Does Government R&D Policy Mainly Benefit Scientists and Engineers?

Does this apply to Climate Science?~Larry K

By Austan Goolsbee

NBER Working Paper No. 6532

Issued in April 1998

Conventional wisdom holds that the social rate of return to R&D significantly exceeds the private rate of return and, therefore, R&D should be subsidized. In the U.S., the government has directly funded a large fraction of total R&D spending.

This paper shows that there is a serious problem with such government efforts to increase inventive activity. The majority of R&D spending is actually just salary payments for R&D workers. Their labor supply, however, is quite inelastic so when the government funds R&D, a significant fraction of the increased spending goes directly into higher wages. Using CPS data on wages of scientific personnel, this paper shows that government R&D spending raises wages significantly, particularly for scientists related to defense such as physicists and aeronautical engineers. Because of the higher wages, conventional estimates of the effectiveness of R&D policy may be 30 to 50% too high.

The results also imply that by altering the wages of scientists and engineers even for firms not receiving federal support, government funding directly crowds out private inventive activity.

Full paper here.

H/T Larry K of the FabiusMaximus website.

81 thoughts on “Does Government R&D Policy Mainly Benefit Scientists and Engineers?

    • Yes, the average citizens ROI of the government venture into CAGW is infinitely poor.

      “Only the government can create a sand shortage in the middle of a desert”

      Only the Government can spend hundreds of billions on R&D in the study of climate and cost trillions while setting science back decades”

      • That is because it is politicians playing with things they know nothing about and even less to whom they should actually be listening.

        • BC. do you work for the government?
          Seriously your comment, while trivially true, is pedantic to the truth in M.F. quote.

          In addition…
          Like 95 percent of ” shortages” there is likely numerous replacements.

          • While I agree that CAGW is a failure of government science, there have also been many successes, as others have noted. A mix of successes and failures is pretty much how it unfolds at the edge of knowledge. I thought your choice of example was interesting because it perfectly illustrates how people become more confident with less information (Dunning-Kruger).

          • Please list these successes. Secondly you need to demonstrate that private sources would not have funded such research. (Don’t list NASA, everything they “developed” was already being worked on in the private sector. Excluding rocket motors.)

          • During the Gulf war sand was imported from Bahrain to fill sandbags as they could not use the sand in Saudi Arabia as it was the home of the holy city of Mecca. Something like the old saying about taking coal to Newcastle.
            As for government research costing more those employed by government will always find reasons to spend more and pay themselves more and refuse to explain where or how the money will be spent.

            James Bull

          • VTOL aircraft came out of NASA. Here is a video of some early work.

            NASA’s patent portfolio, available to industry.

            Apart from that, physicists and engineers are unlikely to work on defense unless the government pays for it. Weapons research has no immediate economic benefit. Private corporations will not pay for non-profit-making research.

            Another example of productive government research is the epidemiological tracing of Hanta virus from the life history of a desert mouse — government sponsored research with a direct but unanticipated medical payoff. An interesting history.

            Government sponsored academic research produces the highly trained people that enter corporate R&D and technical fields. It seems unlikely that universities restricted to private sponsorship could produce the population of scientists and engineers sufficient to maintain our advanced technical civilization.

      • I would tend to agree w/ post having done R&D for DOE contractors from ‘76 to ‘89. The work did produce many important and useful results but not as efficiently or as practically as the private sector. I’m aware of several large projects that were cancelled or mothballed after significant expenditure. This may sound strange, but usually what benefits the Gov project and program managers, also benefits the contractors and regulators. It is my opinion that the ones not in the room when spending decisions are made are the taxpayers.

  1. OT. Ethiopian Air 737-800 just exploded 6 minutes after take from Bole International Airport.

  2. Also OT: AOC, at SXSW, vomits more words that sound exactly like what a millennial who lived in an insulated liberal bastion her whole life would say: ambiguous, disconnected from reality, always tying whatever she says back to her self.

    I do not fear her. I fear the walking brain dead who believe what she says.

    • Products of our government funded Public School systems. There is a method to their madness.

    • “Also OT: AOC, at SXSW, vomits more words that sound exactly like what a millennial who lived in an insulated liberal bastion her whole life would say”

      I heard one pundit on Fox News this morning describe AOC’s talk as “psychobabble”. And I had to agree.

