Oskar Morgenstern and Klaus P. Heiss: Space Shuttle Economic Testimony (1972)

Oskar Morgenstern and Klaus P. Heiss’s congressional testimony presents and defends Mathematica’s economic evaluation of alternative space transportation systems. Its prepared statement moves from the organization of the research through evaluation methods and configuration choices to international cooperation; the accompanying questioning tests technical assumptions, institutional independence, and the reliability of projected costs. The central claim is conditional but consequential: given continued American space activity, a reusable transportation system is economically justified, and the parallel-burn, solid-rocket-assisted Shuttle offers the best balance between development expenditure and operating costs. The testimony also reveals how an economic comparison becomes a recommendation to proceed despite acknowledged uncertainty.

The witnesses establish the study’s authority through a division of expertise. Mathematica supplied economic analysis; Lockheed Missiles and Space investigated how reusable transportation would affect spacecraft costs; Aerospace Corporation generalized those findings across mission programs and estimated transportation-system costs. Their crucial enlargement of the accounting framework is to include “payload effects.” Recovering, repairing, updating, and checking satellites could reduce the expensive redundancy and manufacturing precautions required when a failed spacecraft could neither be retrieved nor serviced. The Shuttle’s economic significance therefore extends beyond cheaper launches to changes in how payloads are designed and operated.

Morgenstern distinguishes two evaluation methods: holding missions constant and finding the cheapest transportation system, or holding budgets constant and finding the system that accomplishes most. The witnesses describe their application as deliberately restrictive, excluding benefits from additional activities that lower costs might stimulate, Shuttle sortie missions, and the use of people in space. This produces a comparison intended to stand without an expansive new program of manned exploration.

The mere fact that a system—any system—is technically feasible is by itself not a sufficient justification for its introduction.

Technical possibility must thus be converted into comparative economic advantage. Conversely, the study does not settle whether the nation should pursue its assumed space objectives. It largely takes continued activity as given, testing numerous variations around projected programs and historical unmanned activity. Its distinction between choosing national aims and choosing economical means limits the conclusion: the Shuttle is justified within an assumed program, not established as preferable to every competing public expenditure.

Discounting connects that restricted comparison to broader investment priorities. The witnesses examine rates from zero to 20 percent, basing their principal conclusions on the Office of Management and Budget’s 10-percent rate in constant 1970 dollars. A high rate heavily discounts savings arriving after a lengthy development period, making the Shuttle harder to justify. Senator Curtis’s questions clarify that this social rate is not simply the government’s borrowing cost; it expresses a judgment about present consumption relative to future benefits. Heiss stresses consistent treatment across government agencies, while suggesting that unemployment could warrant a lower rate.

Differences in the rate applied to the analysis outweigh many other important issues usually raised—and analyzed—in the context of large scale research and development projects, in particular those issues arising from irreducible uncertainties in the cost data.

This claim locates a major determinant of the result in the evaluative framework itself. At 10 percent, the earlier study estimated allowable nonrecurring expenditure of $12.9–$15.4 billion for a fully reusable system, against estimated Shuttle-and-tug nonrecurring costs of $12.8 billion. The subsequent investigation asked which configuration best exchanged initial investment for recurring launch expenditure. It favored the solid-rocket, parallel-burn system: somewhat higher costs per flight purchased a large reduction in development investment. The testimony compares total prospective investment of approximately $7.5 billion with $14.6 billion for the earlier fully reusable design, and associates the selected configuration with lower development risks.

The questioning makes the qualifications more explicit. Morgenstern acknowledges that this is economic analysis dependent on supplied technical assumptions, and Heiss agrees that failed assumptions would alter the findings. Their defense of independence rests on contractual freedom, NASA’s reported noninterference, their direction of contractor revisions, and presentations inviting outside criticism. Independence nevertheless coexists with dependence on aerospace expertise and cost data.

There never—and I would like to make that quite clear—does exist something like a "final economic analysis."

This qualification is central to the testimony’s treatment of evidence. Further investigation remains necessary, especially into payload savings, but uncertainty cannot be eliminated before a decision. Heiss cites other manufacturers’ studies as supporting substantial satellite-cost reductions, while Morgenstern argues that greater precision has costs of its own and may contribute little when surrounding assumptions remain uncertain.

The concluding exchanges broaden the institutional implications. Heiss argues for government development because government supplies most demand, defense constrains commercial operation, and benefits such as improved weather forecasts cannot readily be restricted to paying customers. The prepared statement also identifies European participation in a space tug as an opportunity for international cooperation. Finally, conditional analysis becomes an explicit recommendation:

Decisions have to be made sometime, and I think this is the moment. If I were in a position to give a go-ahead sign, I would give it.

The testimony’s relevance lies in this passage from comparison to commitment. It offers a carefully bounded economic case while exposing its dependence on mission demand, discount rates, technical performance, and anticipated payload savings. Its confidence concerns the sufficiency of evidence for action, not certainty about future outcomes.