Beyond Solyndra: The case for more federal spending on basic research

Image Credit: Solyndra video

Image Credit: Solyndra video

Maybe the worst long-term outcome of the Obama administration’s malinvestment  in Solyndra and other dubious clean energy firms is the confusion of industrial policy — the favoring of certain sectors or government involvement in commercialization — with a policy of spending on basic research.

As my AEI colleague Ken Green has noted, we don’t need government as a venture capitalist, picking winning and losers: “Studies show that government ‘investment’ in applied research and development does not add new money to the pot, it displaces private capital, and does so disproportionally. When government steps in, it displaces more money than it throws in the pot.”

In the WSJ today, Nobel laureate economists Gary Becker and James Heckman outline a proper role for government:

The guiding principle is basic and obvious: We should cut federal government activities that can be performed at least as well by the private sector, and maintain, or even increase, productive federal activities that the private sector alone cannot handle effectively. There is legitimate disagreement about which activities belong in which category, but the great majority of economists have long agreed that the federal government should have an important role in the sponsorship of basic research. For-profit companies have weak incentives to invest in basic research partly because the results are not patentable, and partly because the culture of basic researchers, and the journals they publish in, makes the results of basic research available to all.

For these reasons the U.S. government has long played a leading role in supporting research in physics, chemistry, biology and medicine, and to a smaller extent in economics and other social sciences. It has also played a leading role in creating objective databases on which to make wise policy. This research and data have paid great dividends in helping to provide a better understanding of DNA, genetics and the human genome, and many other phenomena crucial to the modern world.

Indeed, the remarkable growth in life expectancy in the developed world in the past 60 years has been the result of the combined efforts of federally supported basic researchers at universities and elsewhere, and applied researchers in for-profit drug and biotech companies, and nonprofit institutes.

But more and more America is becoming just a Welfare State rather than a Innovation State. As a recent report from Third Way concluded, ” … as the Baby Boomers enter retirement, entitlements will encroach upon an even greater portion of the federal dollars once reserved for building roads, educating kids, and paving the way for technological breakthroughs. Entitlements are a critical part of economic security, but without change, investments will all but dry up, threatening our economy’s ability to grow and create opportunity in the 21st century.

And these charts from Third Way tell the story:

And the best way to go about basic research funding? Well, the best projects shouldn’t be decided by the White House political team. In a speech last year, Fed Chairman Ben Bernanke offered his thoughts:

1. Direct government support or conduct of the research may make the most sense if the project is highly focused and large-scale, possibly involving the need for coordination of the work of many researchers and subject to relatively tight time frames. Examples of large-scale, government-funded research include the space program and the construction and operation of “atom-smashing” facilities for experiments in high-energy physics.

2. Outside of such cases, which often are linked to national defense, a more decentralized model that relies on the ideas and initiative of individual researchers or small research groups may be most effective. Grants to, or contracts with, researchers are the typical vehicle for such an approach.

3. Some critics believe that funding agencies have been too cautious, focusing on a limited number of low-risk projects and targeting funding to more-established scientists at the expense of researchers who are less established or less conventional in their approaches. Supporting multiple approaches to a given problem at the same time increases the chance of finding a solution; it also increases opportunities for cooperation or constructive competition.

I agree with Beck, Heckman, and Bernanke, the declining focus on basic research by government is a bad sign for the future of American innovation. Cut the Welfare State — or at least severely restrain its future growth — not the Innovation State.

7 thoughts on “Beyond Solyndra: The case for more federal spending on basic research

  1. Dear Mr. Pethokoukis !
    I (humbly) agree with the main points you have just made. Besides that,
    investment in “infrastructure” like roads and speed trains is the way to attract low-IQ workers from abroad.

    Investment in fundamental research is support for (mostly) domestic population with high level of education and, therefore, mostly with high IQ. That may lead to the increase of fertility rate of right-end of the Bell Curve population (compare to the movie “Idiocracy”.)

  2. No. The federal government should follow the constitution and the constitution makes no provision for such funding.

    If the states want to fund such research, that’s each state’s business.

    I would prefer to live in a state, however, that did not fund such research with money taken from taxpayers. Instead, research should come from private donations or private investments. If no one is willing to voluntarily contribute money directly to your research, then that’s a pretty good hint that your research isn’t really wanted anyway.

    You pay for your hobbies, I’ll pay for mine.

    Why does AEI call itself conservative? Conservative how? Best I can tell, this place is no less socialist than the Obama administration.

  3. Its all well and good to state that the constitution doesn’t support such esoteric items as r&d. But while we spend money on other unconstitutional items – like medicare – then a moonshot program to eliminate alzheimers, kidney disease, diabetes, etc, would drastically reduce those medicare costs. And no, hospitals don’t do a good job at this – they are too interested in years long research where they keep their results secret – and don’t publish the failures. You need a concerted effort – basically a national lab where the govt funds it to begin with. Returns on patents from the research should eventually allow these centers to get off the govt dole…

    As for the real moon shot, I think its great that we are finally having companies like Space X taking the lead. There still needs some support – specifically because there is a huge defense component in space travel, including planetary defense (those Tunguska asteroids won’t steer themselves away from us!!!)

    Beyond that, R&D tax credits are a must. I don’t see it as a gimme – while there is a corporate tax, there needs to be a good R&D tax credit. Such a thing could bring back places like Bell Labs, that was critical in developing the telecommunications and computer industries. And that we don’t have much of now (google has done a crappy job of focusing on research, even though they keep babbling on about how they support it…)

    • Government can give nothing that it did not take from someone else.

      The constitution is the law of the land. If you advocate policies that violate the constitution, then you advocate lawlessness, cronyism, graft, and mob-rule. You advocate against the entire idea of the United States.

      Spending by government is not superior to spending by private individuals and organizations. It is inferior to private spending. It is wasteful.

  4. As for AEI being socialist. OK, they aren’t pure. I bet you’re so pure you won’t be voting for Romney.

    Pure insanity. Since you don’t like AEI’s position on things, and have no real constructive criticisms or discussions (beyond I don’t like it, and I don’t even want my state to do it…) perhaps you can found your own think tank.

    • You confirm your affinity for socialism.

      I have presented a constructive criticism: Follow the constitution.

      Begin the ending of Social Security.

      Begin the ending of Medicare.

      Shut down the EPA. Shut down HHS. End the student loan program. Shut down government involvement in the mortgage industry. Privatize the national parks or transfer them to the states. End NASA and transfer anything that can be considered directly defense related to the Air Force. Shut down the SBA. Stop subsidizing farming, energy, and any other industry in the United States. Shut down Amtrak. Shut it all down. If it is not explicitly authorized in the constitution, then SHUT IT DOWN.

      There. There is some constructive criticism. It is constructive because it would un____ the economic catastrophe that socialists have created in the United States – the catastrophe that crooks, old money aristocrats, and incompetent airheads with Ivy League credentials but insufficient IQ to run a lemonade stand to profitability without a federal subsidy have created.

      Henry Hazlitt and Milton Friedman trump your Keynes and Galbraith.

      Productive, competent people do not need help from the government.

      We need government to get out of the way.

  5. The government ought only be a driver and philosophic innovator of R & D for energy, Science ( Medicine) and technology . The fuel system must, in this specific iteration (USA), of a free enterprise system, be pushed and pumped by private enterprise, private capital and in some cases The academic enterprise. If the Government feels compelled to actually invest our tax monies into private corporations that are friendly to whomever is in power there must be accountability .
    This admin. has notably avoided even the basic tenets of being responsible stewards to our revenue contributions and that is the basic flaw in liberal policy direction . It appears that only liberal wish lists are fully respected

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