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#26 2019-12-25 17:48:47

SpaceNut
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Re: Economics of Mars

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#27 2019-12-25 18:19:03

louis
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Re: Economics of Mars

Limits to Growth Following in the tradition of Malthus there are economists and critics from the Green side of politics who maintain that there are limits of environmental sustainability to economic growth and that we are now fast approaching these.  Climate change activists would point to the us of fossil fuels as an example ie claiming it is unsustainable to continue their use into the future at present day levels.

My comments: I am sceptical about these claims. If one looks at a tiny country like the Netherlands, with half its land reclaimed from the sea, and producing enough food to export 17% of the world's food exports, I think it is a bit silly to claim we are already approaching limits of productivity on Earth.  Of course, expanding human population and increasing the health and wealth of human populations means other life forms suffer and die as we destroy their habitats. It's not good and I don't recommend we follow that path, but it is not an impossibility.

More generally, when one looks at the resources available off Earth, we can see that the Malthusian proposition is absolute nonsense. There is enough energy (from the Sun if nothing else) and a huge abundance of materials of every kind (much of it readily available in the asteroid belt).

Mars itself is a huge untapped resource. Mars could easily support millions of people even before terraformation takes place. After terraformation, it would support billions.

On Earth human population growth goes hand in hand with habitat destruction. On Mars human population growth will go hand in hand with habitat creation - a much more pleasing prospect. 

Comparative advantage. The idea of comparative advantage was first stated by the 18th century economist David Ricardo. The idea is that if two countries produce, say, two commodities it will more often than not be the case that one produces one commodity more efficiently than the other, and likewise for the other commodity. So, for instance  Algeria can produce dates more efficiently than the UK but the UK can produce salmon more efficiently than Algeria. It makes much more sense for the UK to focus on the things it can produce efficiently rather than attempt to produce dates in a rather cold climate. Through trade, both countries can then enjoy each other's comparative advantage and benefit accordingly.

My comments: There is no doubt that this theory is empirically verifiable. However, I think we need to put a few notes of caution on it:

1. Technology is undoubtedly chipping away at comparative advantage. In the past, nations were often able to maintain quite high levels of secrecy about production processes. In the days of open communication on the internet this is no longer the case. Information about production processes can pass all around the world at lightning speed. Educational videos on production techniques can likewise be sent all around the world. Gradually the world is becoming a more level playing field in terms of education and training with many more countries achieving high levels of education and training. All of this means that industry can in reality be located anywhere in the world pretty much, all else being equal.

2. Energy source location used to be a key factor in comparative advantage. You built your steel works close to a coalfield. That sort of advantage is becoming less and less crucial. For one thing international sea transport is now so efficient that it can make sense to ship coal and gas half way round the world. For another, now nearly every country can develop its own indigenous energy through wind, solar and hydro.

3. Robotisation is, and will in the future even more so, level down labour force advantages. A highly skilled workforce is now far less important if you can programme robots anywhere to do a good job.

4. As we saw in relation to mercantilism, while "comparative advantage" as the basis for free trade seems to make a lot of sense, the reality is that a lot of countries have built up viable and highly successful industries behind tariff barriers. If countries like China, S Korea, Singapore and Japan had followed genuine free trade policies "from the off" it is likely they would be far less productive than they are now.

What of comparative advantage in relation to Mars? It seems clear that initially, for many products, there will be a comparative advantage (in terms of efficiency) in producing them on Earth and shipping them to Mars.  It won't make much sense setting up a fish  farm on Mars for many years when you can import frozen fish from Earth. But, already, we can see that - from the outset -  for agricultural products like salad vegetables it will make sense to produce them on Mars.

But the even bigger picture is that Mars settlement is likely to be a project self-consciously defined as a programme designed to achieve self-sufficiency in the shortest time possible. In that regard the project will be more like the Soviet Union's single-minded determination to industrialise and become self-sufficient in a whole range of products. It might well have been more "rational" initially for the Soviet Union to have relied on products imported from the capitalist world but it did not wish to be dependent on the capitalist countries. It wished to become broadly self-sufficient (this ties in with its doctrine of socialism in one country, albeit a very big country).

While not comparing the politics of Mars to the Soviet Union, one can see that from an economic point of view the situation will be similar. Mars will be aiming to become fully self-sufficient right across the board. This will lead it to ignore comparative advantage sometimes, whilst at other times embracing the concept (if it helps speed up the overall development of industrial and agricultural infrastructure on Mars).

Heckscher-Ohlin Model. This develops further the idea of comparative advantage. It notes that comparative advantage lies not just in labour productivity but also in relative abundance of capital and (good) land. The model suggests that countries should focus on where their particular advantages lie e.g. Mexico, unlike the USA, has a large pool of cheap labour. 

My comments:   I think initially that Mars's main comparative advantage will be a unique one: it is a different planet in the solar system. This means it can provide a platform for a huge number of scientific experiments which no one on Earth can undertake. This is where Mars can generate substantial revenues in the early years. It would make sense to focus strongly on scientific experimentation in the early years and then build on that to create university ventures on Mars that will develop into permanent research institutions, providing a reliable income stream year by year.  This comparative advantage can also be used in marketing. Many companies on Earth will be interesting in marketing opportunities on Mars - e.g. auto manufacturers will want to see their cars pictured on Mars and maybe taking part in rallies. The comparative advantage can also be used in relation to manufacture of luxury items such as

Leaving aside this unique feature of Mars in terms of human economics, clearly it makes sense to produce methane and oxygen for rocket fuel-propellant on Mars rather than importing it from Earth, since importing the materials will be hugely costly at maybe $2 million a ton. Likewise with water production.

Eventually there may be some exports that meet the comparative advantage test. It may well be the case that surface level gold deposits are found on Mars and can be exported to Earth economically so that Mars gold ends up being much cheaper than deep-mined gold from places like South Africa.

