The economics of space

As I've pointed out before, it is very hard to make a profit-maximizing case for anything outside of low Earth orbit (although there are lots of profit maximizing opportunities there). Tim Worstall goes through the sad truth about asteroid mining. Getting access to those sorts of deposits could revolutionize life - it's not that the treasure trove isn't an enticing prize. But it's unclear whether it's a viable business plan:

"Start from the size of the platinum market. This is some 6.2 million ounces a year. 6.5 million ounces of virgin material, that is: given the value of the metal some to all of past usage is recycled as well. At our $2,000 an ounce price guide, that gives us a market value of some $13bn a year. That certainly seems large enough to keep a space programme running. (Do note, I'm ignoring palladium, a similar sized market, and rhodium etc, which are much smaller ones. They don't change the final conclusion by their inclusion or exclusion.)

Except that's not quite how markets work. There are demand curves as well as supply ones: sure, a nice high price will encourage new entrants like Planetary into the market. But in order to shift all this new material, prices will have to decline. The important question therefore is how elastic is the market? How far, if at all, will the price fall if a new supplier enters? From a recent trade report we've seen recently, an extra 250,000 ounces has come onto the market. This has led to a 25 per cent fall in the price of platinum. Ah! Price is very sensitive to an increase in supply, then. Or, if you prefer, demand is very insensitive to a change in price. They're the same statement, really.

Now it's true that such sensitivities do not stay the same as you move up or down a supply or demand curve. As our little economics lesson for the day, think about the demand for water: if you're getting less than one litre a day you'll pay just about anything at all to get more. When you can have a swimming pool full just by turning on the tap then you'll not pay much for each marginal unit. And such demand curves can invert too: when that pool overflows into the basement you'll happily pay to have the water taken away, a negative demand for water.

But back to PGMs. We have something that we know the demand for, in the short term at least, is relatively insensitive to price. An increase in supply of as little as 250,000 ounces - seven metric tons - will drive the price down by a quarter. So instead of the $500m they were hoping for, our lads would only (yes, I know, “only”) get $375m. Can we run a space programme on that? The more platinum they try to bring down from space the lower the price gets, and so even more has to be brought down to finance the whole shebang."

So are we doomed to be Earth-bound until we're so technologically advanced and gasping for clean air and new resources on a crowded, hot planet that it makes sense to venture into space?

No - we just need something other than the profit-motive to get us there. Not everything is done with profits in mind. Quite a bit of what gets done is done by non-profits after all, and then of course there is the government. Arguably, even "profit-maximizing" firms have goals other than profit-maximization. People do benefit from space exploration, the problem is those people are not alive today and they do not have equity stakes in aerospace companies. They're people like the human residents of Mars in 2512 or the human residents of what we now call "exoplanets" in 4012.

Profit maximization is not going to do anything for these people. But there are people with visions for a better future, and those sorts of people can get the ball rolling. One example is Elon Musk who spoke recently about a Mars colony with 80,000 residents. He's not proposing things like this because it's profit-maximizing. He's proposing it because he has vision.