The US lost a significant part of their launch capability and ULA was the only provider left. They were free to charge whatever they wanted, and it was in the national interest for them to stay in business, hence the subsidy.
Now spacex is starting to compete, costs will come down. Is something not going as expected?
But it was Congress that forced the creation of ULA. Both Boeing and Lockheed were planning to leave the launch business and leave the US with nothing (except the Shuttle). Launch is an ugly business, you have big fixed costs but very lumpy revenues since you get paid when the rocket leaves the ground (which can be delayed for years due to late payloads, political roadblocks etc), and Delta and Atlas weren't competitive in the commercial market so they couldn't smooth things out.
So Congress told them to form ULA and they would give them a readiness contract to make it worth it to them even if they weren't launching often. Basically, it was that or lose the heavy launch capability which would have been a huge national security problem.
Obviously, that changes with SpaceX around, but what hasn't changed is that if Congress pulls that contract, they'll just kill ULA and the Delta and Atlas will be gone. Lockheed and Boeing still don't really want to be in this business and there is nothing they can do to make Atlas price competitive with Falcon, since their customer won't let them change anything.
>Launch is an ugly business, you have big fixed costs but very lumpy revenues since you get paid when the rocket leaves the ground (which can be delayed for years due to late payloads, political roadblocks etc), and Delta and Atlas weren't competitive in the commercial market so they couldn't smooth things out.
Add to that the real money is in the satellites themselves. If you were a big company like Lockheed it made far more sense to stick to building sats and buying launch services from someone else.
>Obviously, that changes with SpaceX around, but what hasn't changed is that if Congress pulls that contract, they'll just kill ULA and the Delta and Atlas will be gone.
Congress will probably allow Delta to die, but they're not going to be 100% dependent on Falcon. All it takes is a failed launch and nothing goes up for six months while investigators figure out what happened.
I am not a rocket scientist... but it seems like a 6 month investigation delay would be comparable to the time it would take to procure and integrate the payload into a completely different rocket?
Also if the launch savings exceed the total payload costs, in a pinch couldn't they just roll the dice given falcon's success %?
(The last falcon investigation delay was only ~4 months)
The problem is a six month delay pushes everybody's launch back six months. So if you had an interplanetary probe scheduled for the next Mars launch window in April of 2018, a six month delay starting today would mean your probe doesn't get launched until the next window in July of 2020 unless you have enough clout to bump other launches.
I think they might talk about leaving the launch business but as long as the government is willing to pay lots of money, somebody will launch that stuff. Cooperation with Europe to improve how broad the market was would have been a interesting option.
They could have done something like the COTS program for rockets.
Almost. There were two companies who were competing to provide EELV launches (Boeing and LockMart). They decided to merge their launch business into ULA to settle an industrial espionage court case that had begun spiraling out of control and threatened to doom Boeing's launch contracts.
NASA paid cost-plus to ULA and the ilk initially (think 60's -90s) mainly because rocketry was a very new field and it was near impossible to reliably estimate the final cost the manufacturer would incur in fulfilling the contract, so NASA just said "spend whatever you want and we'll pay your spend plus 6%".
However it's well known now how much researching and building rockets costs, so cost-plus contracts are, essentially a very bad contract cost model. It's mainly because ULA and such have become _far_ too comfortable on their half-a-century monopoly and simply don't want their scam to end.
Seems to be working extraordinarily well given the technology lead that SpaceX and Blue Origin are working on or already have versus Russia and China. That lead should widen significantly in the next three or four years.
My read [which, knowing full well we're talking about the US government I'm still having a hard time believing] is that the SpaceX cost is 23% of the ULA cost. Meaning 77% less.
Do I misunderstand: "SpaceX won a contract to launch another GPS 3 satellite for $96.5 million. These represent "all-in, fully burdened costs" to the government, and so they seem to be roughly comparable to the $422 million "unit cost" in the Air Force budget for 2020."?
It's wrong.. but not because you misunderstood.. thats what the writer wants you to believe... because the writer is attempting to pump the numbers to make it sound more exciting.*
but the article that they linked to for the $83m figure says spacex undercut ULA by 40%.. which means ULA was going to charge under $140m for that same launch.
ULA didn't bid on the 96m launch.. so it's impossible to say what it would have charged... but it likely would have been around the same $140m, since it's for the same gps 3 sat.
