[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.]
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.