The private sector is very good at organization and innovation. I mean, private sector is generally better at doing things than the government, I think that is fair to say. Where you have these things that are a small amount of good for a lot of people it makes sense for the public sector, for government to do that. When you have something that is kind of a small amount of good for the whole population, or for the whole country, or even the whole world. Like basic research and that sort of thing. It would be really difficult to go to collect like $10 from everyone to understand more about the Earth or the Solar System or the Universe. It’s not efficient if you have say a 3 billion dollar project to go collect $10 from everyone in the United States, it’s better to do that via the public sector. You have great things like let's say the Hubble or the Mars missions. In general, commercial technology companies are better at advancing technology than governments, particularly once it gets out of the fundamental research phase. Where you can more concretely close the economic loop that's where the private sector makes sense.
The reason that there hasn't been a big improvement in the space industry, I think a critical portion of it is because for the creative destruction process to come into effect there is such a significant amount of capital that is needed to start a rocket company, and it is a very difficult technical challenge, and the number of people that really understand rocketry in the world is a very small number. There are really huge barriers to entry and that is why we haven't seen the function of improvement that there should have been over the years. That's sort of what SpaceX hopes to be - to really drive the technology development a lot faster than it would occur otherwise, if it was just sort of a big government endeavor.
I think that government plays an important role in funding sort of basic science, the frontiers of exploration, that kind of thing, where there’s not an obvious direct economic feedback loop, but it’s nonetheless an important thing to do that’s helpful to everyone, like the Hubble for example. We gained a lot of knowledge and understanding of the universe from the Hubble. It didn’t necessarily translate to economics for one particular company, so it made sense that it would be funded by the government. Government, by the way, has no money, it only takes money from the people. Funded by the government just means funded by the people. Sometimes people forget that that’s really what occurs. When there is a benefit that accrues to the people as a whole then it’s fair that the money should be drawn from the people as a whole to match that benefit.
Government is inherently inefficient, so it makes sense to minimize the role of government such that government does only what it has to do and no more. There are obviously very clear examples of this in comparing something like East and West Germany and North and South Korea. Places where you have essentially the same people, but two different systems of government. East and West Germany for example, the economic outcome per capita was about five times higher in West Germany —arguably more than five times—but at least five times higher in West Germany than in East, and it’s not as though West Germany was particularly capitalist. I mean, they’re sort of a lot more socialist than we are, and yet they had that huge output difference. North and South Korea is an even more stark example, where North Korea, people undergo starvation, and South Korea is incredibly prosperous. You want to always watch that dial—that allocation of resources dial—and make sure that government doesn’t become too large a portion of the economy.
The United States is actually doing quite well, and we all live really great lives here in the US, and we shouldn’t lose sight of that. The US is still the world’s largest manufacturer, and it has been since it took over from England, I don’t know, a hundred and some odd years ago. The unemployment rate is decreasing. I think there are lots of reasons to be positive, actually, without being complacent. We certainly need to decrease the amount of government spending. I think that that’s really important. There seems to be some movement afoot to reign in government spending. It can’t be a little bit here, around the edges, there needs to be a meaningful decrease in government spending such that we do not have trillion dollar deficits, because that’s obviously unsustainable. The trillion dollar deficit thing, I liken it sort of to ... it’s like toddlers with a cupcake. Have you ever seen these delayed gratification tests? apparently you can predict somebody’s future success by the degree to which they can partake in delayed gratification, where you can say, “Here’s this cupcake, it’s on a table, If you eat it now that’s all you get, but if you wait ten minutes you can have three cupcakes.” and some toddlers they just go and they eat that cupcake. They basically sacrifice tomorrow for today, effectively. That’s kind of what Congress often behaves like, and to some degree the American people are responsible for this, because we ought to vote people out who engage in such behavior. Running trillion dollar plus deficits... that is going to come back to haunt us like there’s no tomorrow. We do not want to be Greece, or Portugal, or any such country. We must make the hard decisions of reigning in government spending, and probably increasing the tax burden as well, but we need to do both, we can’t solve it either by simply increasing taxes or by just cutting deficit. That’s like saying, you know, the sky is blue it’s so freaking obvious.
My overall impression of Washington is that it's much less corrupt than people think it is. Thank goodness for it because if it was corrupt we would be screwed. That isn't to say that there is some amount of that that goes on, but I think there actually are I think a preponderance of the leading house members and senators actually are quite idealistic and care about doing the right thing.
