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We’re All Billionaires Now (Thanks to New Knowledge)

Blog Post | Cost of Living

We’re All Billionaires Now (Thanks to New Knowledge)

We may not have a billion dollars in the bank, but we enjoy the benefits of many billions of dollars invested on our behalf.

Summary: Modern society enjoys immense wealth through access to products created with high fixed costs but low marginal costs, thanks to mass markets. By leveraging technology and innovation, products from smartphones to streaming music and affordable medicine provide people with benefits once unimaginable. This abundance illustrates capitalism’s ability to generate shared prosperity, contrary to the views of critics who focus solely on the relative distribution of wealth.


Sen. Bernie Sanders (I-VT) has tweeted “There should be no billionaires.” Compared to 100 years ago, the United States is a country where everyone is a billionaire. We may not have a billion dollars in the bank, but we enjoy the benefits of many billions of dollars invested on our behalf in the products and services we use every day. Let me explain.

Fixed costs and marginal costs. In economics, we consider the cost to create a new product and then the cost to manufacture each additional unit. Many products have high fixed costs but low per unit costs when manufactured at scale. This per unit cost is also called marginal cost. The marginal costs on some products can reach zero.

More people mean we are all richer. We can enjoy products with such high fixed costs and low marginal costs because there are so many of us. Creators of these high fixed costs products can recoup these costs from millions, if not billions, of customers. The Scottish economist Adam Smith understood that in 1776. If you want to get rich, have lots of potential customers. Large markets also allow people to develop their skills and specialize in such things as drug and software development. The bigger the population and the more we specialize, the more variety and lower costs we enjoy in the marketplace.

Here are five examples:

Movie billionaires. The top 10 highest-grossing films cost a total of $2.8 billion to create. You can now stream those movies at home on your $250, 55-inch large-screen high-definition TV along with 1,900 other movies for around $9.99 a month on Disney+. Unskilled workers earn around $17.17 an hour today, so it takes around 14.5 hours to buy the TV and 35 minutes of work each month to enjoy this multibillion-dollar benefit.

iPhone billionaires. It’s estimated that Apple spent $150 million over three years to develop the first iPhone, which was released in 2007. It sold for $499. How could it be sold so cheap if it cost so much? According to CNBC, Apple has sold over 2.3 billion iPhones and has over 1.5 billion active users. That’s how.

In 2009, Apple spent $1.33 billion on research and development. This year, it will have risen to $32 billion. The company has spent $208 billion on developing new products over the past 16 years. About half of Apple’s revenue comes from iPhone sales. Assuming half of its research and development investment has gone into the iPhone, we are enjoying a product that costs over $100 billion for about $30 a month, or around an hour and 45 minutes of work for a typical unskilled worker.

Note: In 2009, Amazon spent $1.24 billion on research and development, similar to Apple. This year, it expects to spend over $85 billion. In the past 16 years, Amazon has spent $485 billion.

Medicine billionaires. The cost to develop a new drug is estimated to range from less than $1 billion to more than $2 billion. The U.S. Congressional Budget Office notes, “Those estimates include the costs of both laboratory research and clinical trials of successful new drugs as well as expenditures on drugs that do not make it past the laboratory-development stage, that enter clinical trials but fail in those trials or are withdrawn by the drugmaker for business reasons, or that are not approved by the FDA.” Once a drug is approved, the marginal cost can be very low, maybe under a dollar.

If it costs $1 billion to develop a new drug, but each new unit of the pill only costs a dollar, how much should you charge the customer for it? The answer depends on the size of the market. If the market is 1,000 people, your costs will be $1 billion plus $1,000. You would have to sell each pill for $1 million plus $1 to break even. If your market was a million people, the breakeven price would drop to $1,001. If your market was a billion potential customers, the price per pill drops to $2.00. This is why new drugs are typically developed for widespread medical conditions. The fixed costs must be spread across a sufficiently extensive market. This is amazing when you think about it. You get a pill that required $1 billion to develop for $2.00 if a billion other people have the same medical problem.

Book billionaires. The Harry Ransom Center estimates that before the invention of the printing press, the total number of books in Europe was around 30,000. The United Nations Educational, Scientific and Cultural Organization estimates there are roughly 158,464,880 unique books in the world as of 2023.

