SpaceX: A New Monopoly, Great Opportunity

      On Monday night, December 21st, 2015, SpaceX made history again. The private space rocket firm launched 11 satellites into orbit for ORBCOMM, but that has become the norm for them. What was impressive was the achievement of their secondary objective: successfully landing the primary stage rocket on land. That has never been done before, by anyone, and it is a big deal.

      The biggest problem for space travel, tourism, research, and really anything involving putting stuff into orbit is costs. Making a rocket is very, very expensive. It is made even more expensive by the fact that they are not reusable. Upon launch, the rockets and fuel chambers, which cost millions of dollars to develop and build, are jettisoned into the ocean, or burn up on reentry.

      To understand the immense waste this causes, think about a commercial airplane. A Boeing 747 costs hundreds of millions of dollars, and seats less than 700 people. If the plane were to be built, carry 700 people across the country, and then immediately be dumped into the ocean, that would be something like what space travel is currently like. To make a profit, each passenger would have to pay hundreds of thousands of dollars for one plane ticket. The result: very few people, if at all anyone, would fly. That is the current state of space travel: only big governments and corporations have the money to even think about going to space. Several months ago, SpaceX's website listed the cost of one flight on their Falcon 9 rocket as over $60 million dollars. Their larger Falcon Heavy model was over $90 million per flight. At the time, however, that was the cheapest anyone could get.

      The significance of SpaceX landing the rocket in one piece is that now it is reusable. Now that we are no longer dumping multi-million rockets into the ocean after one use, the cost of building a rocket can, like the cost of building a plane, be spread out over many flights, making each individual flight much, much cheaper. As of today the prices on SpaceX's website have been taken down, and not yet replaced: likely while they recalculate the new cost of space travel. This raises the question: exactly how cheap will such a future be?

      SpaceX now has the closest thing to a monopoly possible in today's space age. Already the cheapest way to transport goods to space, no one can now compete with them on price. Traditional basic monopolist theory would suggest that they would artificially keep the price high to boost profits. This would be a shame. Fortunately, basic monopolist theory assumes that the producer is pursuing profit, and SpaceX is not. Elon Musk has made it his goal to drastically reduce the cost of space travel, with the eventual goal of sending humans to Mars in large numbers to establish a colony. This means that the price of space travel is likely to fall dramatically.

      The changes of reusable spacecraft, and thus cheap space travel, cannot be understated. Commercial aircraft have revolutionized the world, accelerating globalization, and connecting us across continents. How much easier it is to travel to Europe by plane rather than boat. A cheap way into orbit and beyond will mean many more satellites, which could, say, give internet access to everyone in the world. It will drastically reduce the cost of research, and allow much more accurate weather and climate tracking networks. Already there has been talk of sending fleets of nano-satellites into orbit, and even plans for asteroid mining. All these plans and more have just become much more feasible.

      There will likely be many more changes brought about by this revolutionary feat: the future is coming, and it really doesn't look so grim.

By: Jonathan Wood

Carbon Taxes

      With the ongoing Paris talks, many ideas are being floated to combat changing climates. Many are complicated and technical, others involve quotas and strict regulation. A straightforward way to address consequences caused by human actions would be to change those human actions. Economics shows that generally, when an activity becomes more costly, it is done less. Thus, to reduce the burning of fossil fuels and the emission of carbon, tax carbon, a lot. Small taxes on carbon emissions, and activities that promote it, such as Mexico's $1 per ton, would be nice efforts to raise a little cash for governments. To effect real change, much larger rates must be implemented, particularly given the currently low base prices of oil and gas.

      The effects of taxing carbon would be straightforward. Higher costs of crude oil, coal, and natural gas would reduce consumption of gasoline and electricity. It would make renewables more attractive for many people, and spur investment in alternative forms of energy, as well as in more efficient appliances and products. Even for those whom a carbon tax does not make renewables profitable, taxing emissions would encourage many firms to switch from coal fired plants to gas fired ones, which produce far fewer emissions. This would have a huge impact, since coal fired plants make up such a large portion of electricity generation world wide, while China burned 3.8 billion tons in 2011, and is expected to grow. BP has estimated that switching 1% of the world's coal fired plants to gas fired would cause an equivalent carbon emission decrease to increasing the amount of renewables by 11%. A carbon tax would certainly help nudge energy companies in that direction.