Actually on balance the Federal Government has been helpful to Tesla. In the space arena... man, this is a complicated situation. I virtually make zero political contributions for Tesla. I do make political contributions for SpaceX because the way the system works is SpaceX is fighting the big defense contractors. The big defense contractors make 20 times the political donations that me and the people at SpaceX do. Literally 20 times if you just take Boeing and Lockheed where SpaceX is competing with for launch contracts. What those contributions just do is get us a conversation with legislators, that's all. If political contributions were really what made the difference then SpaceX would have no hope, no hope. Thank goodness that they don't, so, I actually would say that on balance it's not that corrupt because if it was corrupt than SpaceX would have no chance. SpaceX was very tiny when we got our first government contract, and if it had been deeply corrupt then we would've not won anything. The greater the level of visibility politically the less corruption occurs. I think there's probably the least corruption at the presidential level, and at the Senate level, and in the House. There can be a bit more corruption at the state level. Basically it’s how much attention are people paying that defines how much corruption occurs.
I'm not sure how much the President can really do, you know. I think the reality of being President is that you're actually the captain of a very huge ship and have a small rudder. Obviously, if there was a button that a President could press that said ‘economic prosperity’ they’d be hitting that button real fast. You could measure the speed of light by how fast they press that button, because that's called the reelection button.
Things got real nutty with the US election and all that. I don't think this was the finest moment in our democracy. I'm glad that the framers of the Constitution saw fit to ensure that the President was someone who was captain of a large ship with a small rudder, there’s a limit to how much good or bad any given President can do. I guess there is the nuclear thing, but I am quite confident that the military would not just randomly agree to launching nuclear missiles at somebody.
I was on two advisory councils where the format consisted of going around the room and asking people's opinion on things, and so there was like a meeting every month or two. That was the sum total of my contribution. In every meeting I was just trying to make the arguments in favor of sustainability -- and sometimes other issues, like we need to make sure our immigration laws are not unkind or unreasonable. If I hadn't done that, that wasn't on the agenda before. Maybe nothing will happen but at least the words were said. I think to the degree that there were people in the room who were arguing in favor of doing something about climate change, or social issues, I've used the meetings I've had to argue in favor of immigration and in favor of climate change. I thought it was worth trying. I got a lot of flack from multiple fronts for even trying. Some guy put up billboards attacking me, and ran full-page ads in the New York Times and what not, just for being on the panel. I did my best, and in a few cases I think I did make some progress. I just really think the Paris Accord, if I stayed on the councils I would be essentially saying that it wasn’t important, but it was super important, because I think the country needs to keep its word. It was not even a binding agreement. There was no way I could stay on after that. I did my best.
I think each government should do the right thing without depending upon what other governments are doing. I think there's too much in these climate talks of countries trying to only do things if another country does it. If it's the right thing for the future, a country should just do it and don't worry about what other countries are doing. Just do the right thing, and many of the countries are. It's really just we just want to encourage as many governments as possible to change the rules to incent a good future. This is fundamentally what has to happen or we will substantially delay the transition away from carbon.
Governments around the world certainly make a lot of noise about caring about the environment but the results are not very good, particularly in automotive. Much less than 1% of new cars made every year are electric. This year there'll be 90-something million cars made, so round it off, say 100 million new cars made a year, there's about two billion cars in the global fleet. Even if all new cars went to electric this year it would take 20 years to replace the global fleet, but much less than 1% of new cars made this year are electric. Clearly, we need stronger action. I know they keep sort of talking about it. Really, the action needs to be ratcheted up until we see solid movement toward electric cars. How about at least 1% of cars being made are electric? that seems like a very low bar.
With respect to climate change it's just critical that the governments get the rules right. The government is the setter of rules, the governments decides what rules companies will play by. We currently have a system which massively incents bad behavior. In terms of legislative and executive actions, it is sort of like professional sports or something, if you don't have the rules right, if the game is not set up properly, it is not going to be a good game, so it’s really important to get the rules right. The government is the one that sets the rules of how companies are rewarded financially. Money and prices are basically just an information mechanism. Money is mostly an information mechanism for labor allocation and tells companies what to do. This is why it's so critical that action be taken at a government level, it's just crazy to have the rules of the game favor a bad outcome. It's worth noting that in the United States, the rules are still better than anywhere else, but it’s very easy to put something in place which is an inhibitor to innovation without realizing it.
