Tuesday, April 28, 2009

Goolsbee vs Obama on Research Subsidies

Professor Goolsbee wrote that research subsidies do not create research, they just raise the wages of scientists. Now some Obama opponents are using Goolsbee's result as a critique of Obama's policy to significantly subsidize research.

This is not a valid critique of Obama's policy, because Professor Goolsbee was wrong. Professor Goolsbee (incorrectly) thought that scientifically-trained labor (that is, people trained to do, and actually doing, scientific research jobs) is inelastically supplied in the aggregate, so that public subsidies just reallocate scientists from the private sector to the public sector [this is the crowding out issue at an occupation level: crowding out is real, but at that level cannot be one-for-one].

Scientifically-trained labor talent is SURELY elastically supplied in the long run.

Even over the span of a few years, scientifically-trained labor may be elastically supplied. The late Professor Sherwin Rosen and Chicago alumnus Jaewoo Ryo showed that "and enrollment decisions are remarkably sensitive to career prospects in engineering."

Even if the scientifically-trained labor were elastically supplied in the long run and inelastically supplied in the short run, public subsidies would still increase the aggregate amout of research. The only exception would be that policy makers were able to make students expect no subsidy when they chose their occupation (thereby eliciting no additional supply in the long run) but then later surprising them by actually paying one, and in the process failing to create an expectation of future subsidies.

The valid reason to oppose Obama's policy is that politicians and government bureaucrats are poor judges of how scientists should spend their time.

[Although Professor Goolsbee came to the wrong conclusion on scientific research subsidies, I admire how he reframed the issues of tax and expenditure subsidies. I agree with him on the methodology point that it is often helpful to consider whether short run supply is elastic.]


Unknown said...

"The valid reason to oppose Obama's policy is that politicians and government bureaucrats are poor judges of how scientists should spend their time."

I agree with that. But politicians and bureaucrats have no sense of cost control nor the ability to price research value as effectively as the free-market. In some transitive form, political self-dealing probably spillsovers higher scientific salaries for existing researchers. So I'm a bit unwilling to discount Goolsbee's initial research entirely.

Furthermore, there has to be a short-run crowding out effect. The short-run crowding out effect will be exacerbated (and pro-long into the long-run) by the poor policy on how scientists should research our physical universe.

Unknown said...

The role of government in terms of R and D is to not care about the long term outcomes; invest in projects that right now appear to have no possible application in any way. Explore all the possibilities. No private corporation would do that/could do that. Those that have tried have failed.

My favorite example is the resarch that discovered proteases, which then led teh team to develop a method to stop them from working. these protease inhibitors have since becoem a useful thrapy for aids, and other viral disorders as well as extremly useful information fo the field of structural biology as a whole. No oen could have predicted that. That is the role of government in R and D. Take teh insane risks. There is no Cost Benefit analysis; if there was teh private market woudl have been all over the opportunity to make money.