One advantage Mars will have is free land.  Likewise, there will be no taxes on Mars. There will be no expensive environmental pollution controls. How these advantages play out, remains to be seen. Over time, they may become quite significant. Certainly once human society is established on Mars, these advantages may come to be important. I've noted before that for  something like luxury beef production as practised in Japan - where cuts can be priced in tens of thousands of dollars per Kg, Mars might be a competitor. No one can say for certain but it seems more likely to me that there will be thousands of such business opportunities that can turn a profit than that there are not.

New Trade Theory A further development of comparative advantage theory, this theory noted that bigger firms enjoyed economies of scale that gave them comparative advantages in trade. It was suggested that governments could purposively create such comparative advantages for national firms through protectionist policies, e.g. tariff barriers, that would allow the national firms to grow bigger.

My comments:   I think this is quite likely to be a model for development on Mars. Either through protectionist tariff barriers, subsidies, price-fixing or similar measures, there will be strong support for growing indigenous industries so that they can eventually compete with imports.

Last edited by louis (2019-12-26 05:54:29)


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#28 2019-12-26 06:09:59

louis
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Re: Economics of Mars

Optimum currency area   This theory suggests that there are optimal areas for currencies. So it makes sense for the whole of the USA to have one currency rather than for each State to produce its own currency. In the EU we have also seen a strong move to create a single currency, the Euro, though not all EU countries have signed up. The suggested criteria for whether a large regional area should adopt a single currency are that there should be four criteria met: 1. There should be freedom of movement so workers can travel without restriction to find new jobs. 2.  There should be freedom of movement of capital. 3. The economy should be diversified. 4. There should be a system of fiscal transfers between wealthier poorer areas (e.g. between California and Mississipi in the USA).

My comments: In my view, single currency movements are normally more rooted in politics than economics. That was true for the USA and it is true for the EU also.  The economic argument tends to follow the political one.

If the theory is to be taken at face value, I think it is clear that Mars could easily meet criteria 1, 2 and 3.  A system of fiscal transfers (currently pretty much absent in the Eurozone, incidentally) could be created where necessary.  I think it is likely to happen naturally in any case. The Mars government, in order to encourage a range of activities, will offer subsidies to outlying settlements to ensure they enjoy a full range of facilities, and wages are in any case likely to be levelised across the whole planet, without additional income going to those in isolated, outlying posts.

Whichever way you look at it, the case for a single currency for Mars is a strong one.

Last edited by louis (2019-12-26 06:29:10)


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#29 2019-12-26 16:52:34

louis
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Re: Economics of Mars

The Impossible Trinity It is not possible to have, simultaneously, a fixed exchange rate, international capital mobility and control of monetary policy.  One of them has, of necessity, to be sacrificed.  This is also known as the "trilemma" principle.

My comments: If this trilemma is a true represenation of economics, I doubt it will be that problematic on Mars. For one thing, unemployment in Mars will be at or close to zero. A Mars administration will not be trying to pull monetary levers in order to affect unemployment levels.

If Mars has its own currency, I would say it is probably an open question as to whether or not it is best to pursue a fixed rate of exchange policy.

Purchasing Power Parity Because each currency is measured against other currencies, we have to think in terms of purchasing power parity (PPP) to understand how much things really cost. Some currencies are overvalued and some are undervalued in terms of purchasing power parity.  This is related to the "Big Mac Index" approach - how much, in dollars, a Big Mac costs in countries all around the world.

My comments: PPP is itself not altogether a valid measure. It doesn't really factor in tax for instance. A country that collects more tax via sales than via income, death or wealth taxes, will have higher product costs. So I wouldn't rely on this comparison framework too much.

In terms of Mars, initially I think most workers on Mars are going to be living on Mars for free in essence, while receiving a salary that goes into a bank account on Earth. This is probably analogous to what happens in Antarctica at the moment...people living in Antarctic bases are more often that not receiving salaries that go into accounts based in their home countries. They may spend some "pocket money" in shops at the bases, still their habitation, food, water and other essentials are provided free. But I expect that 95% of their salary remains untouched. So that would definitely confuse the picture as to PPP on Mars.  If Mars adopts its own currency and pays workers in that currency, of course the situation changes somewhat, but it may still be the case that people convert most of that into say US dollars or other currencies.

Once there is a permanent resident population on Mars, of course PPP becomes more relevant. But Mars will still be a very different place to Earth. You might possibly have to pay for the air that you breathe on Mars, whereas on Earth it is of course free.

Rational Choice Rational choice theorists claim we undertake cost-benefit analyses for all choices in life in order to maximise "utility" or happiness.  Rationality varies between individuals. Not everyone has the same cognitive ability or access to relevant information.

My comments: This seems a highly plausible approach. We see in the animal kingdom that animals have mechanisms that amount to a cost-benefit analysis. A cheetah will normally stop chasing prey after a certain amount of energy usage - statistically it would be injurious to the predator to chase after every potential prey with absolute commitment. So, it seems likely humans have built on internal physical, hormonal, mechanisms to analyse choices rationally and follow the option that appears to offer maximum utility over time.

One of the key issues for Mars is how will humans based on Earth rationally analyse the option of going to live on Mars permanently. Elon Musk seems to assume that millions of humans on Earth will jump at the chance and further assume that they will their emigration to Mars will be possible. A cost-benefit analysis might go include the following:

COSTS

- I will likely have to commit all my financial resources to buying a ticket to Mars.
- If I find I don't like it, I will return to Earth a pauper.
- I may have to retrain.
- I will have to say goodbye to family and friends for decades or maybe the whole of my life.
- There is no guarantee I will succeed on Mars.
- I will never again experience the wind and rain on my face or the direct contact of sunlight on my skin.

BENEFITS

- If I go I will be part of an exciting, life-affirming and meaningful project that I will find satisfying.
- I will enjoy a very high standard of living. 
- I need never worry about health care or unemployment again.
- I will be living in a crime-free environment with huge opportunities for enjoying culture, sports and leisure.
- I will learn new skills.
- My children will have a wide range of opportunities in life.
- I will likely be given land for free.
- I will be living on a planet not threatened by nuclear war or warfare generally.

