I’m reluctant to disagree with two excellent economists, but I’m rather disappointed that Gary Becker and James Heckman have a piece in today’s Wall Street Journal arguing that the federal government should subsidize economic research.
With the burden of government spending at record levels, every beneficiary of federal largesse should be willing to back away from the trough.
They obviously have a different perspective. Let’s look at some excerpts from their column.
…the great majority of economists have long agreed that the federal government should have an important role in the sponsorship of basic research. …Yet recent actions by Congress have threatened to restrict funding for basic research that focuses on economics. We believe such actions are misplaced… We cannot expect the market alone to support basic economic and social research, including data collection, since they are public goods that are difficult to appropriate privately. In cutting out the considerable fat from the public diet we should not cut the muscle that has helped make our economy the largest and strongest in history.
Much of their column is dedicated to examples of academic research that have yielded benefit for the rest of society. But even if we assume their examples are completely accurate, that doesn’t necessarily mean that federal subsidies generate a good rate of return.
I’m sure there must be examples of people who took welfare money, managed to avoid the trap of dependency, and then went on to live very productive lives. That doesn’t mean that welfare programs, on net, have a positive impact on the economy.
Likewise, there must be tens of thousands of people who became entrepreneurs, investors, and business owners after getting government grants and other subsidies to attend college. But that doesn’t mean that those success stories aren’t outweighed by costs such as diversion of capital, tuition hikes driven by third-party payer, and excessive student debt.
This doesn’t mean that spending on economic research is necessarily counterproductive, but it does mean that a few positive examples are not enough to settle the debate. Likewise, if I had an intern find examples of government-funded economic research that was either frivolous or destructive, that wouldn’t prove such spending is automatically wasteful.
Let’s close this post by suggesting where there could be consensus. As I noted in my Rahn Curve video, there are some forms of government spending that are associated with better economic performance. Examples of such “public goods” include expenditures to maintain the rule of law, uphold property rights, and enforce contracts.
I’m skeptical about whether economic research is a public good that requires government subsidies, but Becker and Heckman are right in the column when they note that our fiscal problems are due to the “growth of entitlement spending.”
So let’s all agree that we should reform entitlements and shut down useless federal departments.
Then we can have a good debate about spending for “major public physical capital investment” and “conduct of research and development,” which I’ve previously explained amount to less than 10 percent of the federal budget.