New York vs. London vs. The World's Great Cities

A recent NY Times op-ed comparing New York's virtues to the world's great cities sparked a debate amongst friends on how The Big Apple compares to London.

I've been in London for all of seven weeks now, but here are some observations:

• Conversations in London are a lot more interesting, possibly due to the quality of the education system and high-brow media (i.e., Fox vs. BBC, or FT vs. WSJ); definitely a higher general level of awareness of what's happening around the world in London
• Food is surprisingly good and more reasonably priced than expected in London, probably due to the still favorable exchange rate of the U.S. dollar. However, New York probably has the edge here.
• Tap water is not as good in London, and Brita filtering only partially addresses its shortcomings (I came from the San Francisco Bay Area and Hetch Hetchy spoiled me)
• Tube vs. Subway: both aren't much fun; the Tube is more bearable and impressive in terms of its reach; central London is also surprisingly walkable so i rarely take the tube. London also has a nifty bike rental program.
• (Very subjective) Music is more to my liking in London; my first trip to the gym was greeted with an Armin van Buuren live set, something I don't think I've ever heard at a U.S. gym.
• Livability: London is definitely more livable than NY, and not just because the buildings are shorter. London's less densely populated and the weather is better. Nooks and crooked streets lend character; ample green space for dog lovers, and you can take your dog on public transports; citizens are trusted to drink alcohol in public, etc.
• Timing: it's a fascinating time to be in London with what's happening in Europe, although perhaps the same could soon be true for U.S.

While they both have their respective strategic advantages, here are some of London's: more cosmo/international experience sans empire. The Brits, with their global history, are a little more at home around the world than Americans, and arguably the rest of the world feels more at home in London than in NY. London perhaps also has a geographic/time zone advantage over New York: in the morning you can trade with Asia, and in the afternoon you can trade with America. Also, many of the world's most fastest growing financial products (currencies, derivatives, gold, etc.) are heavily traded or headquartered in London, not NY. Overall, London is more international than NY.

'la romantique'

In terms of NY vs. other worldly cities, with the U.S. still in the throes (and largely in denial) of its relative decline, living in NY could have the bittersweet feeling of being on location of what was until just recently the world's center of gravity. NY is obviously still good. But to use the metaphor of a great social event, you know you arrived late as the party is clearly fading. In fact, I believe NY's zenith probably was in 1962. Cities like London and Paris (here's a cute New York vs. Paris blog), which have had plenty of time to come to terms with their loss of empire, may perhaps feel more comfortable in their downsized shoes.

If you're looking for the world's the most up-and-coming dynamic places right now, then Shanghai, Singapore, Sydney, Cape Town, Dubai, Hong Kong and Mumbai would trump both New York and London. I also agree with the NY Times author that Chicago, which seems to be doing relatively well in terms of popularity, is the quintessential American city.

What do you think?

“We’re not Greece!” “We’re not Ireland!” “We’re not Portugal!”

While the name of the country changes, the "We're not _____!" plea from a revolving panoply of European officials has become all too familiar.

Can any of Europe's politicians -- or anyone at all -- definitively state at which country's doorstep the rolling European debt crisis will ultimately stop? The short answer is no.

Europe's Two Big Challenges

The Economist has a comprehensive summary of the latest developments in this sad saga; the violence, which first turned deadly in Greece this spring, unfortunately shows no sign of abating in Ireland. From the article:

"[Germany's] Mrs Merkel and Mr Schäuble are continuing to insist on two proposals.

One is that the EU treaties must be amended to give permanent status to the European Financial Stability Facility. Without this, they say, the rescue fund will expire in 2013. But investors know from experience that treaty amendment is neither simple nor quick (it took years to push through the Lisbon treaty). Insistence on treaty change makes them nervous.

So, even more, does the second German demand: that future bail-outs must include debt-restructuring provisions to impose some losses (“haircuts”) on investors."

With respect to challenge #1, it is quite clear that Eurozone popularity is waning in certain quarters. Any treaty change could prove problematic, particularly in Ireland where such changes must be put to a referendum vote.

Europe's Web of Debt

On #2, haircuts to bondholders, it is worth taking another look at the complex edifice of european debt. The interlocking nature and size of cross-border debt holdings explains why European leaders fear allowing any one domino (Greece in May, Ireland this week) to fall.

Germany is the biggest checkbook in the EU and, quite understandably, is insisting that the private sector share in the cost of any future sovereign debt defaults. Otherwise what is the point of distinguishing between the debt of different countries?