How will people respond to that sort of analysis?  I think Musk is being over-optimistic about the number of people on Earth who will decide they want to live on Mars. Even if he is right that hundreds of thousands will want to relocate there, that doesn't mean they have the "right stuff". They may be mentally unstable, lacking in the required technical skills, physically weak or otherwise lacking in the necessary resilience. In fact, I suspect that 90% of "volunteers" won't meet basic requirements.

To my way of thinking, people will be naturally wary of moving to Mars. What is required is to create an interesting and rewarding environment on Mars. We may then find that people who work there temporarily decide they would like to stay a little longer. It's a bit like the Dubai effect. Workers needed to be tempted to work in the Gulf initially with high salaries. They lived a very artificial sort of life a lot of the time - air conditioned homes, air conditioned cars, air conditioned malls...But then Dubai seemed to take on a life of its own - a lot of people found it attractive for what it could offer including the brand new architecture. Lots of people bought holiday homes there and began to live there more or less permanently. [Not my sort of place but each to their own!]

It is only once positive reports about living on Mars find their way back to Earth that mass migration to Mars will begin to become possible.

To secure Mars development we need first to create the environment that will attract migrants. This must include lots of "Earth Like Environments" (ELEs) that people will be able to walk, cycle and swim in.

Game Theory Strategic decision making is vital in a business environment.  The strategic decisions of one player affect those of another, and players try to anticipate each other's decisions.

My comments: Game theory will be highly relevant to Mars in terms of what happens after the first Mars settlement is established. Will there be a Mars "gold rush" as  space agencies, rocket companies, other companies, universities, religious groups and others seek to establish a presence. How should Space X or the first Mars Corporation react to that? Should they welcome all settlement as conducive to the development of Mars? Or should they view other settlements as competitors to be denied access to markets if possible? Is it a zero sum game or a co-operative enterprise? How does this all play out in relation to the development of Mars governance?


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#30 2019-12-26 19:21:33

louis
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Re: Economics of Mars

Public choice This applies the rational choice insight to public policy. The suggestion is that politicians and bureaucrats as human beings engage in rational choice to maximise their personal utility. This is partly because politicians and bureaucrats have a monopoly over decision making. The government makes national industrial policy for instance - no one else can. These issues can be viewed in terms of voting systems.

My comments:   Yes, true to a degree perhaps. However on the other side we can point to many politicians who subject themselves to personal risk - mental and physical stress, up to death and including torture, for things they believe in. So, I am not so sure. This theory sounds like it could become almost an excuse for corruption.

But undoubtedly politicians see the world differently from businesses. For politicians in a democracy, votes are all important not the "bottom line" in the accounts. They mostly want to amass votes and win elections. This is how you end up with pork barrel politics rather than rational policy making.

No doubt Mars, as it grows, will be subjected to human frailty in all its magnificence and variety.

But to begin with I expect there to be a good deal of genuine rationality around the basic plan for securing human settlement on Mars. The task is so new, so challenging, that it would be folly to do anything other than make choices that meet the needs of the plan. The need to find the best water sources, the best landing sites, the best methane sources, best iron ore sources and so on will determine what decisions are made. There will be no "constituents" who have to be appealed to.

Of course, as soon as there is an independent Mars Republic with its own voters in a democracy, things will change. Decision making will be partly a matter of appealing to voters to secure their support.

Expected Utility Theory In dealing with decisions involving a lot of uncertainty, people weigh up the probabilities of expected outcomes and how happy each outcome would make them.

My comments: I think this is very relevant to how people will make choices about whether to move to Mars on a permanent basis.
People need to see that positive outcomes are more probable than negative outcomes. They need to know they will be safe in transit and on arrival, that their health won't suffer long term, that they will be able to procreate, that there will be good jobs available and that they will be able to enjoy a good lifestyle they will find meaningful and rewarding. They need to know that in leaving friends and family behind, it might not be goodbye forever...improved virtual reality communications might help soften the blow of separation but there is no way round the 15 min time lag. Putting in place a scheme of subsidised visits by family to Mars might be a good idea.

Prospect Theory People don't just flick through probable outcomes, they also make decisions viewing the options through a subjective framing. The glass is half full or half empty!

My comments: Again, looking at this in terms of attracting people to colonise Mars, you definitely need to frame the decision as one of life improvement, not a risky space adventure in the Apollo mode. People on Earth are being offered the chance to improve their lives by helping create a totally new human experience but one that offers more reward and less stress. But for that framing to be adopted, the reality does need to be there. The Mars settlement needs to be more than a utilitarian experience of survival, it has to be a high quality human experience.


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#31 2019-12-26 20:37:30

RobertDyck
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Re: Economics of Mars

How would all this fit with my proposal for Corporate Government?

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#32 2019-12-27 05:05:38

louis
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Re: Economics of Mars

I'm just coming up to a section on tax which might interest you - will post on that later today probably.

I think your "Corporate Government" approach is correct in assuming that at the beginning the corporation will be pretty much identified with the governance of Mars.

Clearly your approach leans heavily on libertarian ideals. How attractive people find that, I don't know. People can become unemployed for all sorts of reasons, not least health. Are we really going to leave them to fend for themselves?

You seem to follow Musk in assuming there will be an endless stream of well qualified would be colonists who will generate a revenue stream to fund the colonisation process by "buying a ticket".  I am very doubtful about that. 

I think first you have to build a convincing colony ie an attractive settlement connected to lots of "Earth Like Environments" ELEs. ELEs will be very important  because otherwise living on Mars is going to be about as attractive as living in an airport lounge or an air conditioned shopping mall.

You then have to de-risk the process of settling on Mars, so I think that means paying for the settlers' "ticket" ie giving them a free ride and when they get to Mars, giving them free land or habitation (not unlike what happened in the USA  at times - I believe they had land lotteries for would be settlers as the US expanded to the West). After a certain period they would also have the opportunity to return to Earth if they wish, again for free.

Well, that's my take on it!

RobertDyck wrote:

How would all this fit with my proposal for Corporate Government?


