat, the air you breathe, and the goods that are consumed will all come at costs that are a step-jump higher, likely exponentially so.  That is the next point.

2)  Cost of Living

The cost of living in space is going to be enormously higher than it is on Earth.  We all get that intuitively, but just how expensive it will be, and how different that is from past and current experience, bears some consideration.

First, think about the cost of living between cities in the United States.  The median income and cost of living in our most expensive cities is ‘just’ 1-2x greater than that of living in the smaller towns of our less prosperous states and counties.  Remarkably, the gap between living in Manhattan and living in Plano, Texas or Yakima, Washington is not that great at a median income and cost of living level.  The basics of life are more expensive in Manhattan, but not exponentially so.

To see this in more detail, try using a cost of living calculator like that provided by bankrate.com (http://www.bankrate.com/calculators/savings/moving-cost-of-living-calculator.aspx) and running a comparison assuming you are moving from Yakima, WA, to Manhattan, New York.  What it tells you is that if you have a salary of $50,000 in Yakima today, you would need to make $118,000, or 136% more than what you made in Yakima to live at the same level and consume the same amount in Manhattan.  That is higher for sure, but not exponentially (10x) so.

Bankrate’s cost of living calculator offers some surprising insights.  The cost of housing is what appears to be driving the bulk of the cost differential.  An average home price in Yakima is $295k, but in Manhattan it is nearly $1.5 million.  You can rent an apartment for less than $700 in Yakima, but the comparable rent in Manhattan would set you back nearly $4,000.

But what the calculator also shows is that most food items are very close in cost.  A hamburger in Yakima is $4.19, but $4.09 in Manhattan.  Bananas are the same price.  Peaches in Yakima are $2.58, but $2.82 in Manhattan.  In fact, most food items are slightly more expensive in Manhattan as you would expect, but not dramatically so.  Lettuce is $1.32 in Yakima, $1.70 in Manhattan.  Orange juice is $3.64 and $4.14 respectively.

As you would expect, most goods and services are also more expensive in Manhattan than they are in Yakima and the range is 50-100% greater.  A haircut is $11 in Yakima, but nearly $23 in Manhattan.  You can take your dog to the vet for $41 in Yakima, but it will cost you nearly $100 in Manhattan.

In general, cost of living seems to be explained by the high cost of housing and property and how that cascades back down through all goods and services.

On a recent trip to Manhattan from Portland, I tested this assumption using water as an example.  In Portland, Oregon, a 1 liter/20-oz bottle of water at 7-11 costs just $1.69 plus a plastic bottle deposit, but one brand is 2 for $2.  In Manhattan, a local 7-11 sells the same bottled water for $2.29 or two for $3.  The difference between the two is probably not the inherent cost of the water or the supply chain behind it, but the higher cost of renting property in Manhattan vs. Portland.

While housing (and property) is dramatically more expensive between high and low cost locations in America, basic goods like food and water are not dramatically so.  Most of the variation in cost of living can be explained by the higher property cost and how that flows back into wages, rents, and prices, although there may, of course, be other factors at work.  What is surprising is how modest a variance there is outside of housing.

Now consider the cost of living in space.

We know that water in space will not be free, nor will air.  Everything will have to be manufactured.  We can assume that the cost of living in space will be amplified not just by a much higher cost of housing (reflecting the cost to build), but also by the dramatically higher cost of the food chain and the inputs necessary to support it.

At best, a bottle of water in space will still cost hundreds of dollars in the future (it’s tens of thousands now).  And that is after an efficient supply chain has been put in place and costs have been squeezed out.  Hundreds of dollars is probably the best case scenario for many generations.

While the gap between living in a low cost location in America like Yakima, WA, and a high cost location like Manhattan is roughly 1.3x, the gap between Manhattan and any future settlement in space will be far, far greater.  It will likely be 10-20x higher at a minimum and possibly 100x greater in practice.

If prices reflect actual cost, then a bottle of water may run $350 and a cup of coffee may cost $500.  A bowl of noodles may come with a price of $2,000.  The apartment (or bunk) a worker sleeps in will come with a rent that may make even Earthly tycoons blush (or salivate).

