Here’s an unconventional place to deploy the vast amount of unproductive capital roaming the world right now.
“It is not as crazy as it sounds,” wrote Viktor Shvets and Chetan Seth from the Macquarie global equities team in a note to clients this week that has the market buzzing.
The simple proposition is that a giant Mars colonisation program would create a vast, capital-intensive industry which would span the globe, create jobs, and address the global economy’s productivity problem.
Declining returns on investment are a problem around the world because there is a surplus of capital and people.
“Why would you invest right here where we are?” Shvets, who is Managing Director, Head of Asian Strategy and Global Coordinator for Equity Strategy at Macquarie Securities, told Business Insider from his office in Hong Kong. “Why not invest it somewhere else?”
The proposal for a vast new US government spending program comes at a time when economists around the world are starting to talk about the importance of well-directed fiscal stimulus to drive growth and inflation, given that monetary policy, especially in Europe and Japan, appears to have reached its limits.
Connecting the global economy over the past decades involved the creation of vast supply chains and the building of huge amounts of infrastructure. With that process coming to completion, the effects of wealth generation are slowing. This has been compounded by the technology revolution which, while creating some vast new companies, is also displacing huge amounts of economic activity that were previously carried out by people.
Part of this is what’s driving some of the political and economic dissatisfaction in advanced nations as evidenced by the rise of Donald Trump’s brand of anti-immigration politics and British voters’ decision to leave the European Union.
Enter NASA, whose share of US government spending is at historical lows. As the chart below shows, its only a fraction of where it was under President John F. Kennedy who set a goal of landing man on the Moon.
Shvets and Seth wrote in their note:
In one of the key speeches of his short Presidency, JFK in 1961 set an ambitious target: ‘I believe that this nation should commit itself to achieving the goal, before this decade is out, of landing a man on the moon and returning him safely to earth…we choose to go to the moon and do other things, not because they are easy but because they are hard.’ What challenge should we set for ourselves? As JFK was racing against the Soviets, we are racing against consequences of over leveraging and technological transition (all reflected in a new secular stagnation). One suggestion could be: ‘this world should commit itself to achieving the goal of colonizing Mars…we need to do it not because it is easy but because we have no choice as alternatives might be deglobalization, border closures, stagnation, communism, fascism, war or a combination thereof’.
It is not as crazy as it sounds. Whilst JFK was facing the unpalatable prospect of Soviets conquering space, we are facing unpalatable consequences of ‘fiat money’ and the structurally and socially unacceptable consequences of what we describe as the new ‘age of declining returns on humans’. Essentially, we are awashed in capital and liquidity and as a result face an inexorable decline in return on capital in almost every area of the economy whilst also having to adjust to the rapidly changing nature of labour markets. If we have a surplus of capital and people, the answer is to export both to another universe, and what is a better and more constructive way of doing it then to explore space?
Shvets told Business Insider that the challenge for the global economy is that “we are competing against a massive fireball of capital”, with hundreds of trillions of dollars that have materialised in the post-GFC world thanks largely to the vast programs of money printing by the world’s central banks.
They illustrate with this stunning chart:
“When you have that much capital the return continues to fall,” Shvets said. “It’s most obvious in the financial sector,” he said, but adding that it was now visibly spreading to other sectors of the global economy as well.
Most investors are discussing a need for public sponsored infrastructure and other hard investments as well as stimulation of consumption as the way to utilize surplus capital and stimulate productivity. Yet this leads to potentially significant LT misallocation of resources, adds to overcapacity, increases environmental concerns and depending on how it is funded, leads to either hyperinflation or stagflation. Exploring space adds to existing resources, reduces pressures on earth and leads to a broader range of discoveries.
It’s an idea that has drawn some interest in markets. Shane Oliver, chief investment officer and chief economist at Australian finance giant AMP Capital, said: “While I would prefer the Moon as it’s closer to home, there is some merit in this. The space race of the 1950s and 1960s helped inspire a generation – Americans made their best cars – and helped contribute to all the mod cons we all now take for granted. Another go round could not only help us soak up all the spare capital globally (which is basically showing up as a massive ex ante excess of global savings over investment and a collapse in inflation and interest rates) but also set off another generation of technological inspiration.”
At the very least, you’d know where the target market for anything produced on Mars would be. Back to us on Earth.