Obviously this idea sounds ridiculous to many economists as there is no particular reason to think it makes sense to go through such lengths to get natural resources. After all we live on a pretty darn big spacerock.
To the extent natural resources are expensive on earth it is because they are difficult to get at, not because we are running out. There is of course some possibility that they would be actually easier to get at in space. The problem is that doing so is a major project that only makes sense if you can bring back a lot of resouces.
However, the very reason that hard to get at resources on earth are expensive is because the limited quantities cause consumers to bid up the price. If there were many more, then the bidding would be less furious. So, you face the problem that as soon as you bring a huge chunk of gold or what have you back to earth you cause the price the crash and cannot recoup the mission costs.
That said, there are two things.
One, is that in theory the company could sell some type of speculative contracts on the minerals it hopes to get. Basically you need a contract that says, of the first X amount of mineral that we bring back you will buy it at Y price. Then these contracts would have to be sold in series with the understanding that the total draw down from the mining operation will be uncertain both in terms of beginning time, quantity and duration.
So they can try this, though I am guessing the price for such contract will not be that high.
Second, this actual strikes me as more like Craig Venter’s stent at Celera Genomics where a private company was used to do basic scientific research and the investors bought in, in part because they wanted to be a part of something great and in part because the scientists more or less conned them.
Though as wealth dispersion increases and people get richer I think this “Invest for Prestige/Get Conned” model will be big for science.
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Thursday ~ April 26th, 2012 at 9:07 am
Overcoming Bias : Tube Earth Econ
[...] Karl Smith agrees this is ““Invest for Prestige/Get Conned” GD Star Ratingloading… Tagged as: [...]
Thursday ~ April 26th, 2012 at 9:26 am
Terry
The alternative is that, considering the Earth’s gravity well, this is a foundation technology to serious lunar/extra-terrestrial exploration and colonization, or even to build serious power resources in space.
IF they can afford to sit on the technology and develop other technologies, you are looking at the beginnings of Heinleinian space development.
Hello Dyson Sphere!
Thursday ~ April 26th, 2012 at 9:55 am
Nick
One big thing that asteroid mining has going for it is that there’s no need to purchase the land that sits on top of the minerals, or to contract with the landowner.
There’s also very little need to worry about dealing with ecological run off. Blow up an asteroid, take the stuff inside, and then leave. No one’s water supply is affected, no animals go extinct, and no environmentalists chain themselves to the spacerock.
Thursday ~ April 26th, 2012 at 10:32 am
Assorted Links « azmytheconomics
[...] 1. Asteroid mining project, Karl Smith comments. [...]
Thursday ~ April 26th, 2012 at 11:10 am
Marginally Thoughtful
I’m generally optimistic, because I know we’ll have to do this eventually. I’m thinking about Tom Murphy’s great article (http://physics.ucsd.edu/do-the-math/2012/04/economist-meets-physicist/) about the physical limits to economic growth.
Obviously we’re going to run out of resources that are not renewable or only ‘renewable’ on a geological timescale. That shouldn’t be controversial. We also have Nick’s point – the social cost of extraction might far surpass the private cost as we reach the limits of what we can get from our planet.
That said? My gut reaction is the same as yours: futures contracts wouldn’t be a sufficient source of funding. Our situation just hasn’t reached that point. ‘Angel investors’ have certainly been big in private space so far, but I don’t have any basis to conclude they’re *not* being duped by flashy promises of greatness.
The limits of my pessimism: they appear to be getting some extra income from technology contracts (http://nasawatch.com/archives/2012/04/is-planetary-re.html and brief mentions in Ars Technika and CNN articles). Assuming they make it past the development stage, it’s sure not to be a *total* loss.
Thursday ~ April 26th, 2012 at 11:20 am
Dom
Better we do it now so that when we find nasty Aliens on said space rock, we are able to send Sigourney Weaver in to clean it up!
Which makes more sense, developing technologies to mine space or developing technologies to mine the ocean floor? Both are, relative to most dry land, unexplored. Only oil and gas E&Ps (and some nutters on Discovery Channel offshore in Alaska) are looking beneath the waves. I expect that will change. After that has been exhausted, then we will be forced to look to space.
