This essay won second prize in the CSPI Essay Contest: Policy Reform for Progress.

Science, broadly defined as understanding and control of the natural world, is at the foundation of every step humanity has taken from hunter-gatherer to post-industrial knowledge worker. If we hope to take further steps into a new future, whether it be planet-faring space colonization, solar-punk communalism, or crypto-capitalist globalization, more science will be needed.

The importance of science to civilizational progress makes the organization of its production of paramount importance. Our current method of buttressing market production with state subsidies nominally contributes hundreds of billions towards science, but it produces turbulent second-order effects and strategic adaptations which dissipate most, if not all, of the nominal gains. Therefore, increasing tax dollars for science without changing the channels through which it flows will not be sufficient to bring the production of truly impactful science up to socially optimal levels.

Context

Government funding of science, especially at the massive scales seen today, is a recent phenomenon tracing back to WWII. Before 1940, over 90% of research and development was funded privately. Today, industry outspends government on research and development almost 3 to 1.

Still, the logic behind state support of science is strong. Scientific ideas have positive impacts that researchers are not rewarded for. The best scientific ideas are important long after the death of their creator. They are spread around the world and inspire many subsequent advances. William Nordhaus estimated that less than 2% of the gains in human welfare from scientific advances are actually captured by the creator. These positive externalities imply underproduction of the most important input into civilizational progress, making science a prime target for subsidy.

Acknowledging that science and technology are underrewarded by markets is easy but figuring out the best way to correct this is more difficult. In total, the federal government spends around $120 billion dollars on science and its applications. Most of this money is distributed through grants to researchers and universities. About half of these funds are spent by the Department of Defense (DoD), and most of the other half goes through the National Institutes of Health (NIH) and the National Science Foundation (NSF).

While this government support has significantly increased the number of PhD researchers and the volume of published papers, the outputs of scientific progress that we care about no longer seem to be tracking with these metrics. Half of all scientific papers ever published were published in the last 12 years, but it is clear that much less than half of all scientific progress occurred in that time. The number of published papers, citations, and patents are becoming decoupled from total factor productivity growth, per capita energy use, travel speeds, and construction costs.

The Problems

Rent Dissipation

The first problem with our current methods for funding science and technology is called rent dissipation. When we say that “the federal government spends $120 billion on science” we have to subtract from that sum the value of all the time and resources that were spent courting that transfer of tax dollars. This idea was first developed by economist Gordon Tullock in a study of protected monopolies. Take, for example, a cable company that is given a monopoly on TV services. Econ 101 analyzes the situation with a graph:

Monopolies are inefficient so there is some pure loss of resources to society, represented by the green triangle. The monopoly can charge a higher price than normal from their customers, so they make extra profit, represented by the pink rectangle. This money is just transferred from consumers to the monopolist, so it’s not deadweight loss. As Tullock says, “We may object to the monopolist getting rich at the expense of the rest of us, but it is not a decrease in the national product.”

However, Tullock knew that these government transfers are not random – they are bought, sold, and produced by lobbying and political influence. If the monopoly contract gives our cable company 2 million dollars in extra profit, then they can spend $1,900,000 on lawyers and political campaigning and still make a profit, although they produce nothing for society. This spending on rent-seeking is deadweight loss and it dissipates the positive effect of the transfer.

A similar story can be told with state funding of scientific research. Government transfers wealth to researchers, but they only get what the government gives them minus what they spent acquiring the funding. What are the costs of getting scientific funding from the state? They include completing application forms and writing grant proposals, changing your research agenda to fit the state’s goals, and waiting weeks, months, or years for revisions and decisions. These costs are not insignificant. A survey done by Fast Grants of the hundreds of scientists that they have funded over the past few years reveals that:

• 32% said that Fast Grants accelerated their work by “a few months.”

• 64% of respondents told us that the work in question would not have happened without receiving a Fast Grant.

• 57% of respondents told us that they spend more than one quarter of their time on grant applications.

• 78% said that they would change their research program “a lot” if their existing funding could be spent in an unconstrained fashion.

