The 3 Myths Supporting NIH Funding

By Zachary R. Caverley. He is a Physician Assistant practicing Cardiology in Oregon. From Reason. Excerpt:

"Myth No. 1: The U.S. Cannot Be an Innovative Research Leader Without Strong Public Funding

Shortly after the funding cuts were announced, a member of the University of California, Santa Cruz's informatics team wrote, "American research institutions have historically been at the forefront of medical and technological advancements. This proposal is a fast track to reversing that. Other countries that actually invest in research will surge ahead while U.S. institutions struggle to keep the lights on."  

These arguments make sense only if the following assumptions are accurate: that the amount of NIH spending is important for scientific achievement, and that publicly funded academic research is the primary factor needed for innovation. These assumptions don't stand up under scrutiny. 

Like many things in U.S. research, the NIH owes its growth to the spoils of war. The Ransdell Act of 1930 that established NIH research fellowships was the product of World War I chemists looking for funding to apply their knowledge to medical issues. The subsequent Public Health Service Act of 1944 arose from proponents such as Vannevar Bush, who ran the Office of Scientific Research and Development during World War II, wanting to ensure the massive federal science endowments that took place during the war would continue through peacetime. From these efforts, despite U.S. science previously being mostly laissez faire, the NIH budget would expand from $8 million in 1947 to more than $1 billion in 1966. If federal funding is a prerequisite for scientific innovation, we would expect a severe lack of the latter in medicine prior to the expanded federal role.

But in the early 20th century, philanthropists were already funding the type of research the NIH later did, with impressive yields. Among them was the Rockefeller Foundation, whose research led to the discovery of a vaccine for yellow fever, advanced the understanding of cell biology, and assisted the efforts to mass produce penicillin. For this latter effort, U.S. pharmaceutical firms proved to be the key component to produce enough penicillin to sustain the war efforts and help save the lives of wounded soldiers.     

U.S. biomedical science in the era before the NIH was spreading federal money was not hurting for private support, and while some insist that increased government spending only strengthened a good foundation, the public sector's role is often overstated regarding some canonical research achievements. The Human Genome Project is a good example. The NIH correctly asserts this groundbreaking international collaboration "changed the face of the scientific workforce," but it was only made possible by the automatic gene sequencer developed by Leroy Hood, who noted the invention received "some of the worst scores the NIH had ever given."

It was only through the generosity of Sol Price—the founder of warehouse superstores—that the technology came to fruition and the human genome was finally sequenced. Similar stories of private generosity in place of government grants can be found for stem cell research.

As for the importance of publicly supported academics, consider the story of mRNA vaccine development. The NIH timeline implies that smart government investment into years of HIV research was the key to this lifesaving technology, but the chief innovator of the eventual product, Katalin Karikó, was roadblocked for years in academia and even demoted for her lack of grant acquisition. She would later leave the university setting and work for BioNTech in the private sector to create the Pfizer vaccine. Her story is conspicuously absent from the NIH timeline of events.

Karikó's experience suggests that public funding for academic science is not necessarily the crucial factor for scientific advancement and innovation. In practice, the private sector drives new technologies. Drug development, for instance, would be impossible without the power of the pharmaceutical industry to fund new chemical entities. Authors of a 2016 survey on some of the most transformational drug therapies that appeared in the journal Therapeutic Innovation & Regulatory Science wrote that "without private investment in the applied sciences there would be no return on public investment in basic science." 

A subsequent analysis in 2022 in the same journal found that only privately funded projects actually hit the market as Food and Drug Administration–approved therapies and that public funding had a possible negative effect on achieving approval. Note the cautious interpretation by the authors: "Our study results underscore that the development of basic discoveries requires substantial additional investments, partnerships, and the shouldering of financial risk by the private sector if therapies are to materialize as FDA-approved medicine. Our finding of a potentially negative relationship between public funding and the likelihood that a therapy receives FDA approval requires additional study" (emphasis added).

If it cannot deliver therapies, federally funded science should at least be producing noteworthy and reproducible science. A writer for Psychology Today noted this month that the federal government is the largest funder of psychological research. But should we consider that a good thing? Psychology is a research field where as low as one-third of the findings can be replicated for a given set of publications, which calls into question the trustworthiness of that nonreproducible work. Even outside psychology, it is not even clear that federally funded research is producing our most noteworthy scientists: A large majority of researchers authoring the most highly cited papers in the biomedical research field operate without NIH funding."