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#33 2019-12-27 06:45:24

louis
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Re: Economics of Mars

Tax Incidence Taxes have a way of working through to the consumer, even if not levied on them directly. The example given is of levying a tax on oil companies...the likelihood is that most if not all of that tax placed on the companies will find its way through to the customer in terms of increased gas/petrol prices. How much of the tax gets passed to consumers depends on elasticity of the supply and demand. If demand is elastic ie non-essential consumers will respond to price rises by reducing demand. Consumers would find it difficult to reduce their milk consumption but could probably decide to cut down on their driving quite substantially, unless they use their car for commuting.

My comments:   This raises the issue of (a) whether you should have any tax on Mars and (b) where should tax fall.

Regarding (a) above Robert Dyck favours no tax at all, but using revenue streams to fund governance. That's not as infeasible at it might sound at first look. If Space X or a Mars Corporation has a monopoly position, it can set prices (e.g. for transit, life support, habitation, surface transport and so on) to cover costs of governance (administration, planning, exploration, mapping, communications with Earth, security patrols, health and welfare, international liaison and so on). However, I would call that a kind of "opaque tax" system. It's similar to the situation in company towns where a company has a company stores, setting prices on the goods and paying people in company tokens. You might not pay any tax and the company might provide security patrols, roads, housing and lighting...but there might be what are effectively taxes hidden in the price of goods.

Personally I would prefer an open taxation system, where tax is clear.

Regarding (b), I think a range of taxes is probably appropriate. Personally I think we could avoid income tax. That would be one of the attractions of living on Mars. You earn x and you keep 100% of x. There is no disincentive to work harder, to train up or to take on responsibility.

But I would certainly wish to see legislation on some aspects of income:

- A minimum living wage which would be set quite high, at maybe 60% of average earnings.

- A pay ratio max. So this would be something like the upper 10 percentile cannot earn more than five times the average income.

I would also wish to see a wealth tax and an upper income limit.

These are personal preferences but are something that could be agreed democratically on Mars.

So...no income tax, but other taxes would apply:

1. Import duties.

2. Financial transaction tax.

3. Sales tax.

4. Property licence tax.

5. Wealth tax.

6. Tourist tax.

7. Corporation tax.


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#34 2019-12-27 10:15:56

louis
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Re: Economics of Mars

Excess Burden The "excess burden" theory suggests that sales tax represents a "deadweight loss" through lower consumption overall. It's similar to a situation where a monopoly producer hikes up price beyond the equilibrium level that would obtain in a free market, until consumers reduce demand. There is an overall deadweight loss to the economy because consumption and therefore production drops.
so with taxes, it is the equivalent of an unnecessary price hike, resulting in reduced production.

My comment: A lot if not all taxes tend to find their way through to prices I would suggest. Even income tax hikes can result in increased wage demands which can then feed through to higher prices.

For Mars, we need to think in terms of what are the right sort of taxes for the Mars settlement.  Personally I think it will make Mars an attractive place to work if you remove income tax.

Mars will of course need to match tax with required government revenue (minus income from other sources).


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#35 2019-12-27 10:31:49

louis
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Re: Economics of Mars

Supply Side Economics This approach suggests it is vital to create incentives for people to invest and to work if you want greater growth. Economists argue over this with many pointing out that when this approach was tried in the Reagan era in the USA, tax revenues did not rise as hoped and in fact deficits ballooned, loading debt onto future generations.

My comments: I am sympathetic to the idea that Supply Side Economics is important. I would personally argue that while income tax does not help productivity, we need to create a situation where there is less concentration of capital in a few private hands. Institutions, such as pension funds, are important investors.  On Mars people might favour the creation of more inclusive capital investments via institutions everyone has a stake in.  We might think about something like the equivalent of the Norwegian Sovereign Wealth Fund which has truly massive investments all around the world but in which effectively every Norwegian has a stake.

The more I am thinking about these issues, the more I am thinking there will be a pressing need to set up a Mars currency and make that currency the only legal tender on the planet.

Crowding Out This theory notes that if government extracts funds from the economy via taxation or borrowing it can reduce the amount of savings left over for capital investment in the private sector and so retard the economy.

My comments: On Mars this kind of sharp dichotomy between public and private sector simply won't be there at the outset.  Space X, a private company, will be the de facto government.  As they used to say about General Motors and America, "What's good for Space X is good for Mars". But the likelihood is that as the years pass, governance will split from commerce and the private sector will grow in complexity.  At that point this theory may become valid.


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#36 2019-12-27 17:57:13

RobertDyck
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Re: Economics of Mars

May I defend my model? The Libertarian aspect is critical because it's an incentive to come. Yes, you too can tell government where to shove it! Maximum freedom, no tax. If you construct an apartment building in the capital citres there will be a land lease fee; equivalent to property tax. No school tax, instead private school, or just online. Other towns can organize themselves however they want. There would be corporate tax for large/medium corporations, but no tax for small business. No other tax what so ever. This means an individual or family with a cottage business pays no tax at all.

This leans heavily on Libertarian values and zero tax specifically because that's a major reason people would want to come.

My approach includes a "job bank" that matches job seekers with employers. And job training. The worker has to pass an aptitude test, an employer accept him/her, the the worker gets housing & food while in training, then the employer must hire him. Job training is paid via payroll deduction. The employer is prohibited from firing him until the student loan is paid off, but can assign the worst/nastiest jobs.

A free ticket back to Earth is included in every ticket to Mars.

No, you don't need Earth Like Environments. Go to Mars to be on Mars. I could post an image of the Mars Homestead atrium. Again. That was intended as the first permanent settlement, for 12 people. Would include individual apartments, atrium, work shops, large greenhouses. The greenhouses would use ambient light so all glass walls and ceiling. That gives you a vast space to live. And you can don a spacesuit to work/play/explore outdoors.

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#37 2019-12-27 19:13:21

louis
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Re: Economics of Mars

Feel free to defend your model!

Personally I feel that the French Revolution got it right: liberty, equality and fraternity...All three need to be balanced for maximal happiness all round.

Focussing on just liberty (or just equality or just fraternity) is asking for trouble.

At least for several decades there will be an acute labour shortage on Mars - I really don't think you need to worry about finding people employment! There's no unemployment on Antarctica and there won't be on Mars for several decades, with the exception possibly of debilitating accidents or illnesses.

