Exploring the Unknown - NASA's History Office

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SPACE AS AN INVESTMENT IN ECONOMIC GROWTH
A detailed accounting of the difficulties of measuring macroeconomic benefits to NASA
R&D is beyond the scope of this essay. 15
Briefly, however, there were several major problems with these studies. First, the use
of the production function approach implied that technological change is a function of
R&D expenditures. In the usual statistical method of regression analysis, only an association
between these parameters is measured; causation is not proven. Second, the macroeconomic
studies (particularly the ones performed in the early to mid-1970s) had only
about fifteen years of data with which to work. This skewed the results; the particular time
span may have been measuring coincidental returns, because it was a time of expansionary
economic growth in the United States that had little to do with the space program.
The dramatic peak of NASA spending during the Apollo years was a one-time surge in the
long-run trend of NASA’s space expenditures. It has never been repeated. Third, although
NASA R&D reached as much as one-third of all federal R&D in 1965 (one-fourth of all
U.S. R&D), R&D in total comprised only 1.9 percent of the gross national product. The
statistical errors (“noise”) in macroeconomic measures such as the gross national product
was larger than NASA R&D. In other words, the studies associate large impacts on gross
national product from a relatively small component of the product. This relationship is
extremely difficult to validate statistically, given the general accuracy problems with the
national income data themselves. Finally, according to the accounting practices of the government
during those years, there is no such thing as a government investment. All government
expenditures are treated as outlays in the year spent. There is no imputed rate
of return to the government expenditures and no government capital account. 16
Therefore, the process of calculating and equating a rate of return to NASA (or any
other government) expenditures with a rate of return to an equivalent private investment in
a venture with high levels of risk is not accurate. Although there may well be robust returns
to NASA R&D, using the type of methodology and statistics available when these studies
were performed was much more of an exercise in doing research and experimentation on
economic methodology than it was in measuring the benefits to NASA’s programs.
National Policy, Commercial Space, and Economic Impacts
Economic growth and development and international competitiveness are goals of
national policy. This is reflected in legislative and executive branch objectives as outlined
in various laws and policy directives. The direct investment in space R&D and technology
is one means to stimulate the economy of the United States.
The National Aeronautics and Space Act of 1958 17 calls for NASA to be a leader in
technological development. In addition to NASA’s charter for space and aeronautics activities,
in the mid-1970s Congress added provisions chartering NASA to support R&D in
civilian ground propulsion (including advanced automobile) systems. 18 The NASA budget
15. A good description of the technical economic methodology and its use in measuring the benefits of
NASA R&D can be found in “Measuring the Economic Returns to Space,” in J. Greenberg, and H. Hertzfeld, editors,
Space Economics (Washington, DC: AIAA Progress Series #44, 1992). Another perspective on government studies
of R&D benefits can be found in P. Kochanowsky and H. Hertzfeld, “Often Overlooked Factors in Measuring
the Rate of Return to Government R&D Expenditures,” Policy Analysis 7 (Spring 1981): 16–27. Also, any standard
textbook on public finance will include a detailed description of the problems with benefit-cost analyses.
16. These practices have changed recently. The government now has begun to estimate a capital
account, and special attempts are being made to more accurately measure R&D expenditures in the national
income accounts.
17. National Aeronautics and Space Act of 1958, Public Law 85–568, 72 Stat. 426.
18. Subsection 102(e) was added by the Electric and Hybrid Vehicle Research, Development, and
Demonstration Act of 1976, Public Law 94–413, September 17, 1976, section 15 (90 Stat. 1270). Also, Subsection 102(f)
was added by the Department of Energy Act of 1978—Civilian Applications, Public Law 95–238, February 25, 1978.