The Rod Martin Report – February 24, 2018

 

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Dear Friends,

As you know, the Rod Martin Report normally provides in-depth analysis of several of the week’s key events and how they fit into the “bigger picture”. But every so often, one event is of such great import that we dedicate an entire issue just to that.

This is one of those weeks. You’ve no doubt seen or heard about the successful launch of SpaceX’s Falcon Heavy (from historic KSC Pad 39A, where Apollo 11 departed for the Moon). What few have grasped are its economic and geopolitical implications, its lessons for our understanding of how government can hold back progress for generations or turn on the taps of private sector innovation, and perhaps above all, that the Jetsons future we were promised in the 1960s — hopes dashed ever since — is on the verge of actually happening.

This is one of the most important essays I’ve ever written. Please take a few moments to read and consider. (Oh, and a subscription-only version I wrote for Stratfor, the world’s leading geopolitical intelligence platform, blew the top out of their traffic counts.)

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Reusable Rockets: Dawn of the Real Space Age

by Rod D. Martin
February 21, 2018

When Elon Musk and Jeff Bezos began testing reusable rockets, few really understood the significance of what they were seeking to achieve. Now that SpaceX is routinely re-launching used Falcon 9 boosters – not to mention this month’s launch of the world’s most powerful rocket, the Falcon Heavy, with three times the payload of the Space Shuttle – it is tempting, having never answered the original question, to yawn at what is quickly becoming the new normal.

Indulging that temptation would be a mistake. Reusability is a revolution comparable to the invention of sail, or steam: it changes absolutely everything.

 

Cost determines use. Supply creates demand.

What’s the big deal about landing a rocket, you might ask? We see airplanes land all the time, after all.

But that’s exactly the point. Airplanes are routine: you don’t have to build a new one every time you fly. If you did, on average (based on list price for a new 737), that would increase the cost of each and every airline ticket by roughly $493,650.79. Each way.

In a world like that, you might go see grandma a bit less. But in the world we actually inhabit, U.S.-serving airlines alone carried almost a billion passengers last year.

Most of the cost of a rocket launch is in its first stage, which until now has been built anew for every flight. It has always been this way; and indeed, the rockets NASA uses – heretofore sold primarily by Boeing and Lockheed Martin, banded together in a joint venture called United Launch Alliance – are based on designs first created in the 1960s. An Atlas V launch costs as much as $150 million. That’s not greatly dissimilar to the cost a decade ago, a quarter century ago, or at the dawn of the Space Age.

SpaceX broke that mold in part by building and flying the first completely new rocket design since the 1960s. Elon started working on it even before we sold PayPal to eBay. Taking his relatively small share of the proceeds of that sale, he was flying cargo to the International Space Station within a decade, at half the cost of that Atlas V.

Elon’s determination to innovate rather than iterate has already transformed the industry. And considering the comparative paucity of resources he had available – one man’s personal wealth vs. the money-printing power of the richest government on Earth – that may already count as a bigger achievement than walking on the Moon.

Even so, the potential of reusability dwarfs that 50 percent cost savings. Even after only a few launches, reusing a Falcon 9 first stage has already cut the company’s cost per launch substantially. But SpaceX believes that, once it has worked out the kinks and once it has a fleet of reusable craft flying, it might be able to provide the equivalent of that $150 million ULA launch – already $62 million or less at SpaceX – for as little as $700,000.

Yes, within a decade, Elon (and presumably Jeff Bezos also) may be able to lift 214 times as much into space for the same money as one launch by NASA and ULA. And yes, that happens to be about the difference in magnitude between a first class ticket on an actual 737 and the ticket you’d have to buy on an expendable variant.

Put in that perspective, the difference in possibilities is shockingly vast. It’s wagon trains vs. freight trains, clipper ships vs. container ships. And given a little time, it’s the world enabled by those innovations as well.

 

The Space-Industrial Complex

Of course, as children of what was once quaintly called “the Space Age”, an era in which all the promises of a Jetsons future were thoroughly dashed, the question we can’t help but ask is this: why didn’t aerospace giants like Boeing, Lockheed Martin, and yes, the United States government itself do all of this years, if not decades, ago?