• 81% percent of those who responded said their research programs would become more ambitious if they had such flexible funding.

• 62% said that they would pursue work outside of their standard field (which the NIH explicitly discourages).

• 44% said that they would pursue more hypotheses that others see as unlikely.

A scientist who benefits from a 2-million-dollar NIH grant is willing to spend a million dollars of their time working on applications or incur the cost of restricting their research ideas in order to get it. Importantly, even though only one scientist will get the grant, hundreds of scientists are spending resources in competition to get it. So the gains we might be seeing from transferring resources to one researcher are dissipated multiplicatively across all the scientists who spent time and money competing for the grant but didn’t get it. The aggregate time costs to our brightest minds from this application contest system are quantifiably large, possibly entirely offsetting the total scientific value of the research that the funding supports. The costs of restricted research agendas, while much harder to measure, are plausibly even larger. As the ratio of applicants compared to awardees continues to grow, more researchers' time is wasted for the same benefits.

Risk Aversion

The second countervailing effect of state-funded science is the risk aversion inherent in the consensus-based bureaucracy that runs our government and universities. Exemplifying this is the NIH’s council of councils that administrates their numerous sub-councils and committees. Successful NIH grant applications are typically reviewed by 10-20 scientists and program officers across three phases of review over months to years. In some sense this is good, since attestation from qualified colleagues is obviously good evidence for the quality of an idea. However, our current system is only one of many different ways of measuring and integrating this evidence, and it comes with some serious drawbacks.

In our current science funding vetocracy, only ideas that few or no established scientists object to will be funded and rewarded. Naive credentialism sees this as a good thing, but hindsight shows that many of the most transformative discoveries we take for granted today were objected to by the most prestigious scientists and experts of their time.

• 1878: “When the Paris Exhibition closes, electric light will close with it and no more will be heard of it.” – Oxford professor Erasmus Wilson.

• 1889: “Fooling around with alternating current is just a waste of time.  Nobody will use it, ever.” – Thomas Edison

• 1895: “Heavier-than-air flying machines are impossible.” – Lord Kelvin, British mathematician and physicist, president of the British Royal Society.

• 1913: “Lee DeForest has said that it would be possible to transmit the human voice across the Atlantic before many years. Based on these absurd and deliberately misleading statements, the misguided public ... has been persuaded to purchase stock in his company ...” – a U.S. District Attorney, prosecuting American inventor Lee DeForest for selling stock through the mail for his Radio Telephone Company.

• 1932: “There is not the slightest indication that nuclear energy will ever be obtainable. It would mean that the atom would have to be shattered at will.” – Albert Einstein.

• 1939: “Look, you should stop the work you are doing. It isn’t going to work. You know it’s not going to work. We know it’s not going to work. You’re wasting money. Just stop!” – Nobel Laureates Isidor Rabi and Polykarp Kusch to future Nobel Laureate Charles Townes about his work on the laser.

• 1946: “Television won't be able to hold on to any market it captures after the first six months. People will soon get tired of staring at a plywood box every night.” – Darryl Zanuck, 20th Century Fox.

• 1961: “There is practically no chance communications space satellites will be used to provide better telephone, telegraph, television or radio service inside the United States.” – T.A.M. Craven, Federal Communications Commission (FCC) commissioner.

Sitting on present-day review boards, any one of these highly qualified commentators would have vetoed funding and publication for these projects which, in hindsight, we know were all huge successes. This past perspective should illuminate the lost potential of present-day projects which are shut down by a confident veto on a peer review committee. More recent examples include promising research paths to a cure for Alzheimer’s being shut down and Katalin Karikó, a principal researcher behind mRNA vaccines, being denied funding and demoted from her position at the University of Pennsylvania. In aggregate, this bias towards consensus has led to huge investments in paradigm-confirming incremental papers that are likely to garner citations, but unlikely to make impactful advancements in our understanding. This has resulted in ossification of the most influential papers in a field rather than the turnover characteristic of a field correcting and improving itself, and underinvestment in young scientists who are most likely to make paradigm-shifting discoveries.