      AOC is a delusional socialist who is confident in her delusions, and like all Liberals/socialists she thinks she is morally superior to anyone who doesn’t look at the world the way she does. She thinks she is correct and you are evil if you don’t agree.

    • Slightly OT. Wasn’t there a story about an African tribe that kept losing to the British, and was convinced by the “vision” of a young girl that the tribe could reverse the outcome by starting all over again — destroy their cattle. Of course they were much worse off after killing their cattle and starving themselves. Is this where we are heading following AOC and Bernie?

  3. Hmmm…Paper was published in 1998. Serious climate robbing was just getting started back then.

    • “Serious climate robbing was just getting started back then.” As perusal, it’s worse than we thought.

  4. It really is farcical trying to claim that Govt R+D should ‘outperform’ private research. Why? Because the whole point of public research is to fund research more basic than the private sector is prepared to fund. Further from market, much more risky, much more prone not to be the ultimate private sector winner.

    Private companies get a free ride on all public research, even if patents are filed. They can start a research programme with all the knowledge garnered in the public sector, without having paid for it personally.

    DNA sequencing started as Government research in Cambridge UK and Boston, Mass. The UK technical standard prevailed, then Leroy Hood in California raised private capital to semi-automate sequencing by replacing radioactivity with fluorescent markers, detecting DNA in-gel in real time and transferring data to computer files. Moores Law advances have been achieved in the 21st century through further systemic upgrades involving reinventing new technology standards.

    US private industry paid the UK Medical Research Council nothing for their seminal discoveries.

    Be in no doubt, Leroy Hood would have raised $0 without Fred Sanger and Alan Coulson. His research was applied research, near market research. It came ten years behind Sanger.

    Any American who claims Sanger was peripheral shows they are subsumed by far right wing dogma.

    All the following technologies were developed in public research:

    1. Protein Sequencing.
    2. DNA sequencing.
    3. Oligonucleotide synthesis.
    4. Monoclonal antibody production and platform technology development.
    5. DNA purification technology.

    All the building blocks for modern biotech.

    All funded publicly when it was quite possible for five years of research not to yield any solution. None of them patented.

    Nowadays, patents are funded properly in public research, as they should be. No more free rides for parasitic private sector followers. Make them pay proper license feed to access technology they did not develop.

    I guarantee you all that the only way private sector will fund next generation research is by creating billionaires so rich that they can afford to lose billions down blond alleys funding research through Trusts. 95% of private research only optimises this generation, so ossification will occur within 30 years.

    Make your choice: a thriving middle class paying taxes to fund basic research or a robber baron society where future trillionaires expiate their behaviour through trust-funded research whilst ensuring the middle class has disappeared.

    • A Government crash fusion program like the Manhattan Project is the way to turn this around, NASA style.
      Robber barons (very good term) will holler, parade and posture, even shooting red tesla’s into orbit.

    • You are missing the point of the paper. Government funding is mostly going to driving up the salaries of researchers. Anyone with experience of the system knows that this is because funding is highly motivated by political rather than scientific goals and that research grants can be kept flowing for years if the goal is “worthy” even if the science is a dead end. Government funding is necessary but it needs to be focused on scientific goals and constantly reviewed so funding is ended quickly when the results are unproductive. Right now we have a system that floods funding into a few areas allowing mediocre scientists to spend a whole career doing nothing useful.

      • Government R&D spending goes mostly towards those things that impress politicians.
        Effectiveness is not important.

    • Rhys ……

      “billionaires so rich that they can afford to lose billions down blond alleys ”

      I love that typo!

    • “Parasitic private sector”?

      Wow, revealed your feelings are.

      Certainly the private sector has benefited from public research. And I wouldn’t argue against the idea that there are areas the government is more suited to researching than the private sector. But, to consider the application, industrialization, and use of public sector research by private interests as parasitic is the height of hubris.

      Honestly, you have it exactly backwards. The government is a parasite on the free exchange of goods between free people. Granted, it’s a necessary parasite. But it’s a parasite nonetheless. Sheesh.


  5. Now this would apply to serious research requiring qualified physicists, chemists, engineers etc. Those are indeed in short supply. However it does not apply to e. g. climate science where knowledge or talent are not needed, or even undesirable, and there is therefore an essentially unlimited supply of “research workers”.