Maybe public science is not a non-rival public good that feeds into corporate R&D through knowledge spillovers

See The Effect of Public Science on Corporate R&D from Tyler Cowen.

"We study the relationships between corporate R&D and three components of public science: knowledge, human capital, and invention. We identify the relationships through firm-specific exposure to changes in federal agency R\&D budgets that are driven by the political composition of congressional appropriations subcommittees. Our results indicate that R&D by established firms, which account for more than three-quarters of business R&D, is affected by scientific knowledge produced by universities only when the latter is embodied in inventions or PhD scientists. Human capital trained by universities fosters innovation in firms. However, inventions from universities and public research institutes substitute for corporate inventions and reduce the demand for internal research by corporations, perhaps reflecting downstream competition from startups that commercialize university inventions. Moreover, abstract knowledge advances per se elicit little or no response. Our findings question the belief that public science represents a non-rival public good that feeds into corporate R&D through knowledge spillovers.

Emphasis added by me.  That is a new NBER working paper by Ashish Arora, Sharon Belenzon, Larisa C. Cioaca, Lia Sheer & Hansen Zhang."

Leonhardt on investment

By John H. Cochrane.

"David Leonhardt's pean to investment in the Sunday NY Times Magazine starts well:

A cross-country trip today typically takes more time than it did in the 1970s. The same is true of many trips within a region or a metropolitan area....Door to door, cross-country journeys often last 10 or even 12 hours.

Compare this stagnation with the progress of the previous century. The first transcontinental railroad was completed in 1869... revolutionizing a journey that had taken months. People could suddenly cross the country in a week. Next came commercial flight... Finally, the jet age arrived: The first regularly scheduled nonstop transcontinental flight occurred on Jan. 25, 1959, from Los Angeles to New York, on a new long-range Boeing jet, the 707....

In the more than 60 years since then, there has been no progress. Instead, the scheduled flight time between Los Angeles and New York has become about 30 minutes longer.  Aviation technology has not advanced in ways that speed the trip, and the skies have become so crowded that pilots reroute planes to avoid traffic. Nearly every other part of a cross-country trip, in airports and on local roads, also lasts longer. All told, a trip across the United States can take a few more hours today than in the 1970s

(If you want to skip to the snark, it's in "review" below.) 

On the surface too, 

In 1969, Metroliner trains made two-and-a-half-hour nonstop trips between Washington and New York. Today, there are no nonstop trains on that route, and the fastest trip, on Acela trains, takes about 20 minutes longer than the Metroliner once did. Commuter railroads and subway lines in many places have also failed to become faster. When I ride the New York City subway, I don’t go from Point A to Point B much faster than my grandparents did in the 1940s. For drivers — a majority of American travelers — trip times have increased, because traffic has worsened. In the California metropolitan area that includes Silicon Valley, a typical rush-hour drive that would have taken 45 minutes in the early 1980s took nearly 60 minutes by 2019. 

Why?

Why has this happened? A central reason is that the United States, for all that we spend as a nation on transportation, has stopped meaningfully investing in it.... Historically, the most successful economic growth strategy has revolved around investment. It was true in ancient Rome, with its roads and aqueducts, and in 19th-century Britain, with its railroads. During the 20th century, it was true in the United States as well as Japan and Europe. 

The latter is not quite true. The most successful economic growth strategy is productivity, gained from new ideas embodied in new products and new companies. But it would be quite useful to get from place to place faster. 

Leonhardt makes a decent case for government investment in basic research and public goods: 

Investments are expensive for a private company, and only a fraction of the returns typically flows to the original investors and inventors. Despite patents, other people find ways to mimic the invention. Often, these imitators build on the original in ways that are perfectly legal but would not have been possible without the initial breakthrough. Johannes Gutenberg did not get rich from inventing the printing press, and neither did Tim Berners-Lee from creating the World Wide Web in 1989....

The earliest stages of scientific research are difficult for the private sector to support. In these stages, the commercial possibilities are often unclear. An automobile company, for example, will struggle to justify spending money on basic engineering research that may end up being useful only to an aerospace company. Yet such basic scientific research can bring enormous benefits for a society. It can allow people to live longer and better lives and can lay the groundwork for unforeseen commercial applications that are indeed profitable.

True but overstated. We might see a lot more private investment if we didn't tax its returns after all. A perfectly logical case for eliminating corporate income taxes and individual taxes on investment returns follows, but of course you won't hear it in the pages of the NYT.

He goes on to laud military spending for its speeding of technical progress. A perfectly logical case for much larger military spending also follows. 