The Proposal: Researcher Guided Funding

The problems outlined above are not insurmountable. With significant reforms, government funding of science could promote the production of positive externalities without creating undermining incentives. What would these reforms look like, and how would they improve on market outcomes?

To avoid rent dissipation and risk aversion, our state funding of science should be simplified and decentralized into Researcher Guided Funding. Researcher Guided Funding would take the ~$120 billion spent by the federal government on science each year and distribute it equally to the ~250,000 full-time research and teaching faculty in STEM fields at high research activity universities, who already get 90% of this money. This amounts to about $500,000 for each researcher every year. You could increase the amount allocated to some researchers while still avoiding dissipating resources on applications by allocating larger grants in a lottery that only some of them win each year. 60% of this money can be spent pursuing any project they want, with no requirements for peer consensus or approval. With no strings attached, Katalin Karikó and Charles Townes could use these funds to pursue their world-changing ideas despite doubt and disapproval from their colleagues. The other 40% would have to be spent funding projects of their peers. This allows important projects to gain a lot of extra funding if a group of researchers are excited about it. With over 5,000 authors on the paper chronicling the discovery of the Higgs Boson particle in the Hadron Supercollider, this group of physicists could muster $2.5 billion dollars a year in funding without consulting any outside sources. This system would avoid the negative effects of long and expensive review processes, because the state hands out the money with very few strings, and risk aversion among funders, because the researchers individually get to decide what to fund and pursue.

This idea is not fully fleshed out and there are some immediate problems that arise. An equal distribution of funding among all STEM researchers is a poor first approximation since some researchers are much more impactful than others, although the fungible 40% would flow mostly towards top talent. Additionally, since this distribution is defined via somewhat arbitrary classifications of universities, there would be discontinuities at the boundaries between STEM and non-STEM fields and high vs. not high research activity universities. Large sums of money would become available to universities and fields that managed to change their classification, so there would be a surge of claimants who would dilute funding from our most important researchers.

The True Proposal: Experimentation

The unsolved issues with this proposal lead me to the true proposal for reforming government funding of science: a government that rapidly experiments with many different strategies. Not all that many ways of funding science have been tried, so no one has strong evidence that their preferred system will work. What we do know is that our current system is falling short. A truly enlightened state would use the same scientific method it is funding to analyze and improve its own efforts over time.

With the current $120 billion that the federal government spends on science and technology, we could create 10 focused research organizations for different scientific and technological goals in artificial intelligence, bio-engineering, advanced transportation, and energy tech – each with a $10 billion dollar budget and unique management strategy. We would still have $10 billion dollars left to fund 100 hundred-million-dollar prizes for achievements in a wide range of fields, and $5 billion more to distribute annually in 5 thousand Macarthur-style genius grants to the nation’s top minds to be put towards any project they wish. The final $5 billion would be used to fund a meta-study of the impacts and efficiencies of each of these strategies. The allocations between each of these strategies or new funding methods can be randomly tweaked to provide exogenous variation necessary to study the causal effects of marginal increases in funding between each of these strategies. As we gather more data over time, we can decide to change the permanent allocations of funding between strategies or introduce new funding methods that we want to test.

Conclusion

Government funding of science is a logical and well-intentioned attempt to increase the production of a positive externality. However, the institutional forms in which we have chosen to distribute these funds have created parasitic drag on the progress of science. There are many exciting proposals for new ways to fund science, but picking any one of these without rigorous experimentation would be foolish and ironic. The best proposal for science funding reform is to apply science to the problem. Rapid and large-scale experimentation is needed to continuously update and improve our science funding methods.

Maxwell Tabarrok is an Econ and Math student at the University of Virginia. He blogs at maximumprogress.substack.com. Follow him on Twitter @MTabarrok.

Read the other prize-winning essays from the CSPI Essay Contest:

• “Gathering Steam: Unlocking Geothermal Potential in the United States” by Andrew Kenneson

• “Drone Airspace: A New Global Asset Class” by Brent Skorup

• “The University-Government Complex” by William L. Krayer

• “It’s Time to Review the Institutional Review Boards” by Willy Chertman