Does Government R&D Policy Mainly Benefit Scientists and Engineers?

By Larry Kummar – Re-Blogged From WUWT

Does this apply to Climate Science?

Paper By Austan Goolsbee

NBER Working Paper No. 6532, Issued in April 1998

Conventional wisdom holds that the social rate of return to R&D significantly exceeds the private rate of return and, therefore, R&D should be subsidized. In the U.S., the government has directly funded a large fraction of total R&D spending.

This paper shows that 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. Using CPS data on wages of scientific personnel, this paper shows that government R&D spending raises wages significantly, particularly for scientists related to defense such as physicists and aeronautical engineers. Because of the higher wages, conventional estimates of the effectiveness of R&D policy may be 30 to 50% too high.

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.

Full paper here.

H/T Larry K of the FabiusMaximus website.

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The Cost Of Government Debt Is Immediate

By Steve Saville – Re-Blogged From Gold Eagle

Most warnings about large increases in government indebtedness revolve around future repayment obligations. For example, there is the concern that greatly increasing the government debt in the present will necessitate much higher taxes in the future. For another example, there is the concern that if the debt load is cumbersome at a time of very low interest rates, then as interest rates rise the interest expense will come to dominate the budget and lead to an upward debt spiral as more money is borrowed to pay the interest on earlier debt. Although these concerns are valid they miss two critical points, including the main problem with government borrowing.

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Crowding Out

cropped-bob-shapiro.jpg   By Bob Shapiro

Back in 1971-72, the Wall Street Journal ran a pair of editorials on how the government was crowding out the private sector. Back then, it was the “massive” official National Debt plus Unfunded Liabilities – together about $4 Trillion then compared to today approaching $250 Trillion.

The Wall Street Journal noted that all of that spending beyond Uncle Sam’s means (deficit spending) had to be financed through borrowing.

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