I really don't think the right people are going to be attracted by Mars as an expanded airport lounge.

PS Who is paying for the return trip to Earth? If it's not the individuals concerned that's not v. libertarian is it? They are asking someone else to pay.

RobertDyck wrote:

May I defend my model? The Libertarian aspect is critical because it's an incentive to come. Yes, you too can tell government where to shove it! Maximum freedom, no tax. If you construct an apartment building in the capital citres there will be a land lease fee; equivalent to property tax. No school tax, instead private school, or just online. Other towns can organize themselves however they want. There would be corporate tax for large/medium corporations, but no tax for small business. No other tax what so ever. This means an individual or family with a cottage business pays no tax at all.

This leans heavily on Libertarian values and zero tax specifically because that's a major reason people would want to come.

My approach includes a "job bank" that matches job seekers with employers. And job training. The worker has to pass an aptitude test, an employer accept him/her, the the worker gets housing & food while in training, then the employer must hire him. Job training is paid via payroll deduction. The employer is prohibited from firing him until the student loan is paid off, but can assign the worst/nastiest jobs.

A free ticket back to Earth is included in every ticket to Mars.

No, you don't need Earth Like Environments. Go to Mars to be on Mars. I could post an image of the Mars Homestead atrium. Again. That was intended as the first permanent settlement, for 12 people. Would include individual apartments, atrium, work shops, large greenhouses. The greenhouses would use ambient light so all glass walls and ceiling. That gives you a vast space to live. And you can don a spacesuit to work/play/explore outdoors.

Last edited by louis (2019-12-27 19:15:15)


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#38 2019-12-27 21:22:49

RobertDyck
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Re: Economics of Mars

Return ticket: a reusable spacecraft will make regular trips from Earth orbit to Mars orbit and back. Fuel produced on Mars or an NEA, not shipped up from Earth. Food grown in greenhouses on Mars, for transit in both directions. Spare parts for maintenance and repair manufactured on Mars. When the ship returns to Earth, it will carry enough fuel for the trip. Fuel for the next trip to Mars will come from a storage depot in Earth orbit. But it will carry enough food for both return to Earth and the next trip to Mars.

Return will be practically empty. Just ship's crew and very few passengers. It would cost the company next to nothing to say every ticket includes a return to Earth. Notice I didn't say "free", I said included.

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#39 2019-12-27 21:56:16

RobertDyck
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Re: Economics of Mars

Employment: cost of a ticket would be life savings for a middle class individual. Sell your two story house in the suburbs, your car, or both cars if you have more than one, all your savings, liquidate your life insurance, liquidate your pension/retirement savings, everything. That will buy you a ticket for yourself, the clothes on your back, your spouse and children, and some luggage. That's all. Rich people may arrive with enough money to buy equipment to build a homestead in the outback, but many won't. The Corporation that owns the colonial transport ships will establish a single city on Mars. This city will have to mine, refine, and manufacture everything the ship needs. It will operate shuttles to carry new arrivals down from Mars orbit. Operate greenhouses to supply the ship, etc. All new settlers will arrive at the Company owned city.

The arrivals lounge will have large recruitment signs: "Come work for the Company! Immediate employment! Free apartment, free utilities, free healthcare, free daycare and free school for your kids! Free transportation to work! You can earn enough money to build that homestead in the outback! Sign up now!!!

What's not said is all that free stuff means your pay isn't all that good. If you eat at home, you have to buy groceries with you own money. The company cafeteria is free, but it's only cafeteria food, and restricted to Company employees. If you want to eat in a restaurant, that costs money. Your apartment is in a Company dormitory; transportation is a corridor, elevator, or bus. And equipment to build your homestead is available at the Company store.

Anyone in the capital city who isn't a Company employee has to pay for everything.

But you too can build a Homestead and tell The Man where to stick it. Can you establish a successful cottage industry? Perhaps make a new spacesuit helmet, better than the one made at the Company factory. Better design and lower price? The Company doesn't mind, it'll be a long time before Mars has everything it needs so they'll just retool to make something else. Really! The Company wants you to succeed. Oh, did we mention the fine print you signed on you ticket to Mars? That grants the Company the right to use your story and image for advertising back on Earth. Once you succeed, you will be the poster boy to recruit new settlers! Each of whom pay with their entire life savings. big_smile

Also notice how the ship is financed. Once operating, all operational supplies come from space, mostly from Mars but propellant to fill the depot in Earth orbit could come from an NEA or Mars moon. But tickets are paid in Earth currency. So the only Earth expense is transport to Earth orbit, advertising, and passenger terminal operations. So the vast majority of ticket price is return on investment for Company investors, then pure profit. big_smile

Last edited by RobertDyck (2019-12-28 00:04:38)

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#40 2019-12-28 07:06:49

louis
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Re: Economics of Mars

I doubt it's going to be that free and easy.

It's far more likely to be a case I think of the Corporation needs someone to fill "x role". People apply on Earth and are subject to interview and rigorous checks ...they sign up for a five year contract or whatever.  They have a free ride to Mars paid for by the Corporation. The Corporation decides where you work. If you don't like it there or the Corporation thinks you aren't meeting your end of the bargain, you can have a free ride back to Earth, after six months,  but maybe you lose some sort of financial deposit.

Only once the settlement is much larger do I think people could self-select but even then, I think you will have to pass some serious physcial and psychological checks.




RobertDyck wrote:

Employment: cost of a ticket would be life savings for a middle class individual. Sell your two story house in the suburbs, your car, or both cars if you have more than one, all your savings, liquidate your life insurance, liquidate your pension/retirement savings, everything. That will buy you a ticket for yourself, the clothes on your back, your spouse and children, and some luggage. That's all. Rich people may arrive with enough money to buy equipment to build a homestead in the outback, but many won't. The Corporation that owns the colonial transport ships will establish a single city on Mars. This city will have to mine, refine, and manufacture everything the ship needs. It will operate shuttles to carry new arrivals down from Mars orbit. Operate greenhouses to supply the ship, etc. All new settlers will arrive at the Company owned city.