But can Europe's delicately interwoven debt and banking market cope with haircuts, particularly to senior debt? The current Irish crisis was sparked by discussion of losses on subordinated debt (80% in the case of Allied Irish Bank). Tellingly, Irish debt costs have continued rising even after its bailout was confirmed. This is in part due to rumors that senior debt holders may also be forced to take losses.

As former chief IMF economist Simon Johnson and LSE's Peter Boone recently wrote "market participants are good at thinking backwards: if they can see where a Ponzi-type scheme ends, everything unravels". In other words, the market for troubled sovereign debt depends on the ability of countries like Ireland and Spain to 'roll over' their borrowings until their economies begin growing again. (Ireland's economy began shrinking again earlier this year, and Spain's is projected to shrink for 2010.) Without economic growth the odds that troubled sovereign debts will ever be repaid in full (without outside help) is almost certainly nil.

In the months since the spring Greek crisis, the quasi-explicit bailout guarantee by the "troika" (EU, IMF, and ECB) has been the Eurozone debt market's linchpin. Now the bond market is calculating that Germany's insistence on private sector loss sharing by 2013 means than holders of certainly Greek, Irish, Portuguese debt, and perhaps the debt of other nations, will be forced to incur losses. Instead of waiting  around to find out the precise haircut percentage, investors are exiting risky pan-european sovereign debt positions post-haste.

China to the Rescue?

Ultimately, the answer to the question of where the Euro-debt unmerry-go-round stops depends on how far the ECB, IMF and German taxpayers are willing to go.

Simon Johnson thinks the ECB and Germans neither can or will, respectively, step up to the plate. He also questions whether the IMF has enough resources to bailout a country the size of Spain, let alone Italy or France. He goes on to speculate that if one of the large Eurozone nations needs a bailout that China, with its $2.6 trillion in reserves, may be asked to recapitalize the IMF. The attraction for China: increased global standing and leverage on contentious issues, such as its policy of maintaining an artificially low currency.

I believe that China may expand its existing role in Europe's debt crisis. However, European and U.S. officials will be reluctant to surrender center stage to China and will minimize Beijing's participation. While the exact form of the ultimate resolution is unclear, it will be a European-U.S. led solution.

Looking Ahead

The question of whether membership in the euro currency union is a good idea has taken root. Iceland's President has recently been talking up his country's relatively quick bounce back from bankruptcy abyss. Part of Iceland's rebound can be explained by the fact that it was able to devalue its own currency, which helped its export sector. In contrast to Ireland, Iceland also chose not to bail out its insolvent banks. The Czech Republic, slated to become part of the currency bloc, recently demurred on whether it would follow Sweden's path of never adopting the euro.

On the subject of whether any countries will abandon the euro currency all together, the consensus view popularized by Professor Barry Eichengreen was that joining the euro was irreversible due to the risk of sparking a bank run. But as NY Times columnist Paul Krugman states, this incentive to keep the euro vanishes when a bank run (like the one currently underway in Ireland) has already taken place.

Many questions remain, but one thing is certain: even with Ireland's bailout (the specifics are expected to be announced on Sunday before Asian markets open) the Eurzone crisis is far from over. Investors looking to insulate themselves from events may want to consider hedging currency risk through various inverse Euro ETFs, or by investing in precious metals.

Does Capitalism Depend On Population Growth?

Sometime in 2011 the world's population is projected to pass 7 billion.

However, if current trends in birth rates hold eventually the planet's population will top out around the year 2050. Does the survival of capitalism, as PIMCO's Bill Gross recently speculated, depend on population growth?



Courtesy of The Economist.

What to Do When the FBI Raids Your Hedge Fund

An entertaining read on the ongoing hedge fund insider trading shakedown from Bloomberg's Johnathan Weil.

Gold's Strange Bedfellows

Today Floyd Norris ponders the rise in the price of gold in a NY Times piece, which perhaps more accurately could be titled "Let's Hope the Price of Gold Crashes".

I encourage you to read it in full, but if you don't have time it can be simply summarized as yet another gold hit job by a major media organization. Wall Street Journal opinion makers had previously been leading the anti-gold media charge; in particular investing 'guru' Jason Zweig and Matt Phillips of the MarketBeat blog have both bad mouthed the barbarous relic. Perhaps the NY Times is now aiming to give the WSJ a run for its anti-yellow metal money?

What Zweig, Phillips and now Norris have perhaps all failed to realize is that in barbarous monetary times, relics do well.