When Gutenberg innovated printing in 1440, an average book cost around 135 days of labor, ranging from 15 days for a short book to 256 days for a major work. If workers put in eight hours a day, they’d have to work 1,080 hours to afford an average book. Today, blue-collar compensation (wages and benefits) is around $37 an hour. If there had been no printing innovation, it would cost about $40,000 to buy a book today.

Google has become the new Gutenberg. It has a library of more than 10 million free books available for users to read and download. Assuming the average book is around 250 pages and a half inch thick, you would need a bookshelf around 80 miles long to hold this library.

Before Gutenberg and his press, Google and the internet, Amazon and its digital tablet, and the manufacture of computer memory chips, it would have cost $400 billion to have a library of 10 million volumes. It would have taken 5.4 million people working full time for a year to create this library in 1439.

Today, you can have this library for around $43. That’s $35 for the tablet and $8 for the 2 TB memory stick. Another valuable feature we enjoy today is being able to search for a word or phrase in any of these books.

Music billionaires. Thomas Edison developed the original phonograph record in 1877. Suddenly people did not have to be present at a live performance to hear music. In 1949, RCA Victor became the first label to roll out 45 RPM vinyl records, and by the 1950s, the price was around 65 cents each. Unskilled workers at the time were earning around 97 cents an hour. This put the time price of a song at 40 minutes.

Steve Jobs introduced the iTunes Store on April 28, 2003, and sold songs for 99 cents. By this time, unskilled wages had increased to $9.25 an hour. The time price of a song had dropped 84 percent to 6.42 minutes. Listeners in 2003 got six songs for the price of one in 1955.

Apple Music was launched on June 30, 2015. Today, a student can access 90 million songs for $5.99 a month. Soundcloud is another popular music streaming service with over 320 million songs priced at $4.99 a month, or 18 minutes of time for an unskilled worker.

In 1955, the time to earn the money for an unskilled worker to buy the Soundcloud catalog of 320 million songs on 45 RPM records would have taken 106,666,667 hours. At today’s rate of $17.17 an hour, it would have cost $1,831,466,666.

Capitalist billionaires. Under capitalism, the only way wealth can grow is if entrepreneurs create it in the form of new products and services. Becoming a billionaire is a by-product of how successful a person is at creating and producing. When someone creates a product based on knowledge, it is non-rivalrous. (Paul Romer won a Nobel prize economics in part for explaining this truth.) Non-rivalry means we can all use a product at the same time. It’s as if we all own the product. Knowledge products make us all billionaires.

Bernie Sanders’s does not seem to understand or appreciate these economic truths. He wants to expropriate capital from Elon Musk and other innovators and give the money to his fellow politicians and bureaucrats to enrich their friends and supporters. Once this capital is seized, however, entrepreneurs will be much less motivated to create more. Ask all the entrepreneurs who lived in the former Soviet Union, and those in China under Mao Zedong, how 100 percent taxation disincentivized them from creating and taking risks.

This article was published at Gale Winds on 11/7/2024.

Blog Post | Cost of Material Goods

The Growing Abundance of Finished Goods: 1971-2024

1971 did not mark the beginning of an overall decline in US standards of living.

Summary: Productivity, competition, and innovation have dramatically reduced the “time price” of consumer goods in the United States since 1971. The time required for a blue-collar worker to afford 75 finished goods has fallen dramatically, increasing the personal abundance available to these workers. This trend highlights the power of markets to enhance prosperity far beyond population growth, underscoring the importance of preserving economic freedom.


The website “WTF Happened in 1971?” highlights a collection of economic charts that purport to show a marked divergence in various economic, social, and financial metrics starting around 1971. The main argument presented on the website is that 1971 was a pivotal year in US economic history, primarily due to US President Richard Nixon’s decision to end the Bretton Woods system by detaching the US dollar from the gold standard. This shift allowed for fiat currency and government-controlled monetary policies, which the site argues led to inflation, income inequality, wage stagnation, and an increased cost of living.

Several economists showed that the actual picture of the post-1971 US economy is considerably less dystopian. In their 2022 book The Myth of American Inequality: How Government Biases Policy Debate, Phil Gramm, Robert Ekelund and John Early calculated that properly measured US income distribution (i.e., one that takes into account taxes and social welfare transfers) is less unequal than was the case all the way back to the late 1940s. Similarly, Scott Winship found that the “pay of the median worker . . . has risen much more slowly since the early 1970s” but noted that “the pay of American workers has tracked productivity trends.” Put differently, American workers continue to be paid what they are worth.