True, the technology is nontrivial. But so is the technology to go to the Moon, or to build the internet, or to fill the world with iPhones. SpaceX has spent just $1 billion to develop and implement reusable technology, roughly 5% of NASA’s budget for a single year. And unlike Elon Musk, who started SpaceX with around $100 million of his own, very finite dollars, the United States literally prints money, and spends billions on space every single year, with companies that have spent billions more of their own.

They had virtually unlimited resources compared to tiny SpaceX, for half a century longer than SpaceX has existed. So why wasn’t making that money go twice as far, much less 214 times as far, a priority? Why have they literally been sending our tax dollars up in smoke?

Liberals and conservatives argue over the role of government, but in fact, government cannot help but interact with the private sector: the question is purely of degree. Well-structured contracts with private companies, designed to provide government with vital services it would otherwise have to produce for itself (thus competing with, or even nationalizing, the market) are necessary even from a conservative point of view. Moreover, such arrangements have played key roles in producing many tremendous advances, from the transcontinental railroad to the burgeoning airline industry a century ago.

Even this sort of deal, limited as it may be, can and does “pick winners,” sometimes with unfortunate results. But troops have to ride on someone’s train or plane. Contracting with private providers is far better than nationalizing a whole industry, and can sometimes jump start a nascent one.

SpaceX has benefited a great deal from such arrangements, principally the Commercial Orbit Transportation Services (COTS) and later Commercial Resupply Services (CRS and CRS2) programs established under George W. Bush and expanded by Barack Obama. Other successful space startups, including Bezos’ Blue Origin and Richard Branson’s Virgin Galactic, have not participated in these programs, but have benefitted from the growing market they’ve encouraged.

Still, this is a legitimately market-based model: government purchases services it genuinely needs from multiple providers, in a pre-existing marketplace with plenty of other buyers (or “payers”) to sustain it, albeit on a smaller basis. Indeed, to the degree that the model has a purpose beyond mere procurement, that purpose is the expansion of that existing market and availability of that service, such that over time, government’s purchases become a smaller and smaller percentage of the whole.

That’s very different from a “single-payer” model, wherein government either preempts all market activity or so completely regulates it that government alone determines not only pricing but the very definition of the products and services offered. Though effectively socialist, this model frequently utilizes private companies, who may lose much or even most control over their operations but gain all the benefits of monopoly or oligopoly: indeed, one form of this is the military-industrial complex warned about by President Eisenhower. But regardless of the precise details, this model stifles far more innovation than it produces, assuming it produces any at all.

For decades, NASA and the Department of Defense acted collectively as this sort of “single-payer in space.” ULA and its predecessors charged the price Congress dictated, for precisely and only the services Congress requested. Innovation – as opposed to iteration on old designs – was rendered difficult if not impossible. Government, myopic as usual, had no interest in paying for anything more than slightly improved versions of the tried-and-true. It did not see space as a real market, much less a place or a frontier. And indeed, when industry did seek to innovate, government routinely rebuffed it. Existing systems have powerful political constituencies, while research and development is expensive, with no clear constituency or obvious payoff.

To the bean counters, that looks like “waste and fraud.” Generations of Congressmen and Senators, like the notorious William Proxmire (D-WI), spent their careers cutting NASA budgets to the bone, stretching out existing programs (and thereby grossly inflating their costs) while allotting precious little for R&D. They drained NASA of its prior “right stuff” and forced it to be Amtrak, or the Postal Service, models as far from the transcontinental railroad as Council Bluffs was from the golden spike.

Some have called this “crony capitalism”. But whatever the label, it’s a freezing of the status quo. Perhaps such an approach might produce a better chemotherapy agent someday long after you’re dead, but it will certainly never cure cancer, because the Congressional Budget Office believes there’s no predictable payoff for the costly research, and is (even more perversely) horrified by the burden on Social Security produced by your living two or three or twenty years longer.

Government’s motivations are rarely the market’s, which is to say, yours.

Given the right structure, government can clearly encourage innovation. But in most situations, with its hand actually on the tiller, the state has only stifled it. Like Bill Boeing and Howard Hughes before them, Elon Musk and Jeff Bezos have gambled their personal fortunes on the future. That’s the biggest single reason they’re getting such dramatically different results; and to be fair, it’s an entrepreneurial bet no government actuary can be reasonably expected to make.