However, the above journalists' dislike of gold doesn't compares with the vitriol from Warren Buffet's longtime partner at Berkshire Hathaway, Charlie Munger. In what is a clear case of hating on both the game and the playa, Munger calls all gold owners "jerks".

If the fiercely competitive and politically opposite WSJ and NY Times seem like strange anti-gold bedfellows, consider the following bizarre 'gold lovers': followers of media shock jock Glen Beck and the hedge fund investor he refers to as a "economic war criminal", George Soros, both own loads of gold; countries as culturally and economically diverse as Russia, Mauritius, India, Saudi Arabia, Sri Lanka, Iran, Bangladesh and China have all been increasing their gold reserves; citizens have been acquiring Au in both economically underperforming America and booming Germany, where Frankfurt university professor Wilhelm Hankel recently remarked:

"You cannot find a bank safe deposit box in Germany because every single one has already been taken and stuffed with gold and silver. It is like an underground Switzerland within our borders"

Returning to Norris' article, he speculates that part of the appeal of gold is that it serves as a proxy ballot box for the general dissatisfaction people feel towards the inability of their political leaders to tackle economic problems.

In other words, the rising price of gold reflects an investor vote of no confidence in the world's economic leadership. But besides Munger, can anyone really blame investors for feeling this way?

Federal Reserve Public Relations in the YouTube Age

The Federal Reserve and its policy of quantitative easing (aka printing money) both have serious image problems. Significant controversy and disagreement has been generated recently by the Fed's QE2 program, resulting in an ongoing communications battle between the Fed's advocates and critics.

This amusing cartoon video, which 'explains' quantitative easing and the current economic situation in a rather simplified (and in some instances erroneous) fashion, has already generated nearly 3 millions views on YouTube. The video's appeal is undeniable: we were all children once upon a time and are practically hardwired to trust cute, entertaining cartoon characters.

Meanwhile the Federal Reserve is hardly sitting idly by. Its New York branch has taken a slightly more high-brow approach with this comic book, a medium typically reserved for pre-teens and up. Like the cartoon, the comic book attempts to explain how the Federal Reserve system and monetary policy work to someone unfamiliar with macroeconomics.

The comic book builds on Ben Bernanke's 60 Minutes television interview and Washington Post QE2 op-ed in that both reflect the Fed's understanding that it needs to engage in more public outreach. The historically secretive Fed correctly recognizes that business as usual won't work anymore.

The comic book also demonstrates the Fed's understanding that to get its message across it will need to employ a media strategy that goes beyond its usual menu of press releases, speeches, and well-timed leaks to news reporters like the WSJ's John Hilsenranth.

But how effective are the Fed's new openness and media strategy?And at what point does the Fed's communication cross the propaganda line?

Some, including influential Yale Professor Robert Schiller, argue that government policies should be purposely shrouded in what is effectively 'Newspeak'. For example, Schiller makes the case that "bailouts" should now be called "orderly resolutions". This framing, Schiller states, can help to ensure that the public 'gets it' when the economic going gets tough.

Perhaps more so than at any other point in its history, the Federal Reserve is under the public spotlight. Discussion of putting an end to the Fed's dual mandate of price stability and full employment is openly being considered.

Whether or not the Fed's mandate should or will change is an open question. However, it appears unlikely that Fed secrecy, as it has been historically been practiced, will survive.

Video: Rare David Einhorn Interview on Shorting, Rating Agencies, Apple & Gold

I'm a big fan of David Einhorn's investment strategy, particularly his ability to identify accounting shenanigans at firms such as Lehman Brothers and Allied Capital, both of which he successfully shorted. (He wrote a well received book on his rather disturbing saga with Allied Capital.) He also rarely gives public interviews so the following video caught my attention.



The contribution of the credit rating agencies to the financial crisis have been well documented. Dodd-Frank financial 'reform' failed to make any material changes to rating agency model, which contains an inherent conflict of interest (bond issuers make payments to rating agencies, which incentivizes issuers to 'shop' for better ratings). To address this problem Einhorn simply advocates that credit rating agencies, such as Moody's (which he is short), should be abolished. Of note, famed investor Warren Buffet has been steadily reducing his large Moody's holdings.

Einhorn also discusses how a value investor like himself can be long Apple, which many have argued is in a bubble, as well as his current gold holdings (the largest position in his hedge fund). For more from Einhorn on his rationale for owning gold see this NY Times op-ed.