The arrivals lounge will have large recruitment signs: "Come work for the Company! Immediate employment! Free apartment, free utilities, free healthcare, free daycare and free school for your kids! Free transportation to work! You can earn enough money to build that homestead in the outback! Sign up now!!!

What's not said is all that free stuff means your pay isn't all that good. If you eat at home, you have to buy groceries with you own money. The company cafeteria is free, but it's only cafeteria food, and restricted to Company employees. If you want to eat in a restaurant, that costs money. Your apartment is in a Company dormitory; transportation is a corridor, elevator, or bus. And equipment to build your homestead is available at the Company store.

Anyone in the capital city who isn't a Company employee has to pay for everything.

But you too can build a Homestead and tell The Man where to stick it. Can you establish a successful cottage industry? Perhaps make a new spacesuit helmet, better than the one made at the Company factory. Better design and lower price? The Company doesn't mind, it'll be a long time before Mars has everything it needs so they'll just retool to make something else. Really! The Company wants you to succeed. Oh, did we mention the fine print you signed on you ticket to Mars? That grants the Company the right to use your story and image for advertising back on Earth. Once you succeed, you will be the poster boy to recruit new settlers! Each of whom pay with their entire life savings. big_smile

Also notice how the ship is financed. Once operating, all operational supplies come from space, mostly from Mars but propellant to fill the depot in Earth orbit could come from an NEA or Mars moon. But tickets are paid in Earth currency. So the only Earth expense is transport to Earth orbit, advertising, and passenger terminal operations. So the vast majority of ticket price is return on investment for Company investors, then pure profit. big_smile


Let's Go to Mars...Google on: Fast Track to Mars blogspot.com

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#41 2019-12-28 07:26:37

louis
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Re: Economics of Mars

The Invisible Hand This is Adam Smith's metaphor for how markets regulate the bewildering complexity of an economy, ensuring that goods find their way to the right place to meet the level of demand in an appropriate manner. The invisible hand, is self-interest of the various economic actors. It is not out of benevolence that the bakers makes the pies you like to eat, it is knowing that doing so will earn him a profit.

My comments: There is undoubtedly a lot of solid empirical fact behind this metaphor.  Markets can work wonderfully, certainly at the level of providing everyday products to consumers.

But it would be foolish to leave it to the market to, say, build a major energy generation facility like a hydro dam or a new railway. In many cases it is simply impossible for the private sector to build such facilities without government passing enabling legislation, offering seed capital and guarantees, and ensuring roads are built in the right place to serve new facilities. It can be seen that markets are poor at allocating money to major infrastructure projects. The market is also not good at dealing with issues like air pollution and environmental degradation, as there is little profit motive to preserve the environment.

Space X may be about to overturn that, in the sense that they are embarking on the biggest ever infrastructure project: terrformation of a whole planet!

But will they tend to favour free markets on Mars or will they deploy centralised planning? 

Musk seems to think in terms of both. He seems keen on the idea of homesteaders simply migrating to Mars and forging their own futures. But on the other hand when he talks about the cities to be built on Mars, it sounds like a lot of planning is going to go into them.

My guess is there will for many decades be more of the "visible" hand that we see in Antarctica, where bases are carefully planned, and so too is all the allocation of resources. However, I don't think anyone can say for sure. Many of the starting conditions will dictate how things develop later on.

It will on my view be more like workign for a big oil corporation in the Gulf - you have your compound where pretty much everything you need, including a wide range of leisure facilities is provided for you. You can't just decide to go off and set up your own home in the desert.

I think moving to Mars will be more fun than working for an oil company in the Gulf but apart from that there will be strong similarities.


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#42 2019-12-28 07:46:09

louis
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Re: Economics of Mars

Marginalism This theory holds that pricing is determined by the marginal utility of an additional item. It is often suggested it is the alternative to the labour theory of value.

My comments:   I have never really seen the two theories as opposed. It's pretty clear that producing an additional item costs less than producing a first item, if that is going to be the sole item. If I set up a huge pencil-making machine and only made one pencil, that would require hundreds of hours of labour time, just to produce one pencil and the cost of that one pencil would be extremely high. But if I go on to make 10,000 pencils, as each pencil is produce, it is reducing the amount of labour time per unit of production. The labour theory of value does, I am sure, determine the general level of pricing of a product in a free market.

These theories are obviously of key importance on Mars. If we can transport 50 people rather than 10 in one Starship travelling to Mars, the unit price of a ticket comes down substantially. If we can deploy a lot of robots and automated machinery on Mars we can reduce the amount of labour time going into producing food and other products.

Some things that we take for granted will be different on Mars. Water has low marginal utility on Earth - it's easy to produce another gallon of it, once you have located your water source. That's why it's often not even metered. On Mars water may be a much more precious resource and may be heavily recycled within settlements. If not provided free as a public utility it will certainly be metered I would think because it will have much higher marginal utility than on Earth.

Of course, on Mars as well, air will not be provided gratis by Mother Earth. It will have to be made, at a price, in terms of resource allocation. Would it be metered on Mars? I don't suppose so! But you might have to pay for a connection if you were a private homesteader, unless you could "make your own".

It seems likely that a Mars Corporation will tend to engage in abritrary internal pricing, as many big companies do, to meet its policy objectives rather than following supply and demand directly.  So it might charge a university research facility on Mars heavily for its life support and accommodation, but undercharge individual long term migrants to Mars for the same.


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#43 2019-12-28 10:19:09

RobertDyck
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Re: Economics of Mars

louis wrote:

I doubt it's going to be that free and easy.

It's far more likely to be a case I think of the Corporation needs someone to fill "x role". People apply on Earth and are subject to interview and rigorous checks ...they sign up for a five year contract or whatever.  They have a free ride to Mars paid for by the Corporation. The Corporation decides where you work. If you don't like it there or the Corporation thinks you aren't meeting your end of the bargain, you can have a free ride back to Earth, after six months,  but maybe you lose some sort of financial deposit.

Only once the settlement is much larger do I think people could self-select but even then, I think you will have to pass some serious physcial and psychological checks.

