Tuesday, April 28, 2009

Mixed signals on research and development

This is what President Obama says:

When the Soviet Union launched Sputnik a little more than a half century ago, Americans were stunned. The Russians had beaten us to space. And we had to make a choice: We could accept defeat or we could accept the challenge. And as always, we chose to accept the challenge.

President Eisenhower signed legislation to create NASA and to invest in science and math education, from grade school to graduate school. And just a few years later, a month after his address to the 1961 Annual Meeting of the National Academy of Sciences, President Kennedy boldly declared before a joint session of Congress that the United States would send a man to the moon and return him safely to the Earth.

This is what his senior economic adviser, Austan Goolsbee, says:
... 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. ... 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.
(Via Greg Mankiw)

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