A Dark Cloud Appears Over Sunny Silicon Valley

Perhaps the marquee billing at this week's Web 2.0 Conference in San Francisco was the face-off between two super VCs: John Doerr of Kleiner Perkins of California & Fred Wilson of Union Square Ventures, which is based in New York.

The conversation was facilitated by provocateur John Heilemann of NY Magazine, who is still just as interesting with his now less frequent tech coverage as he is with his current political analysis.

It was the first time the rival East and West coast VCs have appeared together for an interview, and the debate covered the hottest startups, current valuations, and overall technology trends.



Is There a Tech Bubble?

Facebook, unsurprisingly, received a lot of airtime during the conversation. In a controversial remark, Wilson referred to Facebook as simply “a photo sharing site with a chat feature". Both VCs agreed that there appears to be a “bubble" in private market valuations, which may be driven by Facebook's rumored $41 billion value.

Facebook's current value may be due in part to an insufficient supply of stock in the private secondary market where it is bought and sold. In other words, if Facebook were trading publicly right now it would be valued at less than $41 billion. But that's just half the bubble story. The two VCs didn't comment on how much of Facebook's valuation is due to the stratospheric market caps of some publicly traded tech companies. However, public and private tech valuations largely move in sync, so it could be wise for investors in tech stock market darlings such as Netflix, Amazon, Google, and Apple to heed the VC's "bubble" warning.

Shifting to the IPO market, fellow VC Bill Gurley recently argued that the current anti-IPO trend among private companies – spearheaded by Facebook – could pose long-term problems for the technology eco-system. There may be very good reasons for why Facebook shouldn't go public now (e.g., would shed unwelcome light on their confidential financials). However, Doerr argued that “the IPO window is currently open” and that more great companies should consider going public.

East Coast vs. West Coast

Of the two VCs, Wilson appeared to be the more insightful. He noted how APIs have obviated the need for startups to have a local biz dev presence. This and other trends help explain why tech innovation is dispersing geographically away from the once almighty Silicon Valley. In contrast to the stately Doerr, Wilson came across as still possessing fire in his belly and looking to disrupt the status quo. For example, Wilson argued that the open Android platform will ultimately come to dominate the currently higher profile iPhone platform.

When it comes to John Doerr, one always has to read between the lines of his legendary hyperbole. And to be blunt, Doerr came across as somewhat of a tech antique from the 90s. He makes repeated positive mention of that era's tech bubble promoter extraordinaire, Mary Meeker, as if the passing of a decade is enough to make everyone forget her disastrously overly bullish calls. When the subject of Apple's upopular iOS app gatekeeper protocols came up, Doerr sounded like a politician, delicately dancing around for fear of upsetting his Valley pal and neighbor, Steve Jobs.

Silicon Valley's Not As Bright Future?

Doerr's reluctance to publicly confront Apple's restrictive App Store is indicative of the dark cloud which has recently emerged over historically shiny, happy Silicon Valley. The innovation center of gravity may be shifting at least in part because Silicon Valley has become the land of entrenched oligarchs, fighting over fiefdoms and turf. The recent 'Angelgate' is perhaps yet another sign of this rather disturbing development.

Looking ahead, tech entrepreneurs seeking to disrupt may in fact be better off not automatically flocking to venerable Silicon Valley.

A Surprising Key to Unlocking U.S. Job Growth & Global Competitiveness

"Once we open up to the inevitability of our demise, we can lighten up about it and begin to transform the situation"

                                                                                       -Zen proverb

The United States is suffering through a very serious economic challenge. Unemployment is nearly 10%. State and local governments are facing bankruptcy. Consumer confidence is low, and probably heading lower. And the federal government's debt trajectory means the U.S. will soon be spending $1 trillion a year in just interest.

How is the U.S. going to lift itself from this morass? One surprising key to restoring U.S. jobs and economic competitiveness is a complete overhaul of the tax system.

Many people believe that any proposal to overhaul the tax system is politically DOA; there are simply too many special interests lined up to oppose major (or even minor) changes. Yet interestingly today came news of a bipartisan proposal to substantially alter federal tax policy by reducing income taxes and moving towards a consumption based tax system.

The Fundamental Problem with Income Taxes

I've long argued that taxing income is suboptimal economic policy. When an individual generates sufficient income, that individual is able to cover their own expenses. In contrast, when an individual does not earn enough income then financial assistance must be obtained from others. On the whole I believe society is better off when individuals are income self-reliant. This goal may not be achievable by everyone (e.g., disabled), or at all times (e.g., recession). But it is nonetheless a goal for which society should generally strive.