In terms of the regulatory environment it’s always important to bear in mind that regulations are immortal, they never die unless somebody actually goes and kills it, and they gain a lot of momentum. A lot of times regulations get put in place for all the right reasons but then nobody goes back and gets rid of them afterwards when they no longer make sense. There used to be a rule in the early days when people were concerned about automobiles because that was a pretty scary thing, there was this carriage going along all by itself, you never know what those things might do. You had those rules in a lot of states where you had to carry a lantern in front of the automobile, there had to be someone 100 paces in front of the automobile with a lantern on a pole. It’s like you should really get rid of that regulation, and they did. That would be a bit awkward. It’s always good to go back and scrub those periodically and make sure they are still sensible and serving the greater good.
I think in general people want to do the right thing and they want to do what's good. The issue we have right now is that the rules fundamentally favor the bad outcome. When you're fighting for the good outcome and it's an uphill battle, it's just slower. In the absence of government actually establishing some kind of a carbon tax or potentially a cap on trade on carbon, which I was very excited to see that China announced that they were going to do that, unless the government does something to fix the market mechanism, we're fundamentally going to have a very slow transition out of the fossil fuel era. It's critical that the governments of the world need to price the externality. They need to put a proper price on carbon and then automatically the right behavior will occur. By putting a price on carbon we're essentially fixing a pricing error in the market system. Most of the times when governments intervene in markets it usually increases the pricing error. But when a pricing error is a huge tragedy of the commons issue like we have with carbon capacity it's critical that the government put a price on it.
There are other less effective ways by providing incentives and subsidies to say electric cars or solar. That is sometimes a more politically expedient way to do it, but the best way is just to directly fix the pricing error by taxing carbon. If you ask most economists, they would say the same thing. This is well known obviously in the economics world. What I'm saying is totally common sense, it’s economics 101 -- whatever you incent will happen. If you incent one thing that will tend to happen, if you incent another thing, that thing will happen. I mean for example there is a 20% tax incentive for a stripper oil well. The incentive for solar was 30% but dropped to 10% so the incentive for solar was half that of a stripper oil well.
In order for there to be a big move towards sustainability the giant companies have to know that that is what the governments are demanding for the future, and that's what the people are demanding for the future. At the end of the day if the governments respond to popular pressure, like if you tell politicians that your vote depends on them doing the right thing with climate change, that makes a difference. If they're having a fund raising event or a dinner party or whatever, and at every fund raising event in every dinner party somebody is asking them “Hey, what are you doing about the climate” then they will take action.
We definitely can't beat the oil and gas industry on lobbyists. That would be a losing battle. Exxon makes more profit in a year than the value of the entire solar industry in the United States. If you take every solar company in the United States, it's less than Exxon's profit in one year. There's no way you can win on money, that’s impossible.
I think we just need to turn that argument around and say, "Look, this is a common good and if countries don't take action they all will share in a bad future" everyone needs to take action and care about what the future's going to hold and lead by example. Even countries that are quite dependent on fossil fuels if they just change their tax structure they can move away from that in a way that's not super disruptive to the economy.
It's really just a question of collecting the same amount of taxes, but weighted towards things that people believe are most likely to be bad instead of things that are most likely to be good. We do this already in our tax code, we tax alcohol and cigarettes much more than we tax fruits and vegetables. It's just the sensible thing to do. Just adjust the tax code and the right thing will happen over time.
It'll be a slow transition and the fundamental question is how do we accelerate that transition? That's the real question here. What actions can we take that would accelerate a transition to a good future? That's why I'm so harping on this notion of a revenue neutral carbon tax. I think that's something that every country can implement and it could be graduated and phased in over time. This will be by far the most effective thing for accelerating that transition to a good future.
There is way too much in government where it is a sole source cost plus contract. Economics 101, whatever you incent, that will happen. People shouldn't be surprised, if a company manages to find some excuse to double the cost they're going to get double the profit. They are getting a percentage so they are going to do exactly that, and they are not going to say no to requirements. The government will come up with some requirements, 90% of them could make a lot of sense -- 10% of them are cockamamie that double the price of the project. For those 10% of cockamamie requirements in a cost plus contract, the contractor will always say yes.