    • Mostly climate scientists are refugees from other fields and most don’t even qualify as scientists but are simply activists.

  6. Based on an assumption that when scientists and engineers get most of their funding from the public purse, there is less incentive to produce a profitable end product, it could be claimed that public funding increases the likelihood that results will be massaged in order to keep the funding flowing in.

    • Also likely that some of those funds will find their way into the coffers of activist groups if that will benefit the industries in question.

  7. The paper is quite confusing in that it talks about “Inventive Effort”. Invention is the eureka moment and the rest is perspiration. Private industry is about short and medium term development, they are only interested when the initial breakthrough and development has been undertaken.

    Government research efforts should have a more ‘Why is it so” focus. More detail in my book.

    • And yet the transistor was developed by a corporation, and not the government, even though it was and invention that required long term development. There are many other examples.

  8. Curiosity based research is like buying lottery tickets. If I buy a lottery ticket, I’ve probably wasted my money. Someone will win millions but it, almost 100% guaranteed, won’t be me.

    There is no good reason for private industry to fund curiosity based research. The vast majority of curiosity based research produces no useful result and the published findings are probably wrong anyway.

    Very occasionally, curiosity based research produces a scientific breakthrough. It can’t be predicted and it can’t be managed. The benefit to society is immense though. In fact, we’re probably in big trouble if there are no more breakthroughs.

    There’s no incentive for anyone but the government to pay for curiosity based research.

      • Google search links in any context are unacceptable to almost all of us. This seems to be happening a lot recently.

        Why not just put the link of the page you are referring to? Some of us don’t even use Google.

    • “There’s no incentive for anyone but the government to pay for curiosity based research.”

      True only if you are limited to “economic incentive”; and even then the idea that “government” should waste taxpayer money is debatable. People who can afford the time and expense will undertake “research” merely to satisfy “curiosity”. On a more basic level, people will spend money on research for the same reason they spend money on “the poor” or send boatloads of money to Africa– to feel good about themselves. The fact that government can waste billions reduces the incentive for even billionaires to satisfy their own curiosity.

    • Back in the day.
      Sherman, set the WAYBAK machine to 1970, USA. “OK, Mr.Peabody”

      Question: Who is the #1 leader in research in Pure Chemistry?
      You might think it was one of the big chemical companies, like Dow or DuPont. True they were major players in chemical research, but not the biggest.
      General Motors!
      Everything you can think of. Plastics for wiring insulation and vehicle interiors, rubber and synthetic cord for tires. Fuel science, lubricant science, paints, lacquers, finishes, corrosion resistance. Analytic methods for steel alloys.
      It should go without saying, but I know it needs to be said. You look at that list I just made, and dismiss it as applied research.
      Wrong, Wrong. Wrong.
      Pure research was conducted in all areas. The applied research people were so successful because they relied on the insights provided by the pure research people.

      Question: Who was #2?
      Maybe the big oil companies, or a refiner. Good guess.
      Answer: IBM!
      They knew the big breakthroughs needed for the whole new field of electronic computing would be led by revelations from pure research.
      The Icing On The Cake:
      Bell Labs.
      The pure research breakthroughs from that organization are the stuff of legend today.
      Everybody was doing applied research, everybody who could afford it was doing pure research to supply their applied research divisions.

      The outcome:
      The US was the world leader in *Everything*. Commercial aviation and jet aircraft design and manufacturing, biology, chemistry, physics, medicine, heavy industry, light industry, agriculture. Incredibly, the US had even sent expeditions to the Moon! Nobody else on the planet could touch that.

      It was fully, broadly and deeply, understood that the US dominance of our economy and industry rested on a foundation of hard science and applied research. It was also properly understood that US military and national security rested on that same foundation.

  9. What the government wants, the government gets. When the science is shakey that’s not always good.

    • Reminds me of the Government research on BIOFuel for fighter jets. [What has happened with that? All I hear is crickets.] Meanwhile, pilots are passing out due to O2 delivery system problems which are ignored during that period.

  10. No government funding was made available to us to develop technologies to reduce emissions by using fossil fuels. in fact the Government of Canada kicked me out for some reason, most likely because I was trying to save Alberta Bitumen Production. At least that sound reasonable. Being two days late on a letter I have never seen does not sound logical. I asked to see the letter and was told I was not allowed to see it.