* Yes, I think the writer is being dishonest. They have a link to an article that clearly says 40%.. then the writer discards that number, and finds other data that isn't directly comparable to write an article about it, and waives away the differences with "seems to be comparable to"
As someone who worked for one of the partner companies in ULA... the price quoted by ULA is just the base cost for the rocket hardware. They then nickel and dime the government for all the various launch services as well (fueling, launch prep, payload installation, integration tests, mission control, etc.). It's a bit like the basic cost of an appendectomy being $1,500, but then the bill from the hospital includes a bed fee, a surgery prep fee, $15 per gauze used, etc.
SpaceX's <$100m price print is all inclusive -- it is the full price you pay. No extra or hidden fees.
The author is a little deceptive in that they quote the upper estimate rather than the average. They should have quoted the average cost. But to be clear I don't think that's nearly as deceptive as saying ULA's comparable cost is $140m.
"But based upon discussions with various space policy experts, this is the maximum amount the Air Force believes it will need to pay, per launch, if United Launch Alliance is selected for all of its launch needs in 2020."
While helpful (and shockingly high), it is also misleading due to 2 factors:
1. ULA price spread is quite significant, fully loaded Delta Heavy is super expensive.
2. As per quote above, the number is for all launches done on ULA* .
Without knowing number/weight/orbits of things UAF wants to launch it is hard to estimate how much each vehicle costs. Moreover, as per quote above, this price is for all launches done with ULA. If part of the launches are done with other providers amortized price will be higher due to the $1b subsidy.
* Without Falcon Heavy flying some launches must be done with ULA.
That depends on the orbital destination. Delta IV Heavy has a _very_ eficient upper stage, which makes it better for high energy destinations.
Additionally, the Falcon upper stage has very limited on-orbit capabilities. It can't coast for a long time in order to insert a payload directly into a high orbit. (Though SpaceX is working on this, and did some tests in that direction on the recent NROL-76 launch)
This is false. There are some mission that they can not fly yet but the additional capabilities for the upper stage are already in development and have been partly tested.
I would expect that by the time the FH flys the upgrades to the upper stage should be rolled out, so they can fly direct insertions.
There is still the additional problem of vertical integration. SpaceX will start doing that on pad 39A.
My comment was based on the current reality. It is not "false". You're speculating about future capabilities which SpaceX is working towards (and certainly seem likely to achieve), but have not yet accomplished.
Do you have a specific example? AFAIK Falcon Heavy can beat Delta Heavy on everything but some deep space and missions requiring super long coast. I am not sure how many of those UAF has.
I don't think it's quite a fair direct comparison.
The $96.5M is for a single launch.
The $422 million is for each individual launch, plus assured access in a 24-hour window.
That is, the US Government is paying SpaceX for a launch. They're paying ULC for a launch, and a guarantee that if the US Government asks to launch a rocket tomorrow ULC will say "yes".
If the US Government asked SpaceX for a launch tomorrow, they would probably get a response of "No can do. We don't have a rocket fueled, on stand-by, and ready to go."* It costs a lot to maintain a spare rocket, launch pad, and other infrastructure necessary to launch a rocket within 24-hours around the year.
I still think SpaceX is a lot cheaper as a launch provider, but I don't think it's quite as extreme as the article makes it seem. I would imagine if SpaceX had to maintain 24-hour launch capacity their "unit cost" would be significantly higher than their individual launch cost.
* That's actually not quite true. By coincidence, SpaceX has a launch scheduled for June 17. If there were a national emergency the US Government could probably pay SpaceX to commandeer that launch. However, this is just a coincidence. If I were writing this comment on June 18 it would not be true.
Thats not what assured access means. ULA absolutely cannot conduct a launch on 24 hours notice, nor can any launch provider. It takes months for them to prepare a launch. Payload integration alone (assuming, by some miracle, they actually had a rocket fully built, in the configuration needed, and all the development work needed to certify the combination of the rocket with a particular payload was done, and that the pad is available, exactly none of which will actually be true) takes multiple days. ULA does have, as a commercial service, RapidLaunch which is the fastest launch service in the world from order placement to liftoff, and that still takes 3 months minimum.
Assured access, as defined by the EELV program, just means there are at least 2 launch vehicles in service (in this case, Atlas V, Delta IV, and partially Falcon 9) which are capable and certified to carry the full range of national security payloads, which means problems with a single rocket design will never ground all national security payloads
ULA does not and cannot offer guaranteed launch at any point in time -- their launches, including launches of government payloads, can be and are delayed for days by anything from technical glitches to unfavorable wind conditions to planes wandering into the launch corridor. (Google "Atlas V launch delay" for numerous examples.) And they don't have boosters "on standby, ready to go"; like everyone else, they refer to launch preparations as "campaigns", and they extend for weeks after the rocket and payload are both at the pad.