We have to change the way contracting is done. You can’t do these cost plus sole source contracts because then the incentive structure is all messed up. As soon as you don’t have any competition the sense of urgency goes away. As soon as you make something a cost plus contract you are incenting the contractor to maximize the cost of the program because they get a percentage. They’ll never want that gravy train to end, and they become cost maximizers. Then you have good people engaged in cost maximization because you just gave them the incentivization to do that, and they get punished if they don’t. Essentially that’s what happens, its critically important that we change the contracting structure to be a competitive commercial bid. Make sure there are always at least two entities that are competing. That the contracts are milestone based with concrete milestones. PowerPoint presentations do not count, everything works in PowerPoint ‘I have a Teleportation device, look here’s my PowerPoint presentation’. Milestone-based competitive commercial contracts with competitors and then you got to be prepared to fire one of those competitors if they are not cutting it, and we compete the rest of the remainder of that contract.
By the way NASA has already done this, they did it with the commercial cargo transportation to the Space Station. That was a case for NASA actually where they didn’t know if it would work, but they didn't have the budget to do anything else. They were like, we are going to try this competitive commercial milestone-based contracting and it worked great. They awarded two companies, SpaceX and a company called Kistler, and SpaceX managed to meet the milestones, and Kistler did not. NASA competed the remainder of the contract to Orbital Sciences, and Orbital Sciences got across the finish line. Now NASA has got two suppliers for taking cargo to the Space Station, it is a great situation. It is a good forcing function to get things done. I can't tell you how important that contracting structure is, that is night and day. A great model that frankly should be adopted throughout government, where you have 2 competitors, a fixed price milestone based, where the hard milestones are primarily hardware oriented, and when one of the 2 companies that are competing does not reach their milestone then the remainder of the milestones are competed to another company.
There's always this sort of argument of what is the best sort of government. I do think America is the greatest country in the world. I don’t think it’s flawless, obviously, it’s not perfect, but it’s the least imperfect country in the world. I'm a big fan of I think it was Churchill where ‘democracy is the worst form of government except for all the others’
I think if you said like how would you do Democracy 2.0 like a new version, I think it would be more of a direct democracy than a representative democracy. I think direct democracy is probably better than representative democracy. If you're trying to represent the will of the people it would be better to have direct votes which we're not possible in the old days because you had to mail things around and information moved very slowly. When the United States was formed it was really impossible to have a direct democracy. Even sending a letter took weeks. There was no way that people could vote directly on issues, you had to have representatives. When you have letters that take weeks to get anywhere that would have made governance almost impossible if it had not been representative, and a lot of people couldn't even read. In an electronic society where information moves instantly you can represent very directly the will of the people. I think this diminishes the ability of special interest to influence things in a way that is contrary to the will of the people. I think most likely the form of government on Mars will be a direct democracy not representative, it would be people voting directly on issues. That's probably better because the potential for corruption is substantially diminished in a direct versus representative democracy. I think that's probably what will occur. From a governance standpoint obviously ultimately the governance of Mars will be up to the Martians, but probably we would aim for a more direct democracy.
I was talking to Larry Page about this and he had a good suggestion. We should limit the number of words in a law. We have these like thousand page laws that get past, and nobody has read them. Like a 1000 words letter count or something, like if you can't write the law in 1000 words then it probably should not be there. We shouldn't have a single law past that's like the size of the Lord of the Rings, and truly not a single person in Congress read the whole thing.
I think we are getting a bit to regulated. I'm not like a complete libertarian that we shouldn't have regulations at all, but the natural bias of regulations is that they last forever. You have to actively delete a regulation or a law in the way things are set up. The problem with that is you get vested interests who like that law and there's an inertia around it. So over time the body of law grows and grows and grows. I think it is ultimately something that is not good for society. In fact I think it would generally be a good idea to have it such that it's hard to establish a rule and easy to remove one. It should probably be easier to remove a law than to create one. Then maybe have a hysteresis where in order for something to become a law it requires maybe 60% of the vote, but at any point 40% or more can remove the law. Making it easier to remove a law then put one in place because you can imagine overtime the body of the law just gets bigger and bigger, so how do you avoid that? I would recommend some adjustment for the inertia of laws, it’s probably a good idea to have something in the voting system that accounts for the infinite lifetime of laws and sort of the inertial effect of laws. I think generally with laws and regulations I think they all should come with some sort of a sunset clause because they have infinite life. Any law should come with a sunset period, with a built in sunset provision. If it's not good enough to be voted back in maybe it shouldn't be there, so perhaps it would be good for all rules to have an inherent sunset provision. They would automatically expire unless they are revoted as being correct, if it's not good enough to be renewed then it goes away. That sounds sort of anarchist I suppose, but I'm kind of pro-anarchist, I think generally fewer rules are better than more rules.
That's my rough guess at if you had to re-compile on democracy how would you do it to better re-present the true will of the people, which I think is the intent of democracy.