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683. In the New Space Race, Who Makes the Rules?

July 31, 2026 • 56m

Summary

⏱️ 12 min read

Overview

This Freakonomics Radio episode explores the emerging space economy and the ambitious plan to relocate AI data centers to orbit. Host Steve Levitt interviews economists, space lawyers, and technologists about the history of private space investment, current regulatory challenges, and the future vision of computing in space—where AI could be powered by solar energy while Earth remains a biological paradise.

The History of Private Space Investment

NASA's first chief economist Alex McDonald reveals a surprising pattern: wealthy private investors have funded massive space projects for centuries, long before government programs dominated. From James Lick's 1870s mountaintop observatory (where he's buried beneath the telescope) to Rockefeller and Carnegie funding billion-dollar-scale projects, private wealth has always driven astronomical advancement. These historical investments were comparable in cost to modern NASA missions, establishing precedent for today's billionaire space race.

  • Alex McDonald was NASA's first chief economist, appointed in 2019 after researching space economics
  • 19th century observatories like Palomar and Mount Wilson cost hundreds of millions to low billions in today's dollars
  • James Lick, California's richest man in the 1870s, built the first mountaintop observatory and is buried underneath it
  • These privately-funded observatories were technological marvels that drew public crowds, similar to the Apollo program
" He initially thinks about building a large pyramid for himself that he can be buried underneath like the pharaohs. Eventually, some astronomers get on to him and say, well, you know, sir, you could actually build the first ever mountaintop observatory. "
" These observatories were always these large spectacles as well as institutions of science. "

The Economics of Modern Space and NASA's Shift

McDonald transformed NASA's approach to lunar missions by introducing commercial competition and fixed-price contracts, fundamentally changing how space exploration is funded. Instead of NASA designing and paying for everything, companies like SpaceX and Blue Origin now compete with private investment to deliver astronauts to the lunar surface. This shift has leveraged billions in private capital, though McDonald acknowledges government doesn't strictly optimize—it responds to national security needs and international signaling.

  • McDonald served as NASA's chief economist from 2019-2024, the first person in this role
  • The human landing system represents a major shift: NASA now buys astronaut delivery services rather than building systems
  • Private investment from SpaceX and Blue Origin covers upfront costs NASA previously had to provide
  • The global space economy is $500-650 billion annually, 20-25 times larger than NASA's $25 billion budget
  • 75-80% of the space economy is telecommunications, not exploration
" I love that your assumption is that there's an optimization function going on in government. I'm not quite sure that I would say that that's exactly what the process of government is. "

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