These costs then drive what a future worker in space will need to be paid in order to cover their cost of living.  It implies a dramatically higher wage in space than anything ever considered or contemplated on Earth.  It also offers a compelling business case why companies like Starbucks may want to have a store or two in every future space settlement.  The margin on a cup of coffee on Earth and space might be the same.  The marginal dollars earned for each cup will certainly not be the same.

3)  Wages

In a market economy in space, workers will have to pay for their food, housing, and any other items all at very high prices (compared to Earth).  Thus, another defining characteristic (highlighted earlier in brief) is that these workers’ wages will have to reflect the true costs of the goods and services they must purchase.  The implication is simple:  Those wages will be extraordinarily high in comparison to Earth.

Today there is a movement to increase the minimum wage in some higher cost locations to $15 per hour, a movement that is considered politically contentious.

By contrast, it is possible that a minimum wage in space (in constant dollars) will need to be at a level that is closer to $250/hour or higher at today’s rates.  A minimum wage salary may be $500k per year or greater.

Imagine that.

Now, that minimum wage worker will have bills to pay, too.  Living costs will be proportional (food, entertainment, rent), but savings, taxes, and every other cost will be much higher in absolute terms as well.  Proportionally speaking, the space-based minimum wage worker may pay taxes like the wealthiest 5% on Earth.  They may also save money at the same rate.  The implications for this are merely interesting if it is a few thousand people.  But it’s profoundly exciting if it grows to tens of millions by the back half of the century.

While I’ve postulated that a minimum wage will likely be $250/hour, that may actually undershoot the minimum salary needed to cover the basic costs of living in space for a very long time.

Transitioning to a market economy in space from the astronaut model will not happen instantly, but will by necessity be a phased activity and so wages early on may be Earth-comparable before costs are fully understood and a base wage can be set.  But the act of purchasing goods and services creates economic activity and increases the velocity of economic growth. It allows economic activity to be monetized, growth to accelerate, jobs to be created, and innovation to happen, so there are compelling reasons why a market economy with market prices and wages will be created in space.  Those prices and wages will almost certainly be very high compared to Earth-based measures.

 
 



4)  Property rights are tricky 

I’ve long thought the two biggest risks to a large-scale human presence in space are meteorites and property rights (assuming radiation is a manageable risk).

The first risk is obvious.  If a structure with people gets hits, people could die.  But if studies are to be believed, this risk is extremely small.  By comparison, property rights sounds trivial by comparison, but it is potentially more challenging and critical to get right.

Once the transition to wages and costs relative to the space environment has occurred, it enables an outpouring of economic innovation.  High prices for goods and services create an incentive for innovation if we can enable entrepreneurs with opportunity, incentives, and ownership rights.  Otherwise, we are just engaged in factor inputs and the velocity of economic activity and opportunity is curtailed and we are stuck with a centrally planned economy with all of its inefficiencies and distortions.

We have to have property rights and the possibility of ownership in a space-based economy to create a market economy.  This is without question.  But there is a risk to be managed.  We have to avoid a first-mover, winner-take-all advantage.

If you assume that for many generations what it means to be a worker in space is someone who will be there for the duration of 5-7 years on a contract, but someone not settling forever or raising a family in space, then the first mover challenges become clearer.

The first waves of colonists (contractors) have an outsized advantage over subsequent ones if they are allowed to own property such as housing stock and retain this ownership after they return to Earth.  They effectively gain outsized rents for life.  It’s a great deal if you get there first.  But subsequent waves of colonists will not have the same opportunity or advantage.  There is only so much housing stock that can be built into each colony.  If everyone else becomes a renter and has to pay an outsized share of their wages in rent, then the first mover advantage is not fair, nor is it productive, innovative, or growth enabling.  Allowing the first settlers to own physical property is therefore very problematic.

If a population in space is not settling permanently, but on time-based contracts, and will be replaced by subsequent workers on similar contracts, then land and property in space settlements may need to be restricted and owned by a central authority.  Innovation and entrepreneurialism may be more productively focused on creating businesses, processes, and ideas rather than on owning physical property.

Let’s take an example.