You're thinking like NASA. I doubt a ride to Mars will ever be free. The issue is how to make profit from Mars. Space transportation is so expensive that bringing anything back is not viable. The basis for this model is don't. The space economy will support the transport ship, so Earth currency is not required to operate. Settlers will pay in Earth currency, so the source of revenue is the settlers themselves. So no free rides, absolutely not. Once you charge for transport to Mars, you can't be that picky. So the physical and psychological checks will be cursory. The Corporation won't want to bring Jack the Ripper to their operation, but anyone other than a serial killer. And remember John Glenn rode the Space Shuttle at age 77. The Corporation won't want someone who would die on their ship, in transit, but anyone who isn't about to die. How picky are airlines about their passengers?

What you describe sounds like remote construction work. Someone pays a company to build a bridge or something, the company needs workers, so the company pays for transportation to the work site, pays meals and lodging, and transportation back. But who's going to pay to build anything on Mars? As I just said, the very idea is the source of money *IS* settlers. That means the company wants to sell tickets. If you have the money, the Corporation will take it. If you want to go to Mars to die, as long as the Corporation can be assured you won't die on their ship, they'll do it, they'll take your money. And government has to be very Libertarian, very minimal with no tax, because that's the incentive for settlers.

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#44 2019-12-28 12:59:17

louis
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Re: Economics of Mars

I intend to write a summary at the end of this series (the end isn't that far away) setting out how such an economy might work. Lots of companies pay for the flights of staff to centres of work. There's nothing unusual in principle about such an arrangement.  I think payment  flights by personnel from space agencies, universities and others undertaking experiments on Mars can cover the cost of settlers coming to Mars. The average cost might be $1 million per person, but they might be paying $2 million. A space agency like NASA could easily afford to pay $100 million per year to pay for 50 of their people to visit Mars.  But other space agencies will be interested: JAXA, ISA, Canadian Space Agency, ESA and so on. Space X can also deliver NASA rovers to the planet, if they want to go out exploring with them. Anyway, I'll expand on all that later.

RobertDyck wrote:
louis wrote:

I doubt it's going to be that free and easy.

It's far more likely to be a case I think of the Corporation needs someone to fill "x role". People apply on Earth and are subject to interview and rigorous checks ...they sign up for a five year contract or whatever.  They have a free ride to Mars paid for by the Corporation. The Corporation decides where you work. If you don't like it there or the Corporation thinks you aren't meeting your end of the bargain, you can have a free ride back to Earth, after six months,  but maybe you lose some sort of financial deposit.

Only once the settlement is much larger do I think people could self-select but even then, I think you will have to pass some serious physcial and psychological checks.

You're thinking like NASA. I doubt a ride to Mars will ever be free. The issue is how to make profit from Mars. Space transportation is so expensive that bringing anything back is not viable. The basis for this model is don't. The space economy will support the transport ship, so Earth currency is not required to operate. Settlers will pay in Earth currency, so the source of revenue is the settlers themselves. So no free rides, absolutely not. Once you charge for transport to Mars, you can't be that picky. So the physical and psychological checks will be cursory. The Corporation won't want to bring Jack the Ripper to their operation, but anyone other than a serial killer. And remember John Glenn rode the Space Shuttle at age 77. The Corporation won't want someone who would die on their ship, in transit, but anyone who isn't about to die. How picky are airlines about their passengers?

What you describe sounds like remote construction work. Someone pays a company to build a bridge or something, the company needs workers, so the company pays for transportation to the work site, pays meals and lodging, and transportation back. But who's going to pay to build anything on Mars? As I just said, the very idea is the source of money *IS* settlers. That means the company wants to sell tickets. If you have the money, the Corporation will take it. If you want to go to Mars to die, as long as the Corporation can be assured you won't die on their ship, they'll do it, they'll take your money. And government has to be very Libertarian, very minimal with no tax, because that's the incentive for settlers.


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#45 2019-12-28 13:46:10

louis
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Re: Economics of Mars

Tragedy of the Commons In a situation where resources are limited by everyone sharing in them - like medieval commons where everyone could graze their animals - no one protects the resources. So the commons become overgrazed...A similar situation developed in Yosemite Park where the number of visitors was beginning to environmentally degrade the area.

My comments:   This is undoubtedly a valid observation.  However, I think what is far more likely on Mars is "regulated commonality".  There will be supervision of common resources.  Maybe there will be a free cafeteria where people can get free meals...but that doesn't mean people can fill bags with food and take it back to their apartments.  Likewise, you might need to book your access Earth Like Environments - certainly special attraction like ski runs, even they are free.  In that sense it will be more like an "all-inclusive" holiday where you don't pay for anything after you arrive at the hotel but there is supervision of supply.

In terms of the Mars environment, we have to assume (until the presence of flora and fauna is confirmed or not), that there is nothing there to degrade in terms of an eco-system. On Mars, even air pollution will be welcomed as a contribution to terraforming. The planet is so large (with land area equivalent to that on Earth) pollution of the regolith would hardly be of major concern, though no doubt the Mars inhabitants will wish to behave responsibly and not despoil the landscape around them .

As long as the Outer Space Treaty regulates human activity on the planet, the land in theory will be a common resource for the whole of humanity. However, in practice land will be occupied and not be available to everyone arriving from Earth.

If there are gold resources at the surface they are likely to be exhausted within a few decades. That may be a "tragedy of the commons" but it coudl provide  billions of dollars's revenue for the colony.

Last edited by louis (2019-12-29 05:47:38)


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#46 2019-12-28 13:54:22

louis
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Re: Economics of Mars

Property Rights   Property rights were addressed under the heading of "Rule of Law" above. Well defined property rights are an essential component of a capitalist economic system. Sometimes it is necessary to create new property rights to prevent overuse of common resources. We have seen this in relation to fish in the sea, where permits have been issued to fishers in order to ensure that there is no overfishing.

My comments:    The Outer Space Treaty prevents anyone alienating any land on Mars to themselves in perpetuity.  I have argued that nevertheless a pragmatic licensing system to ensure good order in the development of the settlement would be acceptable under the Treaty.

