Governments Should Not Fund Research

Jeffrey Miron and Jacob Winter

This article appeared on Substack on July 27, 2023.

In fiscal year 2022, the federal government spent $76 billion subsidizing nondefense, scientific research. This component of federal expenditure is modest relative to the $6.27 trillion total or the $632.7 billion private sources spent on research and development in 2021. It nevertheless merits scrutiny.

The standard argument for these subsidies distinguishes two types of research.

Basic research expands human knowledge but without easily captured commercial benefit. Examples include probing the origins of the universe, the composition of protons, or the fundamental laws of physics. Once known, these “pure ideas” spread easily, so the creator cannot earn a monetary return.

Applied research generates marketable innovation: improved crop production, treatments for specific diseases, or improved energy efficiency. Crucially, according to the standard model, this research builds on the theoretical foundations derived from basic research.

Without subsidies for basic research, therefore, applied research might suffer.

This model of the innovation process plausibly describes much innovative activity (or lack thereof). Yet the standard model is not the whole story.

Many scientists (e.g., Michael Faraday) investigate for the joy of discovery, not to earn a financial return. Further, many esteemed inventors received no government funding, including Thomas Edison, Nikola Tesla, and the Wright brothers (who were competing with government funding to the Smithsonian Institution to develop aircraft).

Even if financial incentives are important for generating basic research, moreover, universities and private charity provide alternative sources of funding. At institutions of higher learning, including ones historically funded privately, scientists earn a living by teaching, while getting time for their research.

Private charity also funds basic research. The American Cancer Society, 100 years old this year, collects personal donations and invested more than $145 million in cancer research in 2022, and more than $5 billion since 1946. Its history suggests that private charities are willing to invest in research that government might avoid. When the ACS was founded, it was taboo to even discuss cancer in public.

Private charities fund numerous areas of research. The Howard Hughes Medical Institute funds about $660 million in medical research per year, and countless charities focus on specific diseases (the Alzheimer’s Association, $90 million in 2022; the Parkinson’s Foundation, $24.9 million). The Bill & Melinda Gates Foundation distributed $3.6 billion in 2021 for global health research and development. Additional examples include the Alfred P. Sloan Foundation (economics, energy, the environment, and physics; $48.1 million in 2022), the Andrew W. Mellon Foundation (arts and humanities; $592 million), and the Ford Foundation (drivers of socioeconomic and political inequality; $713 million).

Moreover, much innovation does not rest directly on basic research: Microsoft Windows, TurboTax, and the iPhone did not spawn from some grand theory but instead grew from ongoing trial‐​and‐​error processes in response to pressing needs.

Regardless of these issues, the long‐​term record suggests little impact of federal research funding on the U.S. economy. The graph below plots real GDP per capita since 1870 along with federal nondefense research and development spending since 1949, when the government began reporting this statistic. Funding existed prior to 1949 but was small and embedded in other parts of the budget; in 1940, it was under $105 million (in 2012 dollars).

The growth of GDP per capita seems unaffected even as research funding rose dramatically following World War II. The average annualized growth rate of real GDP per capita was 1.96 percent between 1870–1948 and 2 percent between 1949–2022.

Thus, the standard model likely overstates the need for government funding to generate innovation. In addition, government funding generates substantial costs beyond its monetary expenditure.

If government funds research, it must decide which projects to fund, allowing political forces to influence the choice. President George W. Bush limited federal funding for stem cell research that used human embryos in response to pressure from anti‐​abortion forces. The recent affirmative action case against Harvard is a legal issue because Harvard accepts federal research funding. The National Institute on Drug Abuse has been criticized for displaying bias in favor of drug prohibition.

Another concern is that a central source of funding may limit which projects can access funds, reducing research variety. Special interest groups can successfully lobby for funding that supports their research even if it is not the most deserving. Indeed, private research funding is distributed more widely: between 2010 and 2019, 200 organizations received 80 percent of NIH and NSF grants, whereas the top 200 recipients of private funding received only 33 percent of donations. Scientists have explained how private funding has enabled them to explore new ideas, adjust budgets, and avoid lengthy bureaucratic approval processes.

Finally, much government funding goes toward applied, not basic, research. In FY 2022, 38 percent of nondefense federal R&D funds were earmarked for applied research. This piece cannot be justified on the grounds that private actors will systematically undersupply it due to a lack of monetary incentive.

Milton Friedman famously argued for abolishing the National Science Foundation, the National Institutes of Health, and all government funding of higher education (even though his own field received funding). Friedman believed that private sources would fund science, as evidenced by major research that took place before government research funding began. He also believed the efficiency and quality of research would improve when privately funded because government officials’ goals divert research from the topics that fit researchers’ talent and interests.

We agree.

Affirmative Action in College Admissions

Jeffrey Miron and Jacob Winter

This article appeared on Substack on May 30, 2023, and an earlier version appeared under Jacob Winter’s byline in the Harvard Undergraduate Law Review.

In a few weeks, the Supreme Court will announce its decision in two cases it heard last fall, one against Harvard and the other against the University of North Carolina. Both suits challenge race‐​based affirmative action in college admissions. In each case, a group called Students for Fair Admissions (SFFA) argues that the universities’ admissions policies unlawfully discriminate against Asian Americans.