(There are other capabilities ULA offers that SpaceX still can't match, but those are all about babying the payloads -- mounting them vertically on the rocket, rather than tilting as is SpaceX's current practice; providing clean-room access to payloads already on the rocket, and so forth.)
why did the article compare spacex's costs for one flight, to the maximum ULA may receive for a flight... these are not equivalent things. Is the spacex rocket used for that GPS sat equivalent to a delta heavy ($350m) or an atlas v ($100m)?
Falcon 9 (the rocket used for the GPS launch) is comparable to the ~$100m Atlas.
The Falcon 9 (in 'expendable' mode) is roughly equivalent to an Atlas V in the 551 configuration (it's not an apples to apples comparison because the upper stage Atlas uses (Centaur) is _really_ capable).
In reusable mode, it's closer to a 511.
Delta IV Heavy is comparable to the (upcoming) Falcon Heavy (though again, due to the capabilities of Centaur, DIVH will be able to fly missions that FH cannot). It will be interesting to see just how big the price difference is there (I expect it to be pretty significant).
Delta IV Heavy is comparable to the (upcoming) Falcon Heavy (though again, due to the capabilities of Centaur, DIVH will be able to fly missions that FH cannot).
The Delta Cryogenic Second Stage is not a Centaur. Yes, it uses the same propellants and a related (though not identical) RL-10 engine. The tanks are very different, though, and those are arguably the most unique thing about Centaur: pressure-stabilised ("ballon") tanks made of stainless steel, plus a common bulkhead between fuel and oxidiser tanks make for a very good propellant mass fraction.
I'd recommend watching the video of Elon Musk debate Michael Gass (of ULA) at a US Senate hearing. It's over an hour long, and really gets into the differences between the two programs.
Falcon 9 is a new rocket without a lot of statistics about mission success rate. They had a few failed launches in 2015 and 2016. This makes launching your payload on a Falcon 9 more risky and you have to pay a higher insurance premium, than if you were to launch on a Soyuz rocket (all large payloads are insured). If they can get more successful launches under their belt, it will lower their risk and make insurance premiums go down. Then they can up their prices.
I'm speculating wildly, but it's not like demand is totally inelastic for launches. If you can make launches a lot cheaper, then it's not totally inconceivable that they might make it up in additional volume. Also, if Musk's goal is Mars, then the best thing for that is the healthiest possible space program, which requires the most economic launches.
You have an implicit assumption that the competitor was previously charging close to cost. They have an incentive to cut prices too after Space-X enters. The old monopoly price is different to the price where Space-X wins the contract.
cf [1]: <The Nunn–McCurdy Amendment> "requires notification to the United States Congress if the cost per unit goes more than 25% beyond what was originally estimated, and calls for the termination of programs with total cost growth greater than 50%, unless the Secretary of Defense submits a detailed explanation"
To me this whole thing looks very centrally planned (to avoid the S word). Government decides it needs space launches, government tells "private" companies to get together to ULA, government pays them above market amount to keep an unprofitable venture running. And now the government also wants to have an alternative, but is still overpaying by 50%.
The term "free market" originally meant "competitive market", not "unregulated market".
An unregulated market does not remain a competitive market for long. Companies merge, then use their power to control other participants in the market. An unregulated market also suffers from fraud.
We still don't have a long-term good situation with a competitive market. An unusual event happened, breaking ULA's monopoly. We're currently depending on Elon Musk's odd personality and/or the fact that he has not yet gained a monopoly.
Thats just Marxist economics that simply does not hold up to economic analysis. The original idea of free market was absolutely that mostly unregulated markets would produce competition.
Its actually they idea of managed market that is way newer.
That's just incorrect, take the famous marxist Adam Smith:
"When the regulation, therefore, is in support of the workman, it is always just and equitable; but it is sometimes otherwise when in favour of the masters."
"People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices." - From 'The Wealth of Nations' by Adam Smith.
Smith was actually right. Every economist would agree that he is right. The problem is just that you don't understand him.
“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own self-interest. We address ourselves not to their humanity but to their self-love, and never talk to them of our own necessities, but of their advantages”
The point is that they conspire as long as they want, they will not succeed. Smith understood that.
Also, Smith was quite a bit more sophisticated when it came to human behavior, see his other book "The Theory of Moral Sentiment".