A large space settlement is built late in the 21st century and the first wave of workers arrives from Earth and are granted the right to purchase their living quarters.  These people stay only 5-7 years, but they get to buy and own their apartment unit and retain it after they leave and return to Earth.  While in the colony they pay a proportional share of their wages in mortgage cost.  When they return, they still own the apartment.  The next wave arrives.  These people cannot then purchase their own housing.  They have to rent from those that own.  The original first settler that opted to buy gets to earn a rent at conjugated pricing for life and that may be high enough for them to never have to work again.  It’s a great deal for the first mover, but subsequent settlers are denied this opportunity to acquire equity and ownership.  It’s also a terrible deal for our domestic economy because it removes any incentive for a potentially very productive worker with cutting edge skills to engage in work instead of living off their economic rent in space.  The owner still spends in the domestic economy and that is an economic benefit, but my guess is that it is smaller than if they held a job or created a business.

The same thing applies to the owner of the first coffee shop in space.  Imagine you are the first person to set up a café in a space settlement.  After your contract finishes do you get to own that café in space even if you return to Earth?  We would say yes without hesitation on Earth and there would be no question.  But given the massive public investment required to create any structure for settlement in space, when is it fair to allow individuals to gain ownership and how do you manage that in the context of defined contracts of 5-7 years?

Property rights for physical assets built at extraordinary expense via public funding feel problematic and I don’t have an answer other than to suggest that we may want to minimize first settler winner-take-all economics.  Yet as we move to a market based economy in space, we also want to do all we can to incent innovation and entrepreneurship which includes ownership of private property.  Finding the right balance between these competing two principles will be a central political and economic challenge for the transition to scale in space.

A possible balancing solution is to own physical property and structures centrally and encourage private ownership of knowledge and intellectual property, from brands to processes.

5)  Printing Money

A suitable monetary policy will be needed to inject liquidity for growth into the space economy.  If recent experiments with Quantitative Easing have been about injecting liquidity into the US banking system, effectively printing money and adding to the central bank’s balance sheet by purchasing bank assets, in the future, a space-based economy may need something more akin to Quantum Expansion – an order of magnitude greater and decades in duration – to inject liquidity into its economy and support rapid economic growth and scale and it will need to be driven by space-based entities.

Here’s why.  As the space economy grows and additional workers begin living and working in space, we will need a means to inject capital into this fast growing, yet nascent economy.  The relatively small numbers of initial settlers belies the fact that they will be working in an environment of exponentially higher wages and prices as discussed earlier.  This will require quantitative easing directed into a small space to provide economic liquidity.  As a means of promoting economic growth it is also likely to be far more effective than purchasing government debt or financial assets.  The injection of liquidity, e.g. printing money (digitally or in kind) creates and drives economic activity in an enclosed community/economy that accelerates the velocity of growth through the purchase of goods and services.

On Earth in a domestic economy characterized by low growth, printing money threatens to unleash inflation.  However, in space, the economy will be growing at a rapid rate and the horizons are unlimited.  Injecting liquidity to promote economic activity and circulation will not necessarily drive inflation because it can be done in increments mapped to physical factor inputs (people, resources, etc.).

Let’s say you are building a space settlement to house 50,000 people and adding one of these structures every 6-12 months as your production base in space grows.  As those next 50,000 people arrive to take up residence and begin work, you have to expand the monetary supply (digitally speaking) to provide funds for those workers to be paid a salary and to use it for the basic economic activity of living in a new city.

As the number of settlements grows and the population of workers grows, you have to continually expand the digital money supply to support the economic activity they are engaged in.

Can we use printing money/Quantum Expansion to drive economic growth directly in a sustainable way?

Here’s one scenario: What if new space settlements are chartered by a central space authority as a governing entity and issued a credit line for its construction?  The central authority guarantees the loan and the loan is issued by one or more space-based banks.  The newly chartered settlement entity contracts for its construction from existing settlements.  The construction cost is paid out to workers and firms for materials and labor to construct the new settlement.  Once the settlement is constructed and populated with workers, the chartered entity (space settlement) still owns its physical housing and space.  It charges rent to its workers and uses that income to pay back the original chartered loan.  As long as the chartered space colony keeps its workers actively engaged in economic activity and work earning a salary and paying rent, it has the income to pay off its loans.

In this way, it seems plausible that once the infrastructure and supply chains are put in place to construct settlements in space, it can expand rapidly and be self-sustaining while growing a space-based economy.  Finance seems less an issue than technology and politics.  For a central space authority working with locally chartered banks to guarantee loans is straightforward.  The fact that banks will then effectively create money by issuing loans is also straightforward.  That is what they do today.