  11. “… therefore, R&D should be subsidized.”

    You keep using that word. I don’t think it means what you think it means.

    “Should” is a moral imperative. The word has only meaning when it rests on a foundation of right/wrong, good/evil, and true/false. When barbarians tell us we “should” do something, they are demanding that we accept their moral framework, which in many cases does not exist.

    The true situation is this: They demand that we comply with their WISHES as if those wishes carried the force of Commandments.

  12. Guy who wrote this study was an Obama administration official. A pretty nasty partisan, as I remember. But that is OK.

    It proves what I have said for a long time. Most Federally funded research is just welfare for white people.

    • Austan Goolsbee, the author, is a commentator on Fox News Channel. He’s a lefty, but he sticks mainly to economic topics and he might spin things in a leftwing way, but I have never personally heard him tell an outright lie in an effort to further the leftwing agenda. He sticks pretty much to the facts.

    • What is more interesting to me was that this 20 year old study was partially funded by the American Bar Foundation. What’s with that?

    • Goolsbee is Keynesian, which I think is a flawed theory unless you just want a temporary boost that postpones the dreaded day when excessive debt must inevitably be dealt with one way or another, but I never got the impression that he was a “nasty partisan”–unlike the case with some of Obama’s other appointees.

  13. The idea that governments are more efficient at anything is a theoretical idea which ignores practical experience.

    The simple fact of the matter is that human beings will work harder and smarter to benefit themseles than they will to benefit a stranger.

    The problem comes when well meaning people start moralizing on this point, suggesting that human beings are somehow at fault as a result.

    From there it is a small step to embrace socialist and welfare models in which everyone eventually ends up working for the government.

    Time and time again governments have tried to change human nature. And in not a single case has this worked. No matter how many people governments have imprisoned or killed.

    Human nature remains unchanged. It is governments that eventually fail and are replaced.

    It makes no difference what human activity you talk about. Be it government or coaching sports or running a business.

    The most effective model is to reward the individual and punish the crowd. Models that reward the crowd and punish the individual almost without exception finish last.

    When things go right, praise the individuals that made it happen. When things go wrong, chew out everyone for not doing enough.

    Unfortunately governments tend to praise everyone when things go right and punish the few when things go wrong. Exactly the opposite of what human nature requires to succeed.

  14. R & D????
    It is pretty heavy on the ‘R’, but I don’t see a lot of ‘D’ coming out of the government trough feeders.

  15. The problem with Government Research is that it becomes “Institutionalized” like Climate Change research has. Once the researchers have solved the problem they know they are out of a job unless that can justify further research. Think of the real problems that have been researched, solutions provided and problem solved over the course of the CC problem, We have made extensive inroads into DNA, Proven there are Black Holes, Hypersonic aircraft, etc. Yet the institutionalized CC study continues. The CC group keeps pushing for Wind Turbines and Solar Panels and the next generation batteries that will make their dream work and it would have been solved if we had spent half of that amount on Nuclear. Any of the newest generation which are safer that the previous generations are orders of magnitude safer, in terms of total lives lost from their accidents and total impact in the environment. Why are a hundred deaths from Wind Turbines better than one from a nuclear power plant? Why is the environmental impact of the manufacture and siting of Wind and Solar, which is 10 to 100 times worse better than Nuclear? Provide me with ONE, just 1, environmental impact statement for a wind turbine siting, Same for Solar PV Farm, And the Solar furnace impact statement is a farce. [Killing hundreds of endangered turtles for a Solar Site that makes less power that a diesel generator. Yet the NPP EIS takes five years to develop and another five to ten more years to get NRC approved along with numerous hearings with hundreds of environmental intervenors, all paid for by the utility asking for the NRC approval and Paying the NRC for the review. And the approval process includes such things as the death toll of flora/fauna of the site which is 1/100 to 1/1000th the size of the Solar or Wind site which has NO IES. Obvious they are really not worrying about the environment at all. Just an excuse to kill Nuclear.

  16. Another trick used with these government spending studies, is that they assume there is no cost of money.
    That is, government spending is free, the money being used by government would have been just sitting around had government not taxed it away from the person who earned it.