What about the cost of living? Mark J. Perry’s well-known “Chart of the Century” differentiates between budget items that grew more and less affordable over the last quarter of a century. When adjusted for wage growth—prices and wages can increase at the same time—Americans must work more hours to pay for hospital services, college tuition and fees, college textbooks, childcare and nursery school, and medical care services. Conversely, they must work fewer hours to afford housing (yes, you read that correctly), food and beverages, new cars, household furnishings, clothing, cellphone services, computer software, and toys.

Whether the rising cost of education and health care, for example, is due to government-created market distortions or the Baumol Effect (i.e., the phenomenon in which wages in labor-intensive industries with low productivity growth, such as health care or education, rise due to competition for workers with industries that experience high productivity growth, leading to increased costs in the former without corresponding efficiency gains), is subject of much debate. That said, it is good to remind ourselves of productivity gains that can be achieved in markets exposed to domestic and international competition and automatization.

In our 2022 book Superabundance: The Story of Population Growth, Innovation, and Human Flourishing on an Infinitely Bountiful Planet, Gale L. Pooley and I looked at the time prices (i.e., the number of hours and minutes of work an American blue-collar worker has to work to buy something) of a variety of foods, fuels, minerals, and metals. One table (p. 172) is devoted to time prices of 35 finished goods between 1979 and 2019, the average time price of which fell by 72.3 percent. That means that the same length of labor that bought an American blue-collar worker one unit in the basket of 35 finished goods in 1979 got him or her 3.61 units in 2019. The worker’s personal finished goods abundance rose by 261 percent.

Recently, we undertook a similar exercise to ascertain the effect of the recent bout of inflation on the time prices of 75 finished goods between 1971 and 2024. The 1971 data (i.e., nominal prices of 75 finished goods) came from the 1971 Sears catalog. The 2024 data (i.e., nominal prices of similar 75 finished goods) came from Walmart, Macy’s, JCPenney, Kohl’s, Home Depot and Amazon. We divided the 1971 nominal prices of 75 finished goods by $4.26, which was the hourly compensation rate of the average American blue-collar worker in 1971. We divided the 2024 nominal prices of 75 finished goods by $37.15, which was the approximate average hourly compensation rate of the US blue-collar worker in 2024.

We found that the average time price of menswear, childrenswear, womenswear, furniture, appliances, electronics, sporting goods, and power tools and garden equipment fell 80.7 percent. That means that the same length of labor that bought a US blue-collar worker one unit in the basket of 75 finished goods in 1971 bought that worker 5.19 units in 2024. The worker’s personal abundance of 75 finished goods rose by 419 percent. The compound annual growth rate in personal abundance of finished goods came to 3.16 percent, indicating a doubling of personal abundance every 22.31 years. Given that personal abundance rose by 419 percent, while the US population rose only by 62 percent between 1971 and 2024, we can say that abundance rose at a superabundant rate (i.e., faster than population).

Mostly deregulated markets, where production is subject to competition and automatization, can result in substantial reduction in time price and consequent increase in abundance. Let us keep that in mind as the debate over the appropriate level of restrictions on the freedom of the market rages around the world—from the far-flung New Zealand to our own United States.

U.S. Finished Goods: U.S. Blue-Collar Worker Perspective (1971-2024)

Change in Time Price of U.S. Finished Goods: U.S. Blue-Collar Perspective (1971-2024)

Change in Personal Resource Abundance Multiplier of U.S. Finished Goods: U.S. Blue-Collar Perspective (1971-2024)

ESS News | Cost of Technology

Solid-State Batteries Enter Pilot Production

“The push to commercialize solid-state batteries (SSBs) is underway with industries from automotive to storage betting on the technology. But while the hype around full solid-state batteries has somewhat subsided, with the technology taking longer than expected to take off, semi-solid-state batteries, which use a hybrid design of solid and liquid electrolyte, have been making steady progress toward commercialization.

TrendForce’s latest findings reveal that major manufacturers across the globe – such as Toyota, Nissan, and Samsung SDI – have already begun pilot production of all-solid-state batteries. It is estimated that production volumes could have GWh levels by 2027 as these companies race to scale up production.”

