Posted by
Jon on Saturday, February 14, 2009 4:31:42 PM
I haven't posted for a while (I started business school and am really drowning in work), but I needed a venue to bail myself out of some cryptic statements on Twitter. Obviously, a recession or depression is a bad thing that no one wants and that no amount of personal benefit from a depression would want someone to root for a depression. But, once one is in a depression, different groups would prefer different solutions.
One of the features of a depression is that investment money is more likely than during a boom to go to radically new, high risk ventures. During a boom, why would you invest in suborbital tourism, which might go totally bust, when you can invest in GE, which makes turbines for new power plants that are needed to finance the boom? But, during a bust when there are no new power plants going up, why would you invest in a company that you know isn't going to do anything rather than suborbital tourism, which might strike it big? This is called the CAPM model of asset pricing. It predicts that, when the market is down, risky ventures are more likely to get investment money.
However, this runs into problems with Keynesian stimulus. Consumers, and in this idea the government is trying to take the place of consumers who are no longer buying, can only spend money on things that exist. By going in the "front door" of the sales department, it won't fund radically new ventures. However, if people keep their money by not spending, what the economic statistics don't capture in the moment is that the banks are really holding the money and they're using it through the "back door" by funding new projects. So, when the money is no longer careening around an over-inflated economy buying sporks with built in radios but rather is sitting in the bank, not only are we funding new ventures 1. at just the time we need to in order to get out of the downturn, but also 2. when we're most likely to fund radically new ventures like NewSpace, leading us to 3. if we come out of the depression in the status quo and anyone (not everyone, anyone) else comes out of it through new innovations, the demand for the status quo will be non-existent anyway and we'll be back where we are now, except as a 3rd world country.
This doesn't even have to assume that Keynesians are wrong that a drop in aggregate demand would not affect the savings rate. But, companies don't save; their cash accounts are only used as working capital. Extra cash is either paid to owners (who may save it), or invested in the company. We wouldn't be in a depression if we wanted existing companies to invest in themselves; we're back to the point that consumers can only invest in things that exist and banks can invest in things that don't exist. And NewSpace doesn't fully exist yet.
So, hence my thoughts that NewSpace is a group that, by rights, should have opposed the stimulus the most, no matter how much was given to NASA. Elon Musk is giving a good try trying to use the stimulus to get COTS-D funded, but in the honesty of the darkest night that's as much about stimulus as the rest of that God-forsaken bill, which is nothing.