Yes, 

Without a doubt, government officials make plenty of mistakes when choosing which projects to fund. They misjudge an idea’s potential or allow political considerations to influence decisions..

He excuses these, a bit too quickly I think:

Yet these failures tend to be cheap relative to the size of the federal budget, at least in the United States. (The risks of overinvestment are more serious in an authoritarian system like the old Soviet Union or contemporary China.) Even more important, a few big investment successes can produce returns, in economic growth and the resulting tax revenue, that cover the costs for dozens of failures. IBM and Google can pay for a lot of Solyndras.

Without a Cold War it is easy to throw immense down ratholes. More on that coming. 

Just as important, government can reduce its involvement as an industry matures and allow the market system to take over. After the government creates the initial demand for a new product, the sprawling private sector — with its reliance on market feedback and the wisdom of crowds — often does a better job allocating resources than any bureaucratic agency.

I'm grateful for the acknowledgement, but though the government can, will it do so? Car companies are headed down an infernal abyss of crony-capitalism. Energy subsides do not seem headed for free market Nirvana. Tech companies are becoming government controlled. 

Education also fits the definition of a program that requires spending money today mostly to improve the quality of life tomorrow. In the middle of the 20th century, education was the investment that turbocharged many other investments.

Yes. An eloquent case for education follows.  And education seems the poster child for how the government can send endless money down larger and larger ratholes to no effect. 

The stagnation of investment does not stem only from the size of government. It also reflects the priorities of modern government, as set by both Republicans and Democrats. The federal government has grown — but not the parts oriented toward the future and economic growth. Spending has surged on health care, Social Security, antipoverty programs, police and prisons. (Military spending has declined as a share of G.D.P. in recent decades.) All these programs are important. A decent society needs to care for its vulnerable and prevent disorder. But the United States has effectively starved programs focused on the future at the expense of those focused on the present.  ...

This great American stagnation has many causes, but the withering of investment is a major one.  

Yes. 

Review:

At this point, the essay could easily have segued straight in to a techno-optimist manifesto, like the eloquent one posted by Mark Andreesen. Certify supersonic planes! Hyperloop. A rapid push for self-driving cars. Repeal Davis-Bacon, and other measures that drive up costs. Reform zoning laws and environmental review. Sure, increase federal research and R&D spending, but reform it as well. Driving it all, get back to energy abundance with a vastly deregulated nuclear regulatory commission. Focus transportation on speed. (It's a tragedy that we build light rail and subway lines with no express trains, so they take longer than totally jammed freeways. Could it all be just for show?) 

It did not. Instead, too predictably for The New York Times, it went on to cheer "Bidenomics," 

President Biden has made investment the centerpiece of his economic strategy — even if that isn’t always obvious to outsiders. He has signed legislation authorizing hundreds of billions of dollars to rebuild the transportation system, subsidize semiconductor manufacturing and expand clean energy. These are precisely the kinds of programs the private sector tends not to do on its own. All told, Biden has overseen the largest increase in federal investment since the Eisenhower era. Notably, the infrastructure and semiconductor bill both passed with bipartisan support, a sign that parts of the Republican Party are coming to question the neoliberal consensus. As was the case during the 1950s, the threat from a foreign rival — China, this time — is focusing some policymakers on the value of government investment.

Just about every word of this epitomizes why we are in the sorry state we are. The Biden Administration's Federal Highway Administration declared (see previous blog post)  that none of the "infrastructure'' money would be used to expand road capacity, or, most scandalously, "have significant impacts to travel patterns!"  Rebuild, perhaps, but not if it solves any of the problems in the first paragraph. No, the private sector will not "subsidize semiconductor manufacturing." Wasn't that exactly the sort of activity that Leonhardt just said is best for the private sector to do? Semiconductor manufacturing is doing just fine abroad. The massive money is earmarked to bring it to the US, where we will do it more expensively. This is simple protectionism on steroids; do to chip manufacturing what the Jones Act did for the Merchant Marine and sugar subsidies do to them. "Expand clean energy" with mind-boggling subsidies and protection -- on the order of a Trillion dollars, largely for current generation battery powered electric cars, which save no carbon, and which China can also make more cheaply if you care about the environment. 

And most deeply, US chips and green energy subsidies don't make anything cheaper, faster, or better. They  just do what we already do in the US, at vastly greater cost, and in a different way. Even if electric cars did save carbon, they would not get you to the airport any faster. 