From ESS News.

Blog Post | Cost of Technology

Appliances Contribute to Human Progress—but Regulations Threaten Their Affordability

The environmentalist regulatory agenda is targeting life-saving home appliances.

Summary: Home appliances have drastically improved human life, from preventing heat-related deaths with air conditioning to making household tasks more efficient with washing machines and refrigerators. Initially luxury items, many appliances have become affordable and accessible to most households thanks to free-market innovation. However, regulations driven by environmentalist ideology now increasingly threaten the affordability and accessibility of these essential devices, particularly for the lower-income families who need them most.


Human Progress has devoted a considerable amount of attention to home appliances—and for good reason, given the tremendous difference they have made in our lives. Whether it is the heat-related deaths averted by air conditioning, the foodborne illness prevented by refrigeration, the improvements in indoor air quality enabled by gas or electric stoves, or the liberation of women worldwide facilitated by washing machines and other labor-saving devices, these appliances have improved the human condition considerably over the past century or so.

Of course, the benefits of home appliances accrue only to those who can afford them, and on that count, the trends have been very positive. Although many appliances started as luxury items within reach of no more than a wealthy few, they didn’t stay that way for long. For example, the first practical refrigerator was introduced in 1927 at a price that was prohibitive for most Americans, but by 1933, the price was already cut in half, and by 1944, market penetration had reached 85 percent of American households.

Other appliances have similarly spread to the majority of households, first in developed nations over the course of the 20th century and now in many developing ones. And the process continues with more recently introduced devices, such as personal computers and cellphones. Cato Institute adjunct scholar Gale Pooley has extensively documented the dramatic cost reductions for appliances over the past several decades. The reductions are especially striking when measured by the declining number of working hours at average wages needed to earn their purchase price. For example, the “time price” of a refrigerator dropped from 217.57 hours in 1956 to 16.44 hours in 2022, a 92.44 percent decline.

Home appliances are a free-market success story. Virtually every one of them was developed and introduced by the private sector. These same manufacturers also succeeded in bringing prices down over time, all while maintaining and often improving on quality.

If left to the same free-market processes that led to the development and democratization of these appliances, we would expect continued good news. Unfortunately, in the United States and other countries, many appliances are the target of a growing regulatory burden that threatens affordability as well as quality. Much of this is driven by an expansive climate change agenda that often supersedes the best interests of consumers, including regulations in the United States and other nations that could undercut and possibly negate the positive trends on appliances in the years ahead.

Air Conditioners

Many appliances are time-savers, but air conditioning is a lifesaver. According to one study, widespread air conditioning in the United States has averted an estimated 18,000 heat-related deaths annually. Beyond the health benefits, learning and economic productivity also improve substantially when classrooms and workplaces have air-conditioned relief from high temperatures. Yet air conditioning is often denigrated as an unnecessary extravagance that harms the planet through energy use and greenhouse gas emissions. As a result, air conditioning faces a growing list of regulations, the cumulative effect of which threatens to reverse its declining time price.

In particular, the chemicals used as refrigerants in these systems have been subjected to an ever-increasing regulatory gauntlet that has raised their cost. This includes hydrofluorocarbons (HFCs), the class of refrigerants most common in residential central air conditioners. HFCs have been branded as contributors to climate change and are now subject to stringent quotas agreed to at a 2016 United Nations meeting in Kigali, Rwanda. The United States and European Union also have domestic HFC restrictions that mirror the UN ones. These measures have raised the cost of repairing an existing air conditioner as well as the price of a new system.

The regulatory burden continues to grow, including a US Environmental Protection Agency requirement that all new residential air conditioners manufactured after January 1, 2025, use certain agency-approved climate-friendly refrigerants. Equipment makers predict price increases of another 10 percent or more. Installation costs are also likely to rise since the new refrigerants are classified as mildly flammable, which necessitates several precautions when handling them.

Concurrently, new energy efficiency requirements for air conditioners also add to up-front costs. For example, a US Department of Energy rule for central air conditioners that took effect in 2023 has raised prices by between $1,000 and $1,500. This unexpectedly steep increase will almost certainly exceed the value of any marginal energy savings over the life of most of these systems.

The cumulative effect of these measures is particularly burdensome for low-income homeowners and in some cases will make a central air conditioning system prohibitively expensive.