One way society can help individuals achieve this goal is through the elimination of as many disincentives to earning income as possible. The income tax creates several disincentives, some of which are illustrated in the following example:

Imagine you have a job which pays an annual income of $40,000, and one day you are offered the opportunity to earn an extra $1,000 for completing a project. However, the government will tax this $1,000 at a rate of 99%, meaning your take home pay from this project would be only $10. You would also need to keep the receipt for the project and report the project on your income tax return. If the only thing that appealed to your about the project was the amount of money you'd take home (e.g., no work experience benefit or other perks), would you take the project? I imagine most would probably pass. 

What if the government instead taxed the project at 75%. You'd probably be more likely to take the project now, but you may still pass if you're only going to net $250 of the $1,000. What if the tax rate was lowered to 35%? We're getting warmer now. Would you take the project if the tax rate was lowered to 0%? Perhaps most now would. But for those who still wouldn't: if the extra filing requirement was eliminated would that seal the deal?

The key takeaways from this example are:

1. Tax rates and ancillary requirements, like record keeping and reporting, can affect our decision making when it comes to income
2. Individuals possess different tax rate and hassle thresholds

In the real world precise measurements of just how much of a disincentive the income tax is is difficult to obtain due to individual preferences. However, we can see logically from the example how disincentives do exist at a variety of tax rates and reporting requirements.

A simple summarization of the above: don't tax things, like income, that you want to encourage.

Tax Code Complexity Stifles Job Growth

If you think the U.S. tax system isn't all that complex, check out the below video of Treasury Secretary Tim Geithner.

Not even Tim Geithner, who's job as Treasury Secretary includes overseeing the IRS, can navigate the complexity of the U.S. income tax system!

A powerful job growth argument for moving away from the U.S.'s current income tax based system is that doing so would eliminate significant bureaucratic complexity. Tax simplification would help individuals and small businesses, who often have difficulty dealing with the 65,000 pages of the U.S. tax code without hiring expensive tax accountants. Small businesses have created 65% of new jobs in the U.S. over the past 17 years. Reducing paperwork and filing burdens on this sector of the economy could help generate much needed job growth.

What's the Alternative to an Income Tax?

In contrast to income, society's best interests are not always served by consumption. Put simply, consumption can be a bad thing. This is particularly true in the case of overconsumption, which can lead to a low savings and investment rate as well as over indebtedness. Consumption that generates negative externalities which aren't or cannot be offset is also undesirable. An example of a consumable item which can lead to negative externalities is tobacco. Take the following personal example:

I enjoy the occasional 'victory' cigar. But by smoking cigars I may increase my chances of developing lung cancer. And if I develop lung cancer I may incur significant medical expenses. Under the current system some of my cigar-related medical expenses may end up being paid for by others.  

In a perfectly fair economic world, one coud argue that cigars should be taxed at the precise rate necessary to cover all medical costs associated with cigar related lung cancer. In this way only cigar smokers would cover the costs of cigar related lung cancer.

Some state and local governments have actually created tobacco taxes, which are often referred to as 'sin taxes'. Sin taxes, and your state and local sales taxes, are a form of consumption tax. Sin taxes are often placed on goods such as alcohol, tobacco and other products which generate externalities (like additional health care costs). In some cases the funds raised from sin tax are specifically allocated towards the prevention or costs associated with the 'sin'. For example, tobacco taxes may be used for advertising against smoking.

But should we try and tax cigars at the precise rate necessary to cover the associated health care costs, and then try and allocate those funds towards only cigar related lung cancer costs? The snort answer is no. The complexity and additional bureaucracy of trying to do so would make this effort extremely inefficient and costly.

So does that mean consumption taxes are not viable? Actually, no. Sin taxes, or your state or local sales tax, are not the only types of consumption taxes.

How the 'Fair Tax' Would Address Consumption Tax Criticisms

At the end of the Tim Geithner video there is a plug for the Fair Tax. What is it?