      Beyond merely reducing global warming and hopefully keeping temperature low, there are other reasons for adopting a carbon tax. Air pollution is harmful to human health, as emissions release tons of particulates, tiny particles that clog the lungs and cause a number of ailments, and a variety of harmful chemicals that humans inhale. In India, research done by Greenpeace, the Conservation Action Trust, and Urban Emissions recons that coal emissions kill at least 80,000 people, and result in heal care costs of at least $3.3 billion. The health benefits alone of reduced emissions would, some argue, justify a carbon tax of $30 per ton. Of course, due to different needs, local costs, or economic conditions, using a tax to establish a world carbon tax may be very unsustainable. More likely, prices will remain different between region or countries.

      To be sure, such a high tax would not be without costs. Higher prices in the short run will hurt consumer demand for many goods, reducing consumption. However, the case is easy to make that the long run benefits of moving quickly to a cleaner and more energy efficient society will outweigh the short term pains of change.

By: Jonathan Wood

TPP: Environmental Protection

      Chapter 20 of the Trans Pacific Partnership deals with Environmental regulation among the 12 member Parties (countries). Generally, there are calls for greater information sharing and publication of programs and activities relating to such environmental assets as the ozone layer. The agreement also encourages nations to enact regulations to preserve a variety of areas, from wild fauna to marine life. Importantly, Article 20.3.6 clearly states that no exceptions to environmental laws are to be made merely to attract or encourage trade with a preferred partner. This will help to ensure that environmental regulations are implemented fairly and equally from country to country.

      Of course, the matter of establishing regulations leads to the question of what to do if one is broken. To establish a violation of some of these steps to protection, a Party must show that the failure impacted their trade. For example, Article 20.6.1 calls upon each Party to “take measures to prevent the pollution of the marine environment from ships”. To establish a violation of this clause, another Party must “demonstrate that the [first] Party has failed to take measures to prevent the pollution of the marine environment from ships in a manner affecting trade or investment between the Parties.” So, once a Party demonstrates that another Party’s actions failed to protect the marine environment, and that the failure affected their trade, what penalties are available? Sadly, that question is not sufficiently answered in the current TPP.

      If a violation is detected, there is nothing specifying what penalties may be enacted. In Chapter 20, it does state that “sanctions, penalties, or other effective measures” may be taken in order to deter harmful trade, specifically relating to illegal trade in wild fauna and flora. However, even here, no specific actions are spelled out. This is one of the places in which the TPP acts not as a regulation, but as a framework for future coordination between its Parties for enacting specific legislation as the specific situations between each Party requires.

      The reasons for this can be many. The TPP, already making great reforms in pharmaceuticals and tariffs, cannot be the tool by which every interaction between its members are measured. Indeed, within Chapter 20, as within other chapters, the TPP relies on outside treaties and agreements, referencing previous deals such as 1993 FAO and 2001 IUU Fishing Plan of Action. This lack of substance in the framework that the current TPP agreement sets up is a stark reminder that this agreement is not meant to stand alone, and is the first step in greater cooperation among its members. That was, after all, one of America’s goals in these negotiations: to set the agenda for future dialogue among Pacific nations, and to secure its place at the table for future talks, which will decide much about the nature of Pacific nations’ interactions with one another, and not simply in trade. In short, while the TPP marks great change in many areas of international relations, it also marks the start of closer cooperation between its members.

You can read more about these and other environmental regulations in Chapter 20 of the TPP.

By: Jonathan Wood

TPP: Pharmaceutical Patents

      In the US, patents on medications allow pharmaceuticals exclusive rights to market and sell a drug for the first 20 years. Many have hoped that the TPP would substantially reduce or eliminate this period. Since the US's patent duration is among the longest in the TPP, reductions were expected as all nations' patent systems are brought more in line with each others'. Pharmaceuticals, however, wanted to implement a relatively long patent period (some rumored this to be about 12 years). This would have delayed the introduction of cheap generics, and pharmaceuticals would be able to maintain their monopolies for longer. This makes medicine expensive. However, the period of monopoly is important. Producing, developing, and researching new drugs is extraordinarily expensive, time consuming, and risky. To incentive such activities, which provide society with new and superior medicine, a brief period of monopoly is needed to ensure profit. If patents were completely eliminated, there would be too little incentive to spend billions developing new drugs. So the TPP struck a middle (read: unpopular) ground. Pharmaceuticals dislike the deal because their patents will be shortened, and others dislike it because they still have patents.