> The point is that they conspire as long as they want, they will not succeed. Smith understood that.
No, actually, Smith understood that they regularly did succeed, and wrote directly in warning about that; from the conclusion to Chapter 11 of Book 1 of The Wealth of Nations:
“The interest of the dealers, however, in any particular branch of trade or manufactures, is always in some respects different from, and even opposite to, that of the public. To widen the market and to narrow the competition, is always the interest of the dealers. To widen the market may frequently be agreeable enough to the interest of the public; but to narrow the competition must always be against it, and can serve only to enable the dealers, by raising their profits above what they naturally would be, to levy, for their own benefit, an absurd tax upon the rest of their fellow-citizens. The proposal of any new law or regulation of commerce which comes from this order ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it.”
What are you talking about, he is making my point exactly.
> any new law or regulation of commerce which comes from this order ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined
He was afraid they would use the state to create laws in their benefit. Not that they could use market power to beat competition. Nothing in this paragraph indicates that he thinks markets by itself were centralized.
The AntiTrust law is an exact example of what Smith is talking about. Its a proposal that looks like it would help markets but actually its a tool for the weak competition to beat the stronger competition.
Please provide any evidence that unregulated markets are not centralizing. Any market with economies of scale will naturally tend to fewer players, just like political systems that favor large parties (like the US system) will favor fewer parties.
Economics of scale is not a universal law that means bigger is always better. There is also the opposite effect where larger is bad.
The point of having a market is to find the balance between economics of scale and limit of the firm. The reason why economist want markets in the first place, is because that's how we find if it is more effective to have a few large players, like Airplanes, or millions of small players like Restaurants or Hotels.
The Soviet Union built the biggest Truck factory ever (or at least at that time), but it did not produce cost efficient Trucks. Why? They clearly had economics of scale.
As for evidence, I would start with "The Theory of the Firm" witch founded a hole new branch of economics and from there you have 60 years of research. There is a hole branch of economics called 'Industrial Organisation'.
The simplest bit of evidence is that you can literally just count the amount of companies that exist. If Marx was right we should observe fewer and fewer companies in a predictable linear process.
> just like political systems that favor large parties (like the US system) will favor fewer parties.
The US system may favor large parties but it not inherently centralizing. There is no tendency to a monopoly party.
It doesn't look Marxist to me, and I don't see how you get long-term sustained competition in an unregulated market.
Maybe it worked before the invention of the corporation. You'd buy from an individual human. Fraud would mostly be obvious, and you could get a mob to beat the person if they were into fraud. Unlike corporations, which can merge into MegaCorp and then dictate prices, humans can't actually merge into MegaMan.
Well its Marxist because Marx made this prediction popular for capitalism. He made this prediction based on his totally failed economic system that basically failed on almost every prediction.
Nobody believes in Marx's economic model, but people cling to prediction. Now it just no longer has any theory behind it. Its just a believe people had.
If its such a huge problem, please provide me with evidence. If the prediction was true we would constantly see monopoly and monopoly prices. We sometimes see monopoly, but almost never monopoly pricing.
There is actually ton's of research on mergers. Most researcher don't believe there will be merger after merger until their is only one super company.
If Marx predictions were true, why did non of it happen in the last 200 years.
The idea that unregulated markets can lead to price fixing and cartels was not original or unique to Marx, as I and others have pointed out even Adam Smith was very well aware of it, and it does not itself imply all of the rest of Marxism.
Yes other classical economist talked about the subject as well. Their analysis were of course about 100x superior those of Marx. The feared the problem and worried about in theory but they did not predict the inherent centralization of all markets.
They also understood that politics often has no interest in fixing the market, as they had a actual model of political economy.
The implication being that capitalism ensures fair and competitive markets, which has proven to be counterfactual. Only carefully regulated markets are competitive.
Carefully regulated markets can be a capitalist or non-capitalist as you like. They are orthogonal concepts.
I am a capitalist and I believe in regulated markets. After all a game of football can only be fair if it has equitable rules and both sides are held to them.
They are partially independent but not orthogonal. Unregulated markets are never fair.
This is why it's a hard problem. Regulation creates another route for corruption, but is also the only way to keep corruption in check. We still haven't figured out an objective set of rules to avoid corruption, monopolies, and unfree markets.
All that is required is the desire to provide a useful service for the least consumption of resources or energy, rather than operating entirely on the making of profit.
SpaceX is a launch company that happens to make money.