There are numerous arguments against consumption taxes. Below is a list of the main ones along with how the Fair Tax addresses each concern (in parentheses):

• Consumption Taxes are Regressive: Everyone has to pay consumption taxes whereas those with low income don't have to pay income taxes. Therefore consumption taxes disproportionately impact the less well off. (This depends on how the consumption tax is structured and implemented. The Fair Tax attempts to avoid being regressive through 'prebates')
• Economic drag: The U.S. economy is driven by consumption and any tax on consumption will make the current economic situation worse. (This would probably be true in the short-term. The Fair Tax recommends a phased implementation approach to mitigate this issue. However, over the long-term a number of policy experts, including former Federal Reserve Chairman Alan Greenspan, disagree that a consumption tax would be a drag. Many economists consider it the ideal tax system for driving economic productivity.)
• Complexity: trying to determine the exact tax rate to apply to cigars for the medical costs is difficult if not impossible to calculate. (The Fair Tax sidesteps this issue by applying a uniform tax rate across all consumption.)
• Lobbying: By trying to come up with targeted sales taxes you open the door to endless legislative lobbying by interest groups to tinker with the tax rate.  (The Fair Tax sidesteps this issue by applying a uniform tax rate across all consumption.)
• Disruption: Hundreds of thousands, it not millions of jobs (i.e., accountants, auditors, tax preparation software companies, lawyers, and lobbyists) have invested their careers in the current income tax system. A complete overhaul of the tax system would create widespread employment displacement.  (Yes, there would be change. But the economy would be better served by deploying these individuals to productive areas of the economy, which is discussed here.)
• Accomplishes Nothing, Just Replaces One Tax for Another: Switching to a consumption tax would be a distraction from addressing the fundamental budget problem, which is a mismatch between government spending and tax revenue. (The Fair Tax could lead to economic growth, which in turn could generate more tax revenue to help address government fiscal imbalances.)
• It Will Never Happen: Too many political interests are invested in the current tax code. A fundamental overhaul has too many political enemies. (This is an intellectually lazy approach to argument which attempts to dismiss an idea without addressing its merits.)

That's quite a list! Does a consumption tax like the Fair Tax stand a chance? Is the Fair Tax even the best consumption idea? There are others.

I'm not a Fair Tax expert. But I'm intrigued by what appears to be a very well thought out proposal which addresses many consumption tax concerns.

Looking Ahead

It is easy to get discouraged when contemplating whether seemingly intractable big problems, like the current economic situation or tax reform, can ever be addressed. Thankfully some solace can be found in U.S. history.

At the turn of the 20th century, very few thought the grip on government held by powerful business trusts, such as John D. Rockefeller's Standard Oil, could be addressed. The great trusts of that day simply wielded too much power, or so it was thought. It took over 10 years and a force of personality as strong willed as Teddy Roosevelt, but Standard Oil was eventually broken up.

During the Great Depression in the 1930s, very few thought the powerful bankers which had profited from stock market speculation could be regulated. But along came a relentless prosecutor named Ferdinand Pecora, and his tenaciousness was instrumental to enacting financial regulations. Those reforms ushered in a half-century of financial system stability.

In the current environment, the upshot of running out of tarmac is that the U.S. is close to exhausting all the suboptimal choices; government will soon be forced to do the right thing.

In other words, don't underestimate the likelihood of tax system overhaul and good economic ideas like shifting from the current bureaucratic income tax system to something like the Fair Tax.

Scientists Propose One-Way Trip to Mars

Not a suicide mission, mind you, but a proposal to send the real life version of 'Space Cowboys' (older astronauts) on a one-way mission to Mars to begin permanent colonization of the red planet.

And what's the big justification for a one-way trip? Scientists argue it would cut mission costs by 80%.

From the article:

Schulze-Makuch believes many people would be willing to make the sacrifice.

He and Davies believe a Mars base would offer humanity a "lifeboat" if Earth became uninhabitable.

"We are on a vulnerable planet," Schulze-Makuch said. "Asteroid impact can threaten us, or a supernova explosion. If we want to survive as a species, we have to expand into the solar system and likely beyond."

I agree with Schulze-Makuch that numerous people would volunteer to become the first human Martians. But the additional time and cost of bringing back the first human visitors to Mars may well be worth it.

While humans have been exploring space for almost five decades, space travel is still dangerous. Turning the first human trip to Mars also into the first human colony sounds like great bang-for-the-buck, but it is fraught with risk. Schulze-Makuch's suggestion may accelerate the initial timetable, it could also set the overall long-term space exploration and colonization effort back.

Reflecting its longheld "first you must go slow before you can go fast" approach, it's unsurprising that Schulze-Makuch's proposal was greeted by a lack of NASA enthusiasm.

But Schulze-Makuch's suggestion that the private sector might be interested in taking on such risks introduces all sorts of interesting property rights and legal questions. For example, will or should the first visitors to Mars be allowed to stake a claim?