Refrigerators

Refrigerators are technologically similar to air conditioners and thus face many of the same regulatory pressures, including restrictions on the most commonly used refrigerants as well as energy use limits. Fortunately, refrigerators have come down in price so precipitously that the red tape is less likely to impact their near universality in developed-nation households. However, for a developing world where market penetration of residential refrigerators is still expanding, the regulatory burden could prove to be a real impediment.

In addition to environmental measures adding to the cost of new refrigerators, the international community is also targeting used ones. Secondhand refrigerators from wealthy nations are an affordable option for many of the world’s poorest people. For millions of households, a used refrigerator is the only real alternative to not having one at all. However, activists view this trade as an environmental scourge and are taking steps to end it.

Natural Gas-Using Appliances

Several appliances can be powered by natural gas or electricity, particularly heating systems, water heaters, and stoves. The gas versions of these appliances are frequently the most economical to purchase, and they are nearly always less expensive to operate given that natural gas is several times cheaper than electricity on a per unit energy basis. However, natural gas is a so-called fossil fuel and thus a target of climate policymakers who are using regulations to tilt the balance away from gas appliances and toward electric versions. A complete shift to electrification has been estimated to cost a typical American home over $15,000 up-front while raising utility bills by more than $1,000 per year.

The restrictions on gas heating systems are the most worrisome example, especially since extreme cold is even deadlier than extreme heat. Residential gas furnaces have been subjected to a US Department of Energy efficiency regulation that will effectively outlaw the most affordable versions of them. And many European nations have imposed various restrictions on gas heat in favor of electric heat pumps that are far costlier to purchase and install.

There are more examples of home appliances subject to increasing regulatory restrictions. Indeed, almost everything that plugs in or fires up around the home is a target, justified in whole or in part by the need to address climate change. The cumulative effect of these measures poses a real threat to the centurylong success story of increased appliance affordability.

Blog Post | Space

Space Is the New Free-Market Frontier

Revisiting a visionary book published in the same year SpaceX was founded.

Summary: The 2002 book Space: The Free-Market Frontier shows how entrepreneurial capitalism can overcome the stagnation of government-led space travel. In retrospect, this collection of forward-thinking papers correctly predicted the vital role of private enterprise in advancing space exploration, as shown by SpaceX’s achievement of drastically reducing the cost of space launches. While some forecasts did not materialize, such as space tourism’s rapid growth, the book accurately anticipated the transformative impact of market-driven innovation on the space industry.


Space: The Free-Market Frontier is an exceptional book that presents a collection of farsighted papers from a Cato Institute conference in March 2001. The book was published in 2002, the same year that Elon Musk founded SpaceX and launched the space travel revolution. It is fascinating to revisit this book 22 years later to see what the renowned authors got right—and what they got wrong.

First, the book’s fundamental thesis has proven to be correct: Private space travel is the cornerstone of the future of space exploration. Entrepreneurial spirit and capitalism have rescued space travel from the cul de sac in which it had become trapped following the conclusion of the Apollo program. The question posed by the 21 contributors to this volume was: “What has happened in the past three decades to delay humankind’s full exploitation of space, and what can be done to change the situation?”

In one paper, Robert W. Poole Jr., founder of the Reason Foundation, identified the main stumbling block: “the central planning approach: the assumption that engineers and government planners can devise the one best way to launch payloads to space . . . and that it is simply a question of pouring enough funding into the chosen model for long enough to make it succeed.”

Buzz Aldrin, the Apollo 11 lunar module pilot for the first human landing on the moon, was equally critical: “The fundamental building block of the US space program is the transportation capability that provides access to space. With the exception of the Space Shuttle, American space access capabilities have changed little in the past four decades and no progress has been made in solving the greatest obstacle to space development—the high costs of space access.”

However, disillusionment had also taken hold with regard to the shuttle program, particularly as promises of cost reductions at the beginning of the program were never fulfilled. Tidal W. McCoy, chairman of the Space Transportation Association, criticizes “the enormous cost of maintaining the Shuttle, not to mention the cost of launch alone, which is close to $500 million every time.” That equated to about $10,000 to $12,000 per pound of cargo per launch, which was comparable to the costs associated with the Apollo flights. The transportation of one pound of payload was approximately 10 times more expensive than optimistic forecasts had initially predicted and was no less than that of traditional, nonreusable rockets.