ULA is a money making enterprise that happens to launch rockets.
I've lost faith in "free markets", which seem to devolve inevitably to market failures such as monopolies, and in those who advocate "free market capitalism" with no acknowledgement that market failures happen.
For now, I'm finding the phrase "competitive markets" more attractive.
It's also a bit of an ambiguous term. The more classical idea was a market free from economic rents and monopolies, whereas now the term is more understood to mean free from regulation and free for rent-seekers to do what ever they want...
Plenty of them exist. Just go to where no government exists, like any war zone, and see the beautiful ruthless efficiency of the unregulated market at work.
People keep arguing that free markets create monopolies. If you actually look at this history you see almost no monopolies rise from the market, but government created monopolies and cartels are all over the place.
If this is such a huge problem please give me some examples where a company established a monopoly AND actually raised prices for consumer higher.
Standard Oil massively LOWERED oil prices and improved both Oil quality and transport. If that's a monopoly then we should have more of them. If you actually apply Modern Anti-Trust law rather then Progressive Politicians who engaged in 'Trust Busting' as political program, you will see that it would not be possible to convict Standard Oil.
The people who brought Anti-Trust against Standard Oil were competitors. In fact, the hole history of Anti-Trust is basically the history of weak and failing business to bring in the government against their more dynamic competition.
Butcher were at the forefront of that, Anti-Trust was a way to defeat the evil refrigerated train and centralised slaughterhouses who were making monopolies. You know the kind of monopolies were you massively lower prices for consumers.
I'm not as familiar with AT&T but I'm pretty sure there is a significant government involvement and providing it with monopoly power.
You are kind of proving my point. People all believe capitalism leads to monopoly, but its almost impossible to find a good case. I do think that there are some cases, but the general theory that free markets always lead to monopoly is totally false. Even when markets create monopolies most of the time these monopolies can't (or want) do monopoly prices.
Also think about it like this. There are very few cases where government somehow helped to break a monopoly bought I could easily point you to lots and lots of cases where government created monopolies. Overall governments involvement in the idea to regulate competition in markets is a absolute failure that has only lead to lots of corruption.
> Overall governments involvement in the idea to regulate competition in markets is a absolute failure that has only lead to lots of corruption.
Aren't nearly all markets regulated by Governments thanks to stuff like Laws? Like "don't murder your competitors workforce", "honor contracts", "don't poison the air", "don't lie about foods ingredients", "don't operate cell jammer to boost your wired cable business", "make sure people can learn about medicines side effects" and so on.
To me all of that seems to be on a scale and arguing what point on that we should target is fine. But I can't take those arguing for one of its ends seriously.
As for the "no regulation", I can't imagine a working system like that. In such a case humans would probably voluntarily form communities with rules®ulations that would probably look the same as communities/countries that currently exist. I'm not saying we already hit the sweet spot on the scale. And even once we do we'll probably only ever recognize it in retrospect.
> free markets always lead to monopoly is totally false
That seems to be a very simplified/unfavorable view on that argument. I'd say unregulated markets incentivize preventing competition. Far too often even by pushing for bad regulation. Preventing competition seems more easily possible in cases of huge power imbalances, something unregulated capitalism seems to boost.
The only way to confine these effects seems to be putting in place good regulation actually securing competition. And yes, we'll have to keep arguing about the "good vs bad" for each and every law. That's why I really don't get "there should be no law"-guys.
> Aren't nearly all markets regulated by Governments thanks to stuff like Laws?
In general you are of course right. However in economics we usually use 'regulation' as a short hand for laws that are not general laws but more specific.
In this discussion we were talking specifically about the regulation of competition. Specifically the believe that market automatically centralize and that the government is the only way to stop this.
I'm not trying to make a statement about anything else.
>
That seems to be a very simplified/unfavorable view on that argument. I'd say unregulated markets incentivize preventing competition.
I'm not sure what it means to 'prevent competition' in a free market? How would a company go about doing that? Buying all the places the competition wants to buy? Or what are you talking about.
The problem is that you think to prevent this you put into place 'good regulations'. The reality however it that its exactly these regulation that companies will then use to actually prevent competition. Preventing competition is only successful if the government is carrying the cost.
> And yes, we'll have to keep arguing about the "good vs bad" for each and every law. That's why I really don't get "there should be no law"-guys.
Again, I'm not against law. Not at all. I absolutely love the Common Law. Contracts and property rights enforcement are essential functions of governments in a capitalist system. What I object to is destructive top down regulations that companies can use and manipulate to their benefit.