Ultimately with the creation of an independent Mars Republic which was not a signatory to the OST, it would be possible to create full property rights if that was desired for. I think it would be sensible as it would be one of the main draws for people to come to Mars, to own a large tract of land.


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#47 2019-12-28 14:00:49

louis
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Re: Economics of Mars

Polluter Pays Principle. In following this principle, governments find ways of ensuring the polluter pays for the pollution it is causing, via special taxes (e.g. landfill or incineration tax), levies and permit trading systems (e.g. carbon trading). The aim is to create incentives to polluters to reduce pollution and also to create revenue streams that can, in theory, be used to alleviate pollution, improve recycling and so on.

My comments: As already observed what appears as pollution on Earth could be seen as a valuable contribution to terraformation.

Likewise the whole of the Mars community will be looking to create new eco systems, not whittle them away through habitat destruction as on Mars.

It may that companies on Mars will be incentivised to contribute to terraformation in various ways.

Human waste that can be turned into rich compost will be highly prized on Mars and recycled into agriculture.

Disposal of industrial waste might be less problematic. It may be that permits will be granted for "crater filling" with industrial waste.


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#48 2019-12-28 16:44:44

RobertDyck
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Re: Economics of Mars

Ohhh... You just had to push my buttons. No carbon tax! No carbon trading. This is an issue in Canada right now. The federal government is forcing provinces to impose a carbon tax. In 2008 the Liberal party ran on a platform of a federal carbon tax, and lost miserably. So now they want to force provinces to do it, so they can spread the blame. It's not needed; just another tax. If an asteroid was headed to impact the Earth, government would impose an asteroid tax? How do they think a tax could stop climate change. And real scientists do not agree with climate activists, real scientists said their is no conclusive evidence that carbon emissions are causing climate change. The carbon tax has to die at all cost, which my require electing the other major party, the Conservative Party of Canada (Tories).

Provinces are taking the federal government to court; if the federal government created a federal tax, they would have the right to do so, but they aren't, they're forcing the provinces to do it. That's the basis if the court challenge.

So now you want to bring that same propaganda to Mars? Really? We want global warming on Mars. It's called "terraforming".

Mars is frozen. There's no aquifer, the ground is frozen. That means any tailings from mining dumped into a crater will stay exactly where you dump it. You could cover with a layer of clay to prevent wind from moving it, but Mars atmosphere is so thin that surface material small enough to be moved by wind does so extremely slowly. Mars atmosphere is over 95% CO2 and contains carbon monoxide, so both of these gasses can be dumped into the atmosphere, they aren't pollution. What pollution?

As Robert Zubrin said, one major advantage to Mars is there is no EPA.

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#49 2019-12-28 19:23:37

louis
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Re: Economics of Mars

Adverse Selection This relates to a lack of information about a purchase. Information asymmetry (a lack of relevant information on the part of one side of the bargain) will mean they are vulnerable to making the wrong decision.

My comments: This would appear commonsensical. I can see some relevance to Mars, in particular the issue of whether a person would expend a huge amount on travelling to Mars with a view to starting a new life there. 

It is probably in the interests of everybody that as much accurate information is given regarding what it is like to live on Mars as a settler. A Mars Corporation would not benefit from misleading ticket buyers. Much better that the people coming to Mars have an accurate idea of what awaits them.

Moral Hazard   This is a result of the "too big fail" syndrome. Some big banks and big firms know that the government will step in if they make bad commercial decisions that lead the company into difficulties. This tends to free them to take risky courses of action, because they know if the worst comes to the worst, the enterprise will still continue.

My comments: A Mars Coporation with a semi-monopolistic position on Mars would indeed be "too big to fail" - its existence would be bound up with the existence of the settlement. But its monopoly position would equally shield it from business failure.

Efficient Market Hypothesis This is the theory that financial markets are efficient because they have access to all available information and the prices fully reflect that.

My comments: Not sure this theory adds greatly to our knowledge and it will be decades before financial markets on Mars become dominant.

Rent Seeking Big companies and other organisations lobby government, trying to tilt what should be a level playing field in their favour. This is called "rent seeking" - meaning they want the government to order things so their profit is guaranteed in the same way a rent is guaranteed.

My comments:   This would certainly be a danger on Mars - that things might drift into a rent-seeking pattern rather than keeping the focus on economic development.


That's the end of my commentary on the book. I'll try and draw together some of the strands and set out my thoughts on how the early economy on Mars might develop.

Last edited by louis (2019-12-28 19:25:12)


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#50 2019-12-28 19:27:39

louis
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Re: Economics of Mars

Think you need to read what I wrote!

It was me making the same point. We'd probably pay people to "pollute" to the max on Mars. The more greenhouse gases pumped out, the better.

RobertDyck wrote:

Ohhh... You just had to push my buttons. No carbon tax! No carbon trading. This is an issue in Canada right now. The federal government is forcing provinces to impose a carbon tax. In 2008 the Liberal party ran on a platform of a federal carbon tax, and lost miserably. So now they want to force provinces to do it, so they can spread the blame. It's not needed; just another tax. If an asteroid was headed to impact the Earth, government would impose an asteroid tax? How do they think a tax could stop climate change. And real scientists do not agree with climate activists, real scientists said their is no conclusive evidence that carbon emissions are causing climate change. The carbon tax has to die at all cost, which my require electing the other major party, the Conservative Party of Canada (Tories).

Provinces are taking the federal government to court; if the federal government created a federal tax, they would have the right to do so, but they aren't, they're forcing the provinces to do it. That's the basis if the court challenge.

So now you want to bring that same propaganda to Mars? Really? We want global warming on Mars. It's called "terraforming".

Mars is frozen. There's no aquifer, the ground is frozen. That means any tailings from mining dumped into a crater will stay exactly where you dump it. You could cover with a layer of clay to prevent wind from moving it, but Mars atmosphere is so thin that surface material small enough to be moved by wind does so extremely slowly. Mars atmosphere is over 95% CO2 and contains carbon monoxide, so both of these gasses can be dumped into the atmosphere, they aren't pollution. What pollution?

As Robert Zubrin said, one major advantage to Mars is there is no EPA.


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