      The TPP restricts new firms from marketing the same or similar pharmaceuticals within at least 5 or 8 years of the first company being allowed to do so. This reduction in patent duration upsets Pharmaceuticals because it cuts into their profits. For the duration of their patents, the company has a monopoly on that drug, which allows them to charge whatever price they like. For drugs that do not have substitutes, people suffering from the disease it treats must choose to buy the extremely expensive drug, or go without. For those with terminal or extreme illness, the later option is all but unthinkable. Thus, for the duration of the patent, companies have extraordinary pricing power, as can be witnessed by recent price hikes for many prescriptions. Since it is more expensive per pill the more you make, past a certain point, and since it is more difficult to produce a million pills in a day than a thousand, monopolistic companies also tend to restrict output, in addition to raising prices, to maximize profit. In fact, limiting the number of pills they produce is the simplest way of raising prices, because a more scarce product is more valuable. This means that not only are drugs expensive, but there often aren't enough of them. This is not to say that Big Pharma is conspiring to let millions die by withholding drugs. However, many drugs become much more widely available once generics are allowed to compete, because more companies expand production and the competition lowers the price. Thus, any measures that reduce the duration of the pharmaceutical companies' monopolies benefits consumers, as long as the period is not so short as to stop companies from researching new medicine altogether. Hence the reduction, but not elimination, of the length of the patents.

      Naturally, their are many caveats to the eight year protection period. The treaty states that a company's right to market a drug exclusively must be protected in two ways. They must do so as described in Article 18.50.1 and Article 18.50.3 either for at least 8 years or at least 5 years. If the drug is completely new, they get an 8 year period, and they get 5 years if the drug is new, but similar to existing drugs. These measures provide pharmaceutical companies with a period of monopoly to ensure that they recover their investment from developing new medicine, but allow generics to be introduced to compete with them across all member countries and drive the price down in a more reasonable amount of time.

The full text is available here, in downloadable PDF format.

By: Jonathan Wood

TPP: Official Release

      The full, final, official text of the Trans Pacific Partnership Agreement were released on November 6th. Including Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam, the text will be reviewed by each of the 12 member country's governments and will not take effect until all countries have approved it. This agreement, if approved, will be one of the largest trade agreements in history, with its current members comprising 40% of world trade. Further, the Agreement includes the possibility for additional countries to join, as South Korea is rumored to be considering, which means that its significance could grow to impact the majority of international trade.

      The goal of the TPP, broadly, is to facilitate freer trade between the member countries. Firstly, it is aimed at reducing tariffs, quotas, and other Non-Tariff Barriers (NTBs) among the participating countries. Additionally, the TPP aims to promote clear and transparent standards across the member countries in areas such as Intellectual Property rights, Import and Export Licensing, and other aspects of trade. On the topic of Intellectual Property, perhaps the most covered topic is the duration of patents for pharmaceuticals. This has been set at a shorter term than the current one in the United States.

      Another major clause implements great restrictions on the levying of customs duties. The vast majority of existing customs duties that are applied to members of the Agreement are going to be phased out, and none can be raised or created (except for anti-dumping and countervailing purposes). However, these duties will not disappear overnight. When all participants have ratified the Agreement, then it will come into force, triggering large reductions in the duties, as well as other NTBs. Then, over a period of several years (varying by type of duty and country), the fees will be phased out based on a minimum time table laid out in the Agreement. Countries can choose to accelerate it for themselves either unilaterally or through future agreements.

      Furthermore, all customs duties on certain goods will be indiscriminately removed. These include fees on physical ads (pamphlets, posters, etc.), temporary goods not to be used for profit (sports gear for events, cameras for new reports), and any goods worth less than US$1. Customs duties are also not to be levied on goods shipped to a country for the purpose of repair or minor alteration (such as if a recalled car needs a replacement part). These reductions represent significant steps to reducing the costs of transporting goods across these international boarders, promoting freer and fairer trade.

      There is a great deal more in the TPP, and so over the coming weeks this article will be followed by others that summarize various sections of the Agreement and analyze its potential effects on member countries and select industries that are particularly exposed to international trade.

The full text is available here, in downloadable PDF format.