Anti-Trust regulation is one such top down regulation. It has most of the time been used to restrict completion and go after efficient business in the of the losers of the competition. It the exact kind of thing that is so problematic with this top-down management approach. Companies no longer compete in the market for costumers but rather fight zero sum battles in court of to influence the regulatory agency.
You develop a portfolio of goods. For example, every medical tool a hospital would ever need. Over time, you develop economies of scale.
Now you go to your client hospitals and say "hey, I'll give you a 10% discount if you sign this agreement to buy all your tools from us, and none from our competitors".
Now you have successfully locked out anyone who can't provide an equivalent entire range of products. Someone comes up with a better/cheaper scalpel? Nope, can't compete, because if they bought the scalpel, the prices of everything else they buy would rise.
There is no lack of ways to limit competition on certain items of course, the possibilities are endless. This is however not the same as limiting competition in a broader sense.
What you describe just moves competition to a different level. Instead of competing on individual items you compete on a broader model of how to supply somebody if they need many goods. There are many different models possible (and many that we see in the real world) and these different models compete as much or more then competition for any individual items.
Considering competition in your example, why should anybody sign a long run contract with these people if their are better offers for the majority of products or other companies who have a similar model. People are not stupid, they understand the potential of abuse when they sign such a contract and they will only do so if they benefit.
If it is better to buy individually or from some company that bundles goods is always a important question for any business. How to make such compromises is what managers go to school for. Business that do such evaluation well will be more successful (as will the company who they selected).
> Over time, you develop economies of scale.
Basically you assumed away the hardest problem. How will they reach this massive scale for all these products? You basically said 'assume the problem is solved' and then 'see its not actually a problem'.
There are tons of games companies play with bundling unbundling and a million other models that are in use in markets today. Not one of these model actually leads to significant centralisation if both parties are free to conduct business by switching to different models.
Prices will not be significantly over equilibrium for a long time whatever models companies try to use.
Competition is about hole systems of relations superiority over other system of relations. That how we find efficient large scale solutions, this is how Capitalism is able to find ways to improve efficiency even in already optimised system of production. Consider how many different ways there are for franchising, no one model has succeeded yet.
> People are not stupid, they understand the potential of abuse when they sign such a contract and they will only do so if they benefit.
Actually... usually by the time these contracts come back to bite companies, the entire staff responsible for them has usually been replaced. People are terrible at figuring out what the world will look like even 5, 10 years down the line, and doubly so when they're being pressured to save money by any means possible.
If you're going to say that over timescales of 20, 50, 100 years, things eventually work out - sure. In the meantime, we get to sit in a variety of local maximas, like the one I suggested, or significantly more complex ones, and people are the worse off for it.
People are terrible at figuring out what the world will look like. The problem is just that the other side has the exact same problem of figuring out the future as you.
If something is successful for 5-10 years then maybe it was not a stupid policy.
Mistakes are a given in any human system, you might as well have cases where a company gives significant discounts to capture the hole market but then the end up losing money.
One cases has a price lower then equilibrium for a while, the other a higher. Both parts of the contract have a huge intensives to get it right and both gain by finding a good level.
I have never claimed the markets are perfect. They are not, the best you can do is an adaptive process that has good feedback.
Also when discussing anti-trust we need to actually show that it is likely that it would actually improve on the situation. You are no longer taking about simply regulation, you are basically talking about the need for a super intelligent third party that could recognize local maximas and fix them, that is quite frankly impossible. Anti-Trust bureaucracies were drowning in complexity of even proving that a clear cut monopoly was actually doing anything bad.
There are local maxima situation everywhere all the time. The market process constantly tries to move towards equilibrium and this is the only mechanism we know that is able to solve the coordination problem. In theory micro optimizations are possible but in practice there is absolutely no evidence that such micro optimizations from outside parties improve long term success, and there is lots of evidence that in many cases attempts at such regulation massively harmed people.
Look at the Post-WW2 India when Indish Economist trained in Britain came over with the new socialist ideas where you would have a market but regulated it so that you had the optimal amount of competition and to prevent monopoly. This was probably the most extreme attempted at doing this sort of thing on systematic bases. The result were slow growth and 100s of millions of people not moving out of poverty. The bureaucracy followed its own interest and instead of fixing local maxima they fixed their pocketbooks.
> Specifically the belief that market automatically centralize and that the government is the only way to stop this.