The problem with US public investment is not just lack of money. It is that the money we do spend goes down ratholes, so not spending is wise. Public teacher unions that deliver generations of children, mostly already disadvantaged, who cannot read or count. $4 billion dollar per mile subways. Leonhardt mentions other countries' success with high speed trains, without mentioning the poster child for all that is wrong with US public investment: the California railroad. 15 years and counting, $100+ billion dollars, not a mile of track laid yet. SNCF, the French state railroad company smelled so much rot it wouldn't touch the project.  

If it were not so perfectly obvious to voters that money will be wasted, they might support a lot more investment."

Rivals Help Fund Regeneron’s Gene-Sequencing Effort

Drugmakers including Pfizer, Biogen and AbbVie will get advance access to genetic database aimed at bolstering research

By Joseph Walker of The WSJ. Excerpts:

"Some of the world’s largest pharmaceutical companies are pooling resources to fund an ambitious genetic and medical database aimed at bolstering the search for new drugs.

AbbVie Inc., ABBV -1.01% Alnylam Pharmaceuticals Inc., AstraZeneca AZN 2.16% PLC, Biogen Inc. BIIB -0.63% and Pfizer Inc. PFE -0.60% will pay $10 million each to Regeneron Pharmaceuticals Inc., REGN 0.60% which began the project last year in partnership with the U.K. Biobank, a nonprofit that has collected DNA samples and health records from half a million people in the U.K., and drugmaker GlaxoSmithKline GSK -1.30% PLC.

The new funding will help Regeneron complete the database by the end of next year, the companies said Monday. In exchange, the five companies will have exclusive access to the data for six to 12 months before it is made public for all researchers to use, a Regeneron spokeswoman said.

Regeneron, based in Tarrytown, N.Y., is responsible for sequencing the genes of all 500,000 people, and originally planned to have the work completed by 2022.

By combining a large volume of genetic data with medical records, including imaging scans of the brain and other organs, the database will better enable researchers to search for disease-causing genes and develop drugs that attack the disease, George D. Yancopoulos, Regeneron’s president and chief scientific officer, said in an interview. In addition, by better understanding the genetic causes of disease, companies will be able to better predict whether their drugs will work in clinical trials and improve their research and development productivity, he said.

“This is an incredible treasure trove, and that’s why this deserved to go out there to other companies and the public so that everybody can take advantage of it,” Dr. Yancopoulos said. “This is going to be a great contribution to all mankind, that all of us will be using for years to come.”

When the project was first announced last year, the U.K. Biobank said it expected the cost of sequencing genes for all 500,000 patients to be about $150 million.

GlaxoSmithKline declined to participate in the second phase of the research project, Regeneron said. A GlaxoSmithKline spokeswoman said the company is instead pursuing a project to sequence the genomes, or entire set of DNA, for the 500,000 patients in the U.K. Biobank. Glaxo said in December that it would invest £40 million ($54.3 million) in the project and other research initiatives, but hasn’t said when it expects to complete it."

Private Science vs. Government Science

By Chris Edwards of Cato.

"In researching an upcoming study on privatization, I came across an interesting illustration of the advantages of private science over government science. Private science focuses on efficiency and results, but government science maybe not so much. 

The study by Jonathan Karpoff in the Journal of Political Economy found:

From 1818 to 1909, 35 government and 57 privately-funded expeditions sought to locate and navigate a Northwest Passage, discover the North Pole, and make other significant discoveries in arctic regions. Most major arctic discoveries were made by private expeditions. Most tragedies were publicly funded. By other measures as well, publicly-funded expeditions performed poorly. … Although public expeditions made some significant discoveries, they did so at substantially higher cost (as measured by crew size or vessel tonnage) than private discoveries.

Historical accounts indicate that, compared to private expeditions, public expeditions: (1) employed leaders that were relatively unmotivated and unprepared for arctic exploration; (2) separated the initiation and implementation functions of executive leadership; and (3) adapted slowly to new information about clothing, diet, shelter, modes of arctic travel, organizational structure, and optimal party size. These shortcomings resulted from, and contributed to, poorly aligned incentives among key contributors.

My upcoming study will look at the advantages of privatizing federal activities such postal services, air traffic control, and passenger rail. But policymakers should also explore the advantages of privatizing federal science activities.

Cato adjunct Terence Kealey has written about the advantages of private over government science, and he will discuss that topic at an upcoming Chicago seminar.

Meanwhile, if you plan to explore the Arctic, it would be best to go on a private rather than government ship. There would be less chance of getting scurvy–at least that’s the way it used to be, according to Karpoff."