By: Jonathan Wood

The Trans Pacific Partnership Agreement

What It Means For Global Trade

"Imports create competition and keep domestic industry more responsive to consumers."
-- Senator Chuck Grassley, IA (R)
The one thing almost any economist will agree to is that free trade is nearly always a net benefit, and almost never creates net losses. When nations remove tariff and non-tariff barriers (NTBs), such as quotas, it allows resources to be used more efficiently across those countries and increases competition. Firms gain because now they can sell their products to much larger markets. Consumers gain because they have a greater variety of goods and services to choose from. As companies merge or out compete inefficient rivals, economies of scale allow them to more efficiently (ie more cheaply) use resources which lowers prices for consumers. As some industries contract from competition, their capital and workers are absorbed into the expanding industries. Importantly, while their are losers and winners, the gains by the winners will outweigh the losses to the losers, and on net the countries involve in opening up trade will benefit.
Because there are losers in large scale free trade agreements, there tends to be vocal opposition to such deals, usually fueled by the interest groups that stand to loose. One common argument that has been raised around the Trans Pacific Partnership, or TPP, is that it is a "corporate power grab". In essence, runs the argument, large companies are forging new laws behind closed doors that will boost their profits at the expense of domestic jobs and the common man.
This argument has two flaws. Firstly, corporate bodies are not involved in the negotiations, and in fact have no more information or access than the general public. Secondly, corporations are among the loudest opponents to the TPP. Big pharmaceutical companies in America fear it will reduce the duration of their patents, allowing generics to enter the marketplace and drastically lower the prices of medications sooner. Dairy farmers in Canada fear that foreign firms will be able to outcompete them, luring away customers with cheaper milk and cheese. Free trade means greater competition for many industries, leading to lower prices. That is bad news for corporate profit margins, but an exciting prospect for the average consumer, both in America and abroad.
Another major complaint is that the negotiations took place in secret, and only the final deal is being released to the public and legislature for approval; thus, it must certainly be undemocratic. This overlooks the fact that if the negotiations were public, the citizens, companies, and interest groups of every one of the participating countries will holler and scream at every single development, and nothing would progress. With the current situation, each nation had representatives negotiating on their behalf, and the final version will be publicly released. The US people will still be able to become informed, lobby their congressional representatives, and put the TPP through the democratic process before we decide whether or not to adopt it. This way, none but a select few, and that excludes any mega-corporations, have access to details before everyone else; and the negotiations can progress in relative peace and quiet.
The TPP has the potential to become one of the largest trade agreements ever created, and its exact effects will not be known for some time. On October 7th, it was announced that the exact, full text of the final agreement will be released within 30 days to the general public. Each nation will have to ratify the treaty independently, and the US Congress will have until early 2016 to do so. Over the weeks following the release of the full text, this department will publish articles of the TPP's potential effects on the 12 member countries, looking and the potential impacts of specific policies.

By: Jonathan Wood

The Fate of the Euro

By Jack Nugent

    Since the New Year began, the American dollar has increased in value dramatically, up 5.7%. Sadly, this might not be the case for much longer. This is the 5th week in a row that the dollar has depreciated in value, compared to the euro. Once almost equivalent in value, the exchange is now .87 euros for 1 dollar, and declining.

           In the months of February and March, hopeful US economists were predicting the domination of the dollar for the good part of 2015. Unfortunately- the truth is- such a trend is not only unlikely, but also without any real basis. Historically, the euro has picked itself up against the dollar, and the US government’s failure to take quick initiative and stabilize this growth is seldom seen when looking at past economic policy.

           While it remains true that the second-quarter rebound that the dollar and the US market usually enjoys was in no way as great as expected, the euro has a strength that the dollar will always lack: it is a truly fluid currency.

           Since its conception, the Eurozone has been based off of the following principles; an economy controlled by the people, completely reliant on the actions of both other nations, and an intergovernmental organization. Europe’s roots in these ideals lead all the way back into the 60’s with the ECM (European Common Market). These founding principles are what cause the euro to fall, but ultimately lead to its success.

           Now, the situation in Greece is sticky.  It is a country riddled with pre-existing economic issues, now handled by a prime minister who practically embraces debt with open arms. Recently, Tsipras admitted that he would probably not be able to pay back IMF loans, which could lead to the euro’s demise. And the situation is not exclusive to Greece: in fact, Greece epitomizes the region-wide trend toward Euro-skepticism. But- like the rise of the dollar- this is a short-term trend.

           Because of the fluidity of the Euro, there will be a comeback of Euro-fanatics, and a rise in the value. We may well be seeing this now. The Euro will be back, and stronger than ever.

           The Euro is the representation of the modern day boom and bust. But if this is the worst the bust gets (with the exception of ’08), Europe could be experiencing some serious boom.

           Now what does this mean to us in the states, especially those of you reading in DC? This means that there will undoubtedly be a conflict of interest between Euro and dollar. And with the rise of China, now might not be the best time for that. So, the US and the EU need to set aside the differences create a far more symbiotic relationship, and we, the people, will reap the benefits.