  17. More corporate socialism. Government pays for R&D so the big corporations who control it dont have to. The corporations like Big Pharma then use the research to develop their product and patent it. The tax payers pay for the research, much of it behind a paywall so they cant access it, and pay monopoly prices for the products the research resulted it, with the companies paying little tax do to inflated salaries to top managementand and moving much of the profits offshore where the tax rate is now 11% – local taxes =0 paid to Uncle Sam. Before they just had to keep the profits in offshore accounts to avoid tax, now that can bring those back to buy their own stock to push prices higher so top managements stock options ate worth more.

    The biggest problem with government research was mentioned by Eisenhower in his farewell speech in 1961

  18. My degree was in physics. My career was engineering supporting a publicly held company as well as supporting Government R&D.
    I will attest that in almost all cases, the return on R&D investments by companies was much higher than the return on Government research. It was something we used to joke about. Government is not so interested in results as in proving that work is being done – efficiently or not.
    Remember the DNA mapping research that Government was doing years ago? A private company came along and completed the basic task years before the Government research was scheduled to complete. Works the same way in aerospace.
    A lot of us here have problems with Musk’s car company, battery factory, and solar efforts. But when you look at the numbers, SpaceX is nothing to laugh at. He did some amazing things – not because they engineers at Boeing and Lockheed are not as good, but because they are funded (and hobbled) by NASA and Air Force clients. That wasn’t always the case, but it sure is now.

  19. Back when the NIH budget doubled in a few short years under Clinton then Bush, they did a study to determine how many new scientists and labs were funded by the expansion.

    It turned out that the number of new scientists and labs stayed essentially the same as before, and most of the money went into additional funding for the large established labs. The rich got richer.

    The same was true under Obama with the stimulus money that went into science.

    Overall, the funding for graduate students and post docs is pitiful. Low salaries, no retirement benefits, no overtime pay, no job security, no unemployment benefits, it really is horrible.

    A high school dropout holding a flag on a federal construction site in NYC or Boston makes more than a new PhD post doc on an NIH grant in NYC or Boston.

    Yes, if you manage to scramble to the top, you get paid pretty well. Most don’t make it and have pretty dismal career prospects at the end of a long journey.

  20. I notice everybody is dancing around the elephant.
    We all know that the reason we got to the moon was because the American German engineers were better than the Russian German engineers.
    Similarly, we got the bomb because the American German physicists were better than the Russian German physicists.
    And the Russians got the bomb because they had Russian German American spies, and we didn’t have any.
    But in all cases it was originally the German government which funded the basic research that eventually produced the results for both Americans and Russians.
    So the moral of the story is that if you want results, abduct Germans and put them to work. And Aliens; if you can get Aliens, that’s even better.

    • “And the Russians got the bomb because they had Russian German American spies”—100% of the spies who funneled atomic research secrets to the Soviets were Jewish (Jews were huge fans of Communism in that era), but I do not know whether all of them were also German. After all, being Yiddish does not always mean that you are also German.

  21. One good exposé of the somewhat corrupted money-government-science interface is Daniel Greenberg’s 2001 book, Science, Money, and Politics: Political Triumph and Ethical Erosion.

  22. This is a subject where all simplifications are partially wrong.
    There is definitely poorly spent money (in industry too, by the way).

    However, pharma and agriculture companies basically spend no money on basic biology research.
    All money for basic biology (to a first order approximation) comes from government or endowed
    foundations. There are lots of people in biology related fields who end up working on wall street
    or someplace else because no one will fund them to follow their passion for basic research.

    Also please remember that the internet was invented by the US government and the
    commercial uses for the technology were discovered decades later.

    • No, the “Internet” was not invented by the Government. TCP/IP was developed within the DARPA program, and some of the other technologies were initially developed at taxpayer funded universities, but nobody can claim to have “invented the Internet”. It is an emergent property of millions of different inputs, some more important that others, but all are necessary for the Internet to exist in its current form.

  23. There is dearth of US Nationals earning PhD’s at our technical Universities. Without government funded research projects that will only get worse. Yes, a good portion of the finding goes for salaries of researchers, what does one expect. Aside from the equipment, it is the labor of the researchers that bring the projects to fruition.

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