Exploring the Unknown - NASA's History Office

EXPLORING THE UNKNOWN 389
sectors of the economy as a result of a probable peak in spending for the Manned Space
Flight Program at that time.” This book also includes a comprehensive bibliography of
studies and books addressing the impacts of space and other federal programs during the
1960s and earlier.
The Stanford Research Institute looked at economic impacts of the space program in
1968. Although this report recognized the developing literature in the economics of R&D
and new technology development, its emphasis was on the local and regional impacts on
areas surrounding NASA field centers. These impacts fell generally into the category of
short-term direct spending effects on per-capita income, construction, and so on, not on
the lasting impacts of the new technologies created. [III-2]
By 1970, the NASA budget had fallen by nearly one-third from its 1965–1966 peak. A
new era had arrived for NASA—one that meant a constant battle with Congress and the
White House for money, programs, and new directions. Thus, it is no coincidence that
NASA commissioned the first comprehensive economic analysis of its impact on the entire
national economy at that time. The study was meant to be used as a lobbying and public
relations tool for the agency. NASA officials hoped that the results of the study would show
very robust impacts on the economy, proving the benefits from the investment in space.
A Midwest Research Center report in 1971 accomplished its purpose in two ways.
[III-3] 8 First, using an aggregate production function, it showed large long-run economic
returns to R&D. Second, it documented a number of case studies of successful examples
of NASA technology being used for commercial purposes. 9 It used a fairly new economic
methodology developed by Robert Solow of MIT (who later received a Nobel Prize for his
work on the economic impacts of technological change) and showed that there was a
seven-to-one ratio of long-term economic benefits to expenditures. 10 This methodology
and its application to NASA (a small subset of all R&D expenditures) were sharply criticized
on both technical grounds and the interpretation of the data. While the calculation
of a “bottom line” number provided NASA with some extra ammunition for its budget battles,
in the long term, how successful this line of argument was in Congress is very debatable.
NASA has always been funded because of the merit of its missions. However, the
economic data added “window dressing” to the project mission requirements and made
the funding decisions for the new programs of the 1970s and beyond easier to sell.
Following the 1971 Midwest Research Institute study, NASA commissioned several
additional major macroeconomic studies of its R&D. The space agency hired Chase
Econometrics in 1976 to conduct a macroeconomic simulation analysis. [III-4] Chase
Econometrics performed a follow-on study in 1980. [III-5] Then in 1988, the Midwest
Research Institute, under contract to the National Academy of Public Administration, performed
an analysis that essentially replicated its 1971 study with updated data and econometric
techniques. [III-6]
Although each of these four studies differed in time, technique, and reliability, they had
much in common. Each was a rudimentary attempt to measure the overall returns to NASA
in terms of national economic measures: gross national product, employment, and productivity.
Each (with the exception of the Chase follow-on) calculated rates of return to NASA
that were between seven-to-one and fourteen-to-one (which translated into discounted
returns on investment between 30 and 43 percent). Also, each attempted to look at the lasting
impact on the economy through technological changes that increased productivity.
8. Please note that the documents supporting this essay do not appear in chronological order but
rather in the order in which they support the complex subject addressed in the essay.
9. Many of the case studies were taken from the aeronautics R&D program.
10. Robert M. Solow, “Technical Change and the Aggregate Production Function,” Review of Economics
and Statistics 38 (August 1957): 312.