Still, if a ULA launch costs twice as much – or even orders of magnitude more than – necessary, that means government has actually wasted at least 50% of what the taxpayers have spent, for years if not decades, all the CBO calculations notwithstanding. That’s lost money, but it’s also lost weather satellites, lost GPS coverage, lost defense capabilities, and countless other lost things we may never be able to quantify or imagine. How can we know the compounded impact of things we never had?

Now, let’s think about that same comparison, but with reusable (rather than merely less expensive) rockets. Imagine that NASA and its contractors had focused on true reusability in the 1970s after Apollo, instead of the giant white elephant that was the Space Shuttle ($450 million per launch, for half the payload of the Falcon Heavy). And imagine they’d used the comparatively vast sea of funding available to them to build the fleet of truly reusable rockets necessary to achieve Elon’s not-too-distant goal of $700,000 per launch, starting (for argument’s sake) in 1981, the year of the first Shuttle launch.

If we assume an average of 20 launches per year from 1981-2017, multiplied by the $150 million price of an Atlas V, that’s $108 billion: the cost of four Manhattan Projects, or the entire Apollo program that landed men on the Moon.

Multiply the same number of launches by $700,000? It’s just $504 million.

Ignore compounding effects, both financial and (more importantly) technological. The difference between these two numbers is $107.5 billion. We could have gone to Mars on that. We could have bought 1,100 F-35 fighter jets for that, or 40 nuclear submarines, or 28 World Trade Centers, or the entire annual budget of the American Heart Association for 141 years.

But the real issue isn’t the lost money: it’s the lost opportunity. People crossed the Great Plains in Conestoga wagons. But they called that most fertile of lands “the Great American Desert” because with then-existing technology it was largely unusable. It took the transcontinental railroad to settle what became America’s breadbasket, to feed the growing cities, to tap the vast mineral wealth of a continent, to unite our nation from sea to shining sea. From a handful of settlements hugging the East Coast, cheap rail and steamboat transport spawned an era of opportunity and technological advance like nothing the world had ever seen and forged the greatest power on Earth.

And all that happened in about the same time we’ve squandered since Sputnik.

It never occurs to government actuaries that longer-living healthy people might choose to be productive and thus solve all Social Security’s problems, just as it never occurs to them that R&D might produce two orders of magnitude in cost improvements and a whole world of new capabilities as transformative as the innovations between Kitty Hawk and today. Those are the calculations of entrepreneurs, not of bureaucrats.

This is why Elon Musk and Jeff Bezos are running circles around all the world’s space agencies: the passion to create a bolder future, combined with the existential need to compete at cutting costs. It’s also why the real Space Age is beginning half a century – and two entire generations of broken dreams – late.

 

The New Space Age

What does that new Space Age look like? Could you have predicted the world cheap abundant air service has created for us back in 1918? Not very likely. But the last 100 years of economic, geopolitical and social consequences flowing from the development of that industry are likely to be an excellent analogy for the several decades ahead.

A year ago, Elon announced plans to reach Mars within a decade, with a goal of settling a million people on the Red Planet by the 2070s. That may sound crazy, and at $150,000,000 for a 40,000 pound payload (or $3,750 per pound) to orbit, it would be. But at $700,000 (or $17.50 per pound), I suspect he might attract a few more customers.

The fully reusable rocket in the video just above, the BFR (for “Big Falcon Rocket”), is designed to carry 200 passengers and their belongings back and forth between Earth and Mars, or 165 tons to Low Earth Orbit. That’s 30 tons more than a C-5B, 41 tons more than a 747-400, and a whopping 140 tons more than the Space Shuttle. At the right price, that’s enough capacity to make real interplanetary commerce possible.

Well before that, reusable rockets are likely to find a more terrestrial use. An Earth-to-Earth service could offer roughly 30-minute flight times between most city pairs: New York to London in 29 minutes, New York to Shanghai in 39. Launch and landing operations would likely be conducted away from the cities to comply with noise restrictions. It is no accident that SpaceX has put so much effort into landing its boosters on drone ships at sea, despite being able to land them onshore for a fraction of the price.