Following the deaths of seven astronauts in the first shuttle accident in 1986, another seven astronauts lost their lives in a second accident in 2003, just one year after this book was published. The shuttle program was ultimately discontinued in 2011. The subsequent nine years marked a low point in American space exploration, as the United States was forced to depend on outdated Russian spacecraft to transport its astronauts to the International Space Station.

In 2022, the X-33 and X-34 projects, which had cost over $1 billion, were canceled. The X-33 was an experimental spaceplane developed by NASA and Lockheed Martin in the 1990s as a prototype for a reusable space transportation system called VentureStar. The project was abandoned in 2001 before it ever flew. The X-34 was an unmanned hypersonic aircraft developed by NASA, also in the 1990s, designed to test cost-effective reusable spaceflight technologies, but after successful ground tests and several delays, it was terminated in 2001. “X-33 and X-34 both demonstrated that NASA has a less-than-stellar track record in picking the right technologies,” complained Marc Schlather, director of the Senate Space Transportation Roundtable.

What alternatives did the book propose? Robert W. Poole suggested: “Instead of defining in great detail the specifications of a new launch vehicle . . . these government agencies would simply announce their willingness to pay US$X per pound for payloads delivered to, say low Earth orbit (LEO). In other words, instead of the typical government contracting model, which has failed to change the cost-plus corporate culture of aerospace/defense contractors, NASA and the other government agencies with space transportation needs would purchase launch services.”

This is exactly what happened over the next few years. In 2002, Musk established SpaceX and started to design his own rockets, free of the constraints of NASA’s strict guidelines and specifications. Musk rejected the “cost-plus” business model, which had encouraged companies to inflate costs because that allowed them to maximize their profits. Instead, Musk sold his services to NASA at a fixed price, as had been suggested in this book. This approach incentivized Musk to cut costs, a goal he achieved. While launch costs had remained stagnant for nearly four decades, Musk has managed to slash them by an impressive 80 percent so far, and it looks as if he will succeed in achieving further dramatic cost reductions in years to come.

This was precisely what Dana Rohrabacher, chair of the House Subcommittee on Space and Aeronautics, predicted in his paper: “We all know that the costs of going into space are very high. We also know that the private sector has proven again and again that it can bring the costs of goods and service down and the quality up. Therefore, an obvious way to reduce the costs of access to and enterprise in space is to involve the private sector as much as possible.”

Doris Hamill, Philip Mongan, and Michael Kearney from the company SpaceHab called for a paradigm shift in their article “Space Commerce: An Entrepreneur’s Angle” and correctly predicted: “This approach to attracting commercial users does not require the space agencies to perform market development activities, to command its contractors to find efficiencies that will undercut the contractor’s revenue stream or to establish limits on how much they will subsidize commercial research. They only need to agree to purchase commercial services that meet their research needs within their budgets. The rest will happen by itself.” And that is exactly how it happened.

Of course, in addition to many accurate forecasts, the volume also contains predictions that did not come to fruition. For example, Aldrin predicted that the number of satellites launched into space would not increase significantly and that space tourism would emerge as a major industry. We know 22 years later that things turned out differently, but as space travel expert Eugen Reichl points out, “If you take SpaceX out of the equation, then Aldrin was not all that far off the mark. SpaceX is in a league of its own, far ahead of other countries’ and manufacturers’ space operations. Today, SpaceX launches roughly two-thirds to three-quarters of all satellites worldwide, and they are mostly Starlinks. SpaceX currently sends more than 2,000 satellites into orbit and beyond every year. As far as Aldrin’s perspective on space tourism is concerned, its time is yet to come. Richard Branson led the industry into a dead end with SpaceShip2, which used the only partially scalable hybrid engine of SpaceShip1. It was simply the wrong concept. There were also two serious accidents with a total of four fatalities.” Nevertheless, the arguments put forward in Space: The Free-Market Frontier in favor of private space travel as an attractive business sector are fundamentally convincing.

It is certainly possible that some of the predictions outlined in the book are still on their way. Overall, the volume shows that the paradigm shift initiated with the founding of Space X was correctly predicted even before the company’s inception. “What the United States needs,” wrote Poole, “is a policy toward space that is consistent with free markets and limited government.”