Once a basic political and financial infrastructure is created, it will have the ability to rapidly scale up a space-based economy in a sustainable way.  That broader space economy will grow because it can continually charter new settlements that drive growth within the ecosystem of existing settlements.

Printing money at scale to support a space-based economy’s rapid growth and build out is potentially a sustainable and attractive way to support the economic growth of the home world, Earth-based economy as well because some portion of taxed income from economic activity in space will return to the sponsoring Earth-based government for that settlement.  Those taxes may be small at first, but several decades downstream, their combined impact may be quite significant.

6)  Leakage & Inflation 

If we inject liquidity into a space-based economy and it flows in large amounts back to the Earth-based domestic economy in large enough volume, will it then drive inflation and create negative outcomes such as asset bubbles?  This risk is real, but I believe it is modest and controllable for a very long time.

Some flow from the plural to singular tense is desirable and welcome.  At the government level, it will come in the form of tax revenue back to the central government which will support programs or pay down debt.  It seems plausible that as the space-based economy grows ever larger, this flow creates a perpetual (at least for a century or more) fountain of funding that may well eliminate our national debt and drive a very different economy on Earth, one where poverty is no more, the environment is clean and increasingly pristine, and political polarization is focused on how to spend the bounty, not how to screw over the other side.  (Okay, that last one may be an aspirational stretch goal.)

Companies will also benefit from contracts to provide goods and services to the nascent and eventually more sizeable space economy.  There will be many benefits to both firms and workers from these contracts, but they will start small and come with significant competition.  They should not be managed like typical cost-plus contracts today, but should be managed to continually push the envelope on innovation and cost.  Over time, much of this activity will expand on the frontier itself as first simple and then more complex supply chains develop in space.  Earth will need to move up the value chain to stay ahead.

At the personal level, it will come in the form of repatriated savings and earnings.  People working in space will be able to save a portion of their salary.  It may be a similar portion (15%-20%) as Earth-based workers, but in absolute dollars it is likely to be 100x higher.  Those savings may be used while workers are still in space (repatriated earnings to support a family), but I suspect most space workers will save the bulk of their income for the future.

For a generation, these combined flows will be large enough to invigorate segments of our economy and a portion of the population, but not necessarily large enough to cause significant inflationary risk more broadly because it will take 40-50 years before a presence in space reaches a number in the millions.  We do want it to get that big eventually.  But even when it does, the aggregate flows at the person level will be distributed among people that are geographically disbursed when they return to Earth.  In other words, not everyone is going to return to a single location like Silicon Valley and so the economic benefit will be widely shared and the risk of asset bubbles at least for physical goods and property will be widely disbursed and harder to accumulate.

Will it cause bubbles in stock prices?  If more money is chasing fewer assets, that may be a very real risk.  But if a space frontier drives new firm creation in the space-based economy, it may soak up excess funds as well.

On the public side, it will also take time for the aggregate tax flows to grow significantly and we can choose to direct the use of this funding in a way that minimizes and distributes the risk carefully between debt reduction and domestic spending.

Within the private sector, as the size of the space economy increases, an increasingly large portion of goods and their associated supply chains will move into space to be as competitive on cost as possible.

If a future space-based economy becomes so big that it is many times larger than its domestic Earth-bound twin, then we will almost certainly have created serious challenges and distortions as a result.  But we will have also had a century of economic growth and plenty of time to prepare.  As a problem, this qualifies under the category of ‘nice to have’ and we can only hope future generations are so lucky as to be faced with the challenge of having to manage it.

The risk of inflation on Earth is not the only risk that a future economy will face.  There is also a risk of deflation occurring in the space economy over time as innovation and efficiency lower costs, potentially dramatically.  This will take time to materialize, but will impact wages and contracts for workers and will also need to be explored and its disruptive potential, if any, managed.

7) Inequality Vanquished

A future space-based economy will likely be very egalitarian and equal in terms of wages and earnings for a very long time and if it scales, it may well help resolve some of our challenges with inequality at home on Earth.  The caveat to this is that the solution will take a long time to have a meaningful impact.  But given some authors have recently suggested that the only way more egalitarian societies arise if through war, plague, and economic collapse, I think the possibility of an alternative pathway is worth exploring.