Thursday ~ April 26th, 2012 at 11:48 am
Y. Alekseyev (@yalekseyev)
I don’t think “investing” in ventures like this is really in the same ballpark as even conventional angel investing. The prob. of success on anything like a reasonable time scale is just to small. It’s just a project to do cool stuff by people who like to do cool stuff for the sake of doing cool stuff and not for making money or anything so mundane. Obviously, the founders of this gig are pretty much sci-fi and/or space junkies. So I would rather classify this thing as consumption than investment – they are getting more out of this from the trip than they would from the ultimate monetary success of the venture.
It’s like buying exotic cars for Jay Leno: some of the cars he collects might well be a legitimately good investment in terms of value appreciation after they sit in a garage for 30-odd years. But that’s not why he buys them.
I, for one, would gladly pony up a few percent of my purely hypothetical multibillion dollar fortune to be part of a project like this. And not because I have any expectation of getting any portion of this money back, and indeed with full expectation that I might need to throw in a few hundred mil more just keep the thing going.
Thursday ~ April 26th, 2012 at 12:00 pm
jbprobert
Set up medium-to-large size private research institutions (buildings!). They do things like this at the university, but ideally it would be completely independent.
Let small-to-medium research teams lease the space. Do some kickstarter-equivalent financing for their projects which give you ownership of IP developed out of their research.
Thursday ~ April 26th, 2012 at 12:19 pm
MMM
I second the comment that at least part of the market is to supply other space ventures. NASA spends a lot of money putting water and other such stuff up into space for its missions.
Thursday ~ April 26th, 2012 at 12:52 pm
Axel
1) when you’re ready to give bilions to a charity this means your marginal utility from investment return in $ terms is very very very low already
2) Interesting research for economist despising this ‘irrational’ project would be to get the initial BP of past ambitious technological projects. Intuitively, the IT bubble shows ‘economists’ or ‘investors’ are very bad at building BP. What was the initial earnings expected from space conquest in the 60′s (for what beneifts in $ terms). What was the BP of C Colombus when he left Spain in 1492, etc etc etc….
=> can optimal capital allocation leads to America discovery?
3) This asteroid mining stuff signals a mindset about what technology is to be thought of, which can have many impacts on our collective choice (the obvious example being about peak oil and all that limited resources theory).
4) When you want to promote that kind of mindset, you’re not looking/willing to use future/forward contracts to fund your project. This would have negative marginal utility for your shareholders (to some extent). You just raise equity from beleivers, and build your stuff.
=> Hedging is not Eldorado compliant as believers don’t want to hedge and others (economists) are not willing to share the risk they are unable to assess. Therefore there is no trade and no price. Market is incomplete…
Thursday ~ April 26th, 2012 at 1:18 pm
Brett
The actual asteroid mining itself is just the final step of the business, and it’s not just for rare metals – water and other volatiles are valuable as well. If you can process any of that stuff into propellant in space, then you’ve just created a valuable service for anyone launching spacecraft into orbit (or spacecraft that re-entry into Earth’s atmosphere).
As for the Platinum Group Metals themselves, it really depends. Dropping a couple hundred tons of them on Earth will cause the prices to drop, but there’s also the possibility that it will change the demand for them, creating a permanent demand at some price that allows the Asteroid Mining Company to make profit once fixed costs are paid for.
Thursday ~ April 26th, 2012 at 1:35 pm
XVO
It’s an awesome idea! It’s not a really great economic idea. But they aren’t after money, these people already have tons of money. What they’re buying is fame, prestige and legacy which is much much more valuable than money to them. They’re setting up the real infrastructure required for humans to colonize space and will be in the history books.
Thursday ~ April 26th, 2012 at 2:11 pm
swuesquire
‘Though as wealth dispersion increases and people get richer I think this “Invest for Prestige/Get Conned” model will be big for science’
This is one of the oldest models for funding science.
Friday ~ April 27th, 2012 at 1:31 pm
Mint
Yes, let us give private individuals the power to fling asteroids toward earth.
What could possibly go wrong?
Monday ~ April 30th, 2012 at 10:01 am
Advocates of Reason: 30 April 2012 | Economic Thought
[...] is that expected returns just have not been large enough to warrant real exploration. I agree with Karl Smith, as society becomes wealthier there will be more private space exploration. Further, I predict [...]