Companies manipulating regulators are an emergent behavior of the capitalist system. It is inevitable that as a company grows large it will seek to influence the government. This pure free market of yours is a platonic ideal; once implemented in the real world the market and the regulatory environment are a unified entity on which market forces pull.
In a capitalist society, there's no meaningful distinction between monopolies which granted through government regulation and those which come from the market. Historical AT&T is a market failure and a government failure simultaneously. Same with the current telecoms.
As for remedies, I'm agnostic. I could potentially be persuaded that less regulation is the appropriate response in each and every case. The second half of your statement, "the government is the only way to stop this", is not an accurate representation of my views, at least.
Where we divide is on the first half, "that markets automatically centralize". The two of us look at historical AT&T and from what I can tell you see exclusively government failure, not market failure -- market failure can never happen, by definition only government regulation can fail. Um, doesn't AT&T play a role? I feel like we're in a Marx Brothers movie and you're asking me, "Who are you gonna believe, me or your own eyes?"
> Companies manipulating regulators are an emergent behavior of the capitalist system.
True. My point here is that we need to not give power to regulators in the first place. Power that does not exist can not be captured.
I don't believe in some free market platonic ideal. I believe in a a system of property rights and a advocate system of law to defend these property rights. This system is not given to use by god but relies on a complex set of institution that nobody fully understands and constantly evolves. What I am trying to do is evolve it in a good direction.
Such a system based on the exchange of property rights within a legal system will lead to growth and prosperity because most of the time you have to provide something useful to others in order to get to your own goals. This is not always the case and there is tons of fraud and other problems but its the only way ever discovered for long run growth and prosperity.
Markets can produce results that are worse then one would expect, and certainty worse then general equilibrium models predict. However, I don't think there is anyway that in a market system a case like AT&T could still be such a huge issue after 100 years. Also, I think very often it is the case that market produce results that are not as good as people want, they turn to government and get something even worse.
I'm not an expert on the AT&T case, so I'm not qualified to talk on it, I take your point that the market failed to produce what we expected.
But, I think if you look historically, how many cases can you find where a market produced monopoly for a long period of time significantly hurt consumers. During most of that time the US had Anti-Trust law, so as a bonus question, how many cases can you find where US Anti-Trust law actually fixed the problem. On neither question you will find many examples.
If we flip around the question, how many cases can you find where government provided some sort of grant or regulation that guarantied monopoly or oligopoly? There are almost infinite examples of this.
Thank you for the thoughtful discussion. If you know the AT&T case well, please provide me with good sources, thank you.
The US post office. Unit Banking Regulation. The New Deal had a ton of cartelization policies (read any book on the new deal). US policy created and enforced Rail road cartels. Government monopoly or government protect monopoly for alcohol or gambling is very common in many states.
There are tons of monopolies granted to telecommunications companies. Other forms of local infrastructure monopolies are also often granted.
There is literally huge list, history of economic is full of it. Its very hard to find real market monopoly that had high prices, but government enforcement of monopoly or cartel are common. You can go back to Britain when parliament established itself, one of their action was to take away the Kings privilege to sell monopolies. Granting of monopoly rights and enforcing cartels is a extremely common government activity.
Ignoring prices, what do you think about when a company uses a dominant market position in one area to establish one in another, eg Microsoft in 90s/early 00s?
That can happen but it also makes the company more venerable. They tie the success of all product to the same revenue stream. Its a legit strategy but I don't think it wins in the long run. Microsoft is a perfect example where they no longer bundle many products.
Its annoying for individual fans of the fields but it can is also is very, very unlikely to actually lead to market centralisation in the Marxist sense. Specially if you are looking at long run dynamics.
There is no such thing as an unregulated marketplace. Companies that become monopolies do not achieve that status in a vacuum -- of course they will seek all possible advantages including regulatory capture.
> government created monopolies and cartels are all over the place.
When government officials are bought off, somebody has to do the buying.
Not quite, as ULA was also operating under capitalism, yet clearly cared not a whit for minimizing the government's resources. Non-monopolistic capitalism is a closer description.
To be fair, their customer was always going to be price insensitive. When you're lofting a $2 billion recon satellite, there's no room for error and they don't care if the launch costs $100 million or $300 million -- they just want absolute assurance that it's going to work. So the incentives to minimize resource use weren't there for a very rational reason.
Yeah but, not unlike in the car industry, reliability is a 'good enough' metric for many purchasers. That is to say, beyond some minimum assurance of execution, further improvments in that metric do not further improve the probability that the customer will choose that product over its competitors. So they're only price insensitive up to a point.