Let’s look at this idea in more detail.

First, wages will be relatively equal for the first number of decades as scale builds on the space frontier.  The gap between executives and workers in a space colony or settlement should be very narrow as a matter of practicality, economics, and culture.

In practical terms, let’s start with a look at the wage requirements and cost of living for both a minimum wage worker and an executive or manager in space.

The minimum wage worker will, of course, be happy to make what looks like a huge wage by Earth standards based on their skill set.  It will be 20-30x higher than what they would earn on Earth in a similar role. This minimum wage will be a basic requirement for a worker to live in space and pay their bills.

But will such a wage suffice for more senior administrators and managers?  The answer is yes, because in Earth terms, it will also look like a handsome sum as well.

According to the US Bureau of Labor Statistics, the median annual salary of chief executives in the United States is $175,110.  Only the highest 10 percent make more than $187,200. Top executives such as general or operations managers make a median of $97,730 annually, although the top 10 percent also make more than $187,200. (https://www.bls.gov/ooh/management/top-executives.htm#tab-5 )

The median is misleading.  That covers a wide range of firm sizes and a large population of over 300 thousand CEOs and several million other top executives and managers.  The top 10 percent of this large cohort is the group making between $187k and $300k.  But those multi-millionaire CEOs we hear so much about are a very tiny minority that are at the very top of the distribution and they are leading the very largest multinational corporations, financial firms, and technology companies.  They are not the norm even for CEOs.

What that means is that a salary of $500-$750k (or 1-1.5x the potential minimum wage in space) would be far higher than what most executives would make on Earth in the vast majority of positions.  It is very likely that a wage modestly higher than minimum wage in space would, therefore, also meet the needs of a senior executive with the skills to manage a full-sized space settlement or direct its operations and population.

The wage in dollar terms should be decent enough, but what about the demands these executives make for ever higher salaries in America?  Will a similar culture translate to the space frontier?  I think not.  Here’s why.

Culturally, the drivers pushing up executive pay won’t be the same in space.  First, luxury goods and accommodations will be in short supply or non-existent.  Nor will the culture of future space societies provide elites with the ability to withdraw into enclaves or live in elite communities.  The physical space will be too limited, too visible, and too transparent.  Workers, administrators, and entrepreneurs will have to live in very close proximity in what is essentially a very risky and dangerous environment on the frontier of space.  They will need to rely on each other.

For all these reasons, the space community is likely to foster and sustain a culture of restraint that could be self-reinforcing over time.  Higher status will be likely conveyed more by communal activity (making wine in a group, for instance) than by conspicuous consumption (showing off a new Maserati to strangers).  I see very limited room for conspicuous consumption, winner-take-all dynamics, and selfish behavior.  I see lots of room for the culture to restrain such behavior.

If we create a true market economy, then at some point there will be new trends that start to drive greater inequality, but the cultural and practical dimensions may provide a long-term restraint on wage growth among the elite for a very long time.

Life in space will be very special in this sense.  The most menial worker will likely make almost the same as the most senior executive on site.  They will rub shoulders in the same space.  Eat in the same dining halls.  Play sports on the same teams.  One person may have a job that does not require managing people.  The other may have responsibility for the entire facility and all its people resting on their shoulders, but they will both exist in a relatively egalitarian social circle – at least while they live in space.  Culturally and socially, we as a nation need this experience at scale for the benefit of all Americans and our increasingly polarized and isolated culture at home on Earth.

With that as background, here is a recap of why it is unlikely that we will see income inequality on the space frontier between minimum wage workers and the executives and managers that will run operations in these future space settlements and colonies.  The reasons are:

  • Not a Superstar Job. Income inequality in our domestic U.S. economy is primarily driven by winner­-take-all economics in which a small bench of superstars earns out-sized rewards because their skills are in high demand and these superstars can demand out-size rewards whether in athletics, technology, or finance.  The senior positions in a space colony will be more akin to factory and operations managers on Earth.  People that can run a large base or operation of hundreds or thousands.  We have a deep bench of people with this skill set and it is not inherently a role that only a small number of people can do.
  • Demand Inversion. Superstars are in high demand in our economy when Boards, Investors, or Owners believe they can create an outsize return and they are nearly unique.  This drives a bidding war for perceived Superstars.  By contrast, jobs, even senior ones, on the space frontier will be in demand by candidates who want the prestige and experience of operating on the very cutting edge of our economy and whom want to be a part of an historical human adventure. A salary that is very high in Earth terms, but relatively equal and modest in space terms will be perfectly adequate to attract a large pool of talent for these jobs.
  • No luxury spending. For many generations there will be no luxury goods or conspicuous consumption opportunities on the space frontier.  This will drive restraint as well.  The minimum wage worker and the senior administrator will likely eat, live, and play in the same space and rub shoulders on a daily basis.
  • Shared culture. Workers on the space frontier will live and work in a very high risk environment and will rely on each other for survival.  This will be a very communal environment and the distance between these people will by necessity need to be very close and this will drive restraint and equality.

For all of these reasons, I believe the space frontier may trend towards high levels of equality for a very long period.

What is more intriguing is to consider the potential impact on Earth-based income inequality over time and with greater scale on the space frontier.

If the space economy is a transitory experience for most workers and it comes with very high wages for a period of 5-7 years and results in new and advanced skills and exposure to an entrepreneurial and socially cohesive community experience, consider what the circulation of these workers back to Earth by the millions would mean for equality here in America.

A minimum wage of $250/hour means that a space worker is effectively in the top 10% or even 5% of society for the period of time that they are working in space.  They accumulate savings, skills, and can-do attitude.  When they return to Earth, they would likely have skills to do good jobs, but they will have accumulated enough savings to buy their own property and invest in anything from education to a business.  Even the lowest worker in space will return as a member of the upper middle class at home on Earth.  Culturally, they will return from this experience with a can do attitude, strong group cohesion, and not afraid to socialize across bubbles.  I believe they are the key to rebuilding our democracy.

If we can create a circulatory mechanism where large numbers of people get their space experience (and the financial benefits), and return to Earth, we may be able to drive down inequality at scale and rebuild our middle class over time.  And we might just save our democracy.  (And it wouldn’t require war, pestilence, or economic collapse to achieve these outcomes!)

 8) Baumol’s Disease

In the 1960s, William Baumol and William Bowen postulated the idea that the cost of human wages and therefore all services requiring labor would always increase over time.  Labor never gets cheaper as cost of living increases.  Therefore, personal services provided by the public or private sector such as education, healthcare, etc. are all doomed to increase over time even as many other costs (manufactured goods) decrease at sometimes dramatic rates because these goods benefit from automation and innovation in a way that personal services do not.  The term Baumol’s Disease was coined to describe this phenomenon of ever increasing prices for personal services.

In space, this concept may get turned on its head for a period of several centuries.  It may be possible to have decreasing labor cost for an extended period of time on the space frontier and I think of this as a Baumol Inversion.  This may last a century or more although the steepest declines will be early on in the first half century.

In space, innovation and scale efficiencies will drive costs down very, very fast putting downward pressure on costs for an extended period of time lasting most of the century before the floor is reached and costs begin to grow again.  Recall that today an Astronaut may cost millions of dollars per day to support at the International Space Station and even when we get to early scale (thousands), the cost to support each worker in space may still be millions of dollars annually.

But this will change.

Future space settlers will still cost a lot to transport to and from space and their cost of living in space will be very high.  But that cost curve will begin to decline dramatically over time as engineering innovation, business acumen, and scale economies and supply chains give us more cost effective ways to get into space and back as well as harvest and utilize resources in space.

The cost of transport is one example.  It costs $70 million and change to fly an astronaut to the ISS.  Elon Musk, however, is postulating that he can get a person to Mars for just $200k in the not too distant future.  Transportation is just one input into the cost of supporting a worker in space, but we will likely see these rapid cost declines occur across the spectrum.

These expected cost efficiencies imply that human labor cost will decline over time until we have hit a floor at which innovations are no longer reducing cost significantly.  At some point, the Inversion must eventually plateau for a period before the Disease finally reasserts itself again.

The application of Baumol’s theory to the space frontier and the phenomenon of increasing labor cost for personal services is interesting and warrants explanation and further study.

9) Transition

As highlighted earlier, transitioning from the Astronaut Model of a centrally planned and supported economy at Earth prices to a market economy reflecting locally relevant wages and prices will be tricky and will require advance planning.