Elon announced precisely this sort of service (as I’d predicted) at September’s International Astronautical Congress, with planned pricing competitive with current First Class airfare. Here’s the animation:

Such a service would be transformative, in much the same way airlines (and military airlift capabilities) remade the world in the middle of the last century. Moreover, its growing utilization would help reduce costs and improve reliability of Elon’s (and his competitors’) space offerings, in the by-now-familiar way of Silicon Valley.

Stratfor founder George Friedman detailed a few of the near-term military ramifications of these sorts of advances (as well as hypersonic aircraft, some with orbital capabilities) in The Next 100 Years. Among his suggestions was a system of giant orbiting battlestations as early as the 2040s, made possible by vastly reduced launch costs and increased payload capacity, capable of acting against threats anywhere in the world.

But the ability to cheaply and routinely lift – and return –  what are by today’s standards truly enormous payloads, both of men and materiel, affect our understanding of geopolitics in an even more direct way. Imagine a world in which the U.S. Army – or someone else’s army – could use just twenty such Earth-to-Earth rockets, each flying five roundtrips, to deploy 20,000 fully-equipped troops anywhere on Earth in a day, 4,000 in just half an hour.

The economic and cultural consequences could be far greater still, just as they were with aircraft. Only the wealthy could afford to fly on a prop-driven PanAm Clipper. But as technology improved, usage increased and costs dropped, jets became the busses of the sky, wiping out passenger rail and ocean liners as viable business models and increasingly competing for freight business as well. The net result is our intricately interconnected world. As speed conquers distance, that interconnection will multiply.

If government were claiming this, you’d be right to be skeptical. But it’s a good rule of thumb that when billionaires start spending their own money competing to achieve a thing, they believe they can do it, and soon.

Still, access to space is the real prize. That may seem unlikely, but to illustrate the point, consider not 2018 but 1518.

In 1518, the Old World was very much focused on itself. The War of the League of Cambrai was recently concluded. Charles V had just become King of Spain. Cairo had recently fallen to the Ottomans. Henry VIII had recently named Cardinal Wolsey Lord Chancellor. The Medici had recently returned to power, and Michelangelo had recently completed the Sistine Chapel ceiling. A German monk was causing some trouble in Wittenberg. Common people, the overwhelming majority, worked from dawn till dusk, having little time to consider any of this.

All were fascinated by tales from the New World. A tiny few even profited by it. But it’s easy to understand why the adventures of Columbus, Vespucci and Ponce de Leon meant very little, practically speaking, to almost anyone. The “real” world was right there at home.

And then Cortes found Aztec gold. Pizarro found Inca silver. The French found the furs of Quebec. British fishermen found the Grand Banks. The Virginia Company found it could grow excellent tobacco. The Royal Navy found the forests of New England. And the New World became quite practical indeed. Exploiting those resources began to require settlement. Settlements became cities. And soon those cities formed cultures and whole economies of their own.

From Eisenhower to Obama, the so-called Space Age’s leaders have neither conveyed nor understood that space is a place, one filled with far more resources than our Old World, sufficiently nearby not just to utilize but to alter the way we live. Indeed, that abundance is so great that, once tapped, it must surely produce a many-fold reduction in the price of most commodities and, as a result, a many-fold increase in global living standards (not to mention Earth’s environmental quality). China’s near-monopoly on rare earth minerals? Gone, along with their high price, with all the geopolitical implications those and other similar changes imply.

That’s just the beginning.

Columbus sold his vision to his Spanish monarch “venture capitalists” in just this way. He understood that an innovative approach to a previously cost-prohibitive problem could flood the nation with wealth and upend historic geopolitical constraints. Pioneering souls from the men of the Virginia Company to Daniel Boone and Joseph Martin to the founders of the Central and Union Pacific Railroads understood the same.

Their examples teach us now. Supply creates demand, but also creates uses no one imagined when supply was radically more constrained. Supply of comparatively cheap, abundant access to space will create demand not only to go there but to build fortunes there, fortunes that will radically change how we live here.

Like Fulton’s steamboat, like the Wright Flyer, that’s what the reusable Falcon 9 truly represents. Like those things, it will take some time to play out. But it is no less revolutionary for that. We are witnessing the beginning of humanity’s real Space Age.

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