I'm pretty sure the military funds schools (University research funding, DARPA) and bridges (maybe in Afghanistan and Iraq). Cancer research is probably not a high priority, but traumatic brain injury treatment research and hearing loss mitigation are.
So in between various clumsy bombings with 75% noncombatant casualties, the military occasionally spends money on things universally good for society & humanity.
The military has some funding for roads and bridges in places like Iraq and Afghanistan, but the heavy lifting is done by the Department of State. Most of the budget is on personnel and equipment.
It might, but I think the US military is a great tool and does its actual job fantastically well. The only thing you can really blame them for is that they did not give a broad enough set of strategic options to civilians.
That said the civilian government usually gives them nonsensical task that they simply can not do.
Oh for sure. But relatively to other military they are quite good and even while they waste a lot they can mostly to their jobs. Other military are very expensive and very ineffective.
It's just that USA military never seem to win any wars... or honorably escape from any conflict... or actually accomplish anything they ever claimed to have set out to do. Even if we're generous and put Korea in the win column, that was a really long time ago.
Again, the win the traditional military conflict and that is their primary responsibility. They are not equipped to do Nation building and they don't have the political support to do it. That's why they never exit a conflict very well, but they always crush in the beginning.
Korea was the last time they had a real problem winning the traditional military conflict.
"In the beginning" is when there are no reporters or other observers on the ground, so we have to just take the military's word on everything. If we just asked the Cleveland Browns how they did last season, they might tell us they played pretty well.
Besides, is it supposed to be hard to use billion-dollar stealth weapons to kill a few malnourished soldiers equipped with 1960s-era Soviet surplus? The worst part about the upcoming war with Russia that we're determined to have might be that we're going to get our asses kicked, from the beginning. Expect to see more airports completely operational within hours of multi-million-dollar missile attacks.
There were actually reporters on the ground and you can listen to interviews with them. Also, I never said it was very hard, I simply said they did it, and they did it quickly. Nobody can claim that Kabul and Baghdad did not fall quickly.
There is not gone be a war with Russia. If there was a war you can be damn sure that the US would whip Russia armed forces of the map. Also, Russia official defense doctrine is nuclear response to a lost in conventional conflict.
Again, yes the military is expensive. They do a good job of fighting traditional military conflict. The reason the US never wins is because of defunct politics, not defunct military. The military is just bloated and expensive, but not defunct.
The tactical blunders resulting in the loss of noncombatant life are only so widespread because of the civilian leadership's priorities. It's rarely the fault of any one servicemember.
Sure, there is plenty of dual purpose stuff. Think of the Hubble as a Keyhole pointing the other way. But in general money spent on defense is spent in ways that make me wonder if we could not do something more useful with it. And a world with GPS could be more annoying than a world with say better education. And then you might end up launching those GPS satellites anyway, but from a different bucket and a little later.
Piggy-backing stuff onto the military budget that is dual use is a nice fig leaf but it does not reduce the component spent on the remainder: weapons of all sorts, kinds and shapes.
> Think of the Hubble as a Keyhole pointing the other way.
I still remember one discussion on NRO where an user mentioned that it donated a space telescope to NASA [0], built around the same time as Hubble, that had better specs. And that's the spare one!
The one thing we've proven over the last 40 years is you don't get better education by throwing money at it. Here in California we spend, in constant dollar, twice what we spent per pupil in 1970. Test scores are flat.
Probably not. The compelling use cases for the first 20 years of GPS were all military with a few survey applications essentially riding free. The equipment used to be many, many pounds and tens of thousands of dollars. Almost every other industry besides had a "better" short term solution to location that met their needs at a fraction of the initial price of GPS.
And now imagine how many schools could have been already built, as just under $100m was a price Arianespace had offered for over a decade for the same launches.
SpaceX’ concept is about going below $50m in the next years per launch.
Isn't the price offered by Arianespace subsidized though? I could imagine that the EU is ok to subsidize to get market share in the private market but wouldn't be too happy to subsidize the US department of defense.
Only development is subsidized, ongoing costs are not.
The US could have easily contracted to Arianespace for these flights (especially as Arianespace is already a project of a close ally), and could have saved around 300 million USD for every single launch, of which there were thousands over the time frame that this was possible.
We’re seriously talking about dozens to hundreds of billions USD that could have been saved.
Now spacex is starting to compete, costs will come down. Is something not going as expected?