Here is the issue.  Initially supporting a small population in space will be extraordinarily expensive, in the millions of dollars per year per person.  If we are on a path to scale and are able to address the engineering and innovation challenges, those costs will begin to decline on a per person basis very rapidly. Elon Musk’s promise to reduce the cost of going to Mars from billions of dollars per person to $200k per person is an example of how dramatically costs may drop.

In a very tactical sense, then, how do you write a contract for a worker coming for five years when costs are in a phase of rapid deflation?  When do you transition to market contracts with local wages?  If you do it too soon while the cost curve is at its steepest and fastest, then how do you adjust a worker’s contract in real-time as costs decline?  Or do you give a worker that arrives today a set contract for five years at the same wages when a worker that arrives next year will have a contract that pays less?  How do you manage a deflationary environment in the most economically efficient way and when that deflation is highly desirable to promote growth and scale?

In the more strategic sense, the questions raised earlier on property rights, income inequality, and the shift to a market economy are all important to study and create a transition plan to address. But these are just a start.  There are others as well.

For instance, how do you create a labor market if everyone is brought in on a 5-7 year contract for a specific job, the housing market is tiny and at full capacity, and everyone with a job has a place to live?  If you allow entrepreneurialism and innovation in principle, how do you enable it in practice?  How do you allow someone on a 5-year contract to create a business when they are filling a specific job already?  If they quite their job, someone else has to fill that role and will need a slot for housing.  Yet to unleash innovation, we have to be able to free up a pool of labor both to be entrepreneurs as well as to be employees and those people will need a place to live.

Do you allow businesses to fail, a key concept in market economies?  If you do, how do you manage periods of unemployment, which is also a feature of market economies?  Do you provide support, even temporary, or do you put the onus on individuals to sort out their situation or return to Earth?

And then, of course, there is the really big question of when and how do you allow for families?  That is one of the biggest transitions, but my model assumes that initially the space frontier is more akin to an Antarctic research station or an oil rig in the North Sea.  These are not exactly family friendly work environments.  The transition to families seems to be assumed as easy and obvious to proponents of large scale space settlement.  While it may be true in concept, the details are critical and the timing challenging.   To support families, you will need medical services for pregnancy, childcare, pediatrics, schools staffed with teachers, sports and after school activities.  And that’s just a start.  You will need to modify the terms of employment for women with children and you will need to allocate physical facilities as well as staff.  The economic costs of supporting families are enormous on the space frontier and so this challenge will also be enormous.  Yet you cannot have a self-sustaining economy in space without, eventually, a self-sustaining civilization and society that is built on a population that is raising families.

These questions and the associated timing drive consideration for how to plan and manage the transition to a market economy.  They have barely been explored and will require much more consideration and analysis.  As yet, I don’t have good answers for any of them.

Conclusion

Economic conjugation is something I backed into in stages while writing the main essay, New Frontier Playbook, and it has captivated my interest even as it remains nascent in development.  Somewhere between exploring the purchasing power parity comparison between Los Angeles and Dhaka and the realization that the basic building blocks of life in space (water, air) will have to be manufactured at great cost and will never be as cheap as they are on Earth, came the idea of economic conjugation.

It is an idea that feels a bit like alchemy.  The idea that we can create a self-sustaining economy in space at a price and wage level that is 10x or even 100x that of our Earth-based equivalent and that such an economy could also provide significant revenues back to Earth sounds a lot like conjuring gold from lead.  Alchemy is in bad repute these days.  We use it as a slander to disparage people that are doing something fundamentally wrong or deluded whether contemporary bankers or the metallurgists and chemists of the Middle Ages.

But what if it is possible?  What if we can effectively spin up a conjugate in Near Earth Space and the mechanics are relatively easy conceptually and financially to envision?  What if the economic and political benefits to our Earth-bound economy are potentially enormous and highly relevant to our stage of technological development?

If these things are possible, then it lends new urgency to solving the engineering and political challenges that are holding us back.  The best I can do with this brief appendix is explore some of the questions that arise in my own mind.  I cannot answer any of them definitively.  That is for trained economists to engage in greater detail with more academic firepower.  Hopefully this brief overview will provide some food for thought and additional exploration for those with the training and skills to take this concept to the next level.