The case against UNC rests on two issues. Under the Fourteenth Amendment’s Equal Protection Clause, states may not “deny to any person within [their] jurisdiction the equal protection of the laws.” SFFA claims that universities are adopting de facto quotas by prioritizing minority applicants over Asian Americans who have stronger academic records. Furthermore, under Title VI of the 1964 Civil Rights Act, no university receiving federal funds or student aid may discriminate based on race, color, or national origin. The case against Harvard, a private university, relies primarily on this second legal argument.

Perhaps the most well‐​known Supreme Court case addressing affirmative action is Regents of the University of California v. Bakke (1978). In the case, a white applicant who was twice rejected from the UC Davis School of Medicine challenged the constitutionality of the school’s racial quotas in admissions. The Court struck down the use of strict racial quotas, but ruled that the use of race as one of several criteria in university admissions is permissible under the Fourteenth Amendment and Title VI. The justices found that fostering diversity is a compelling state interest because it improves the quality of education. This unique ruling made the permissibility of race‐​based affirmative action a legal gray area and cemented it as one of the most contentious issues in American politics.

The Court’s ruling in today’s cases is unlikely to end or even calm this debate. If the Court bars any consideration of race, universities will likely use other factors associated with race, such as socioeconomic status or geographic location. There is already evidence of this. Passed in 1996, California Proposition 209 prohibits state government institutions, including public education, from considering race, sex, or ethnicity. The University of California system has switched to proxies for race, such as family income and neighborhood circumstances, to continue promoting “diversity and equal opportunity.”

If these practices become widespread, they will likely spur new lawsuits that challenge whether such practices are legal. Plus, history suggests that whenever the Court upholds the legality of race‐​based affirmative action, legal challenges will nonetheless continue. Furthermore, the Court’s ruling will inevitably enrage one side or the other, generating further polarization over the issue.

This cycle of never‐​ending debate raises the question of whether, these cases aside, a better policy path exists. The answer is that instead of banning or regulating affirmative action, federal and state governments should eliminate financial support of higher education.

If states do not operate universities, the Equal Protection Clause has no bearing, since it applies only to state governments, not private universities. Absent federal funding for higher education, via research grants or financial aid, Title VI of the Civil Rights Act is similarly irrelevant. Use of affirmative action would become a decision for private institutions using their own funds. Such decisions would answer only to the market for higher education. Universities would be driven to employ admissions policies that align with the preferences of most of their constituents and potential applicants. Otherwise, to remain competitive in the higher education market, they would be compelled to change their policies if enough of their constituents or potential applicants found them objectionable.

This perspective on the current debate will strike some as nonsensical, since many believe government support of higher education is essential to ensure widespread access and a skilled labor force. That argument is disputable but the subject of another piece. This article argues instead that, regardless of any downsides, elimination of government support would have important benefits.

Many people believe affirmative action is valuable because diversity enhances the quality of teaching and research. Others believe higher education should practice affirmative action as a partial remedy to past racial injustice. In a free society, it should not matter for government policy whether one agrees with those views; if private institutions wish to act on them without using government funding, they should be free to do so.

Evidence from the higher education market suggests that many universities and their faculty, students, and parents value affirmative action immensely, or at least view it as an insufficient reason to avoid these institutions. Universities began using affirmative action before government pressure to combat discrimination. Harvard and similar institutions are both among the strongest advocates of affirmative action and the schools in the greatest demand by applicants. Thus, eliminating government support of higher education respects the freedom of universities and their constituents.

Reasonable arguments may exist for government support of higher education, whether via state universities or federal funding. But a full assessment should recognize that if the government funds education, then it must take stands on divisive issues, with all the anger and polarization this entails. If all universities were privately funded, many would practice affirmative action while others might not. People would attend institutions consistent with their beliefs and the factors that matter most to them.

This approach is also far less likely to polarize the nation than a sweeping Supreme Court decision. Affirmative action critics might not be satisfied, but their tax dollars would not support the practice. Plus, they can avoid such institutions so long as enough other people share their views.

Implementing this approach would require discontinuing funds to private universities and privatizing public universities. Developing a strategy for implementation is beyond the scope of this article. However, it is clear that discontinuing funds to private universities would be politically and logistically easier than privatizing public universities (but certainly not easy). Governments could discontinue funds gradually and make clear to universities when funds will cease.

An alternative perspective, in the Harvard case, is that private universities could avoid restrictions on affirmative action by forgoing government funding, as a few schools have done. Alternatively, the federal government could withhold funds from institutions whose admissions policies do not satisfy Title VI, rather than barring private use of affirmative action. These approaches would have a similar effect as eliminating funds entirely, and may even be better since universities would choose their own paths. The government would avoid the perception that it is backing away from promised funding, and universities would gain greater agency. Regardless of which plan is best, it is clear that government funds must be separated from higher education.

What does this mean for the Harvard and UNC cases? It is unclear. Rather, these cases are a teaching moment: government intervention often provokes polarizing debate over the goals, structure, and limits of that intervention. This does not render all government intervention undesirable, but it raises the bar at which the government should intervene. This lesson should enter policy debates in higher education, and beyond.

The Trump Indictment Reminds Us That Campaign Finance Regulation Should Not Exist

Jeffrey Miron and Jacob Winter

On April 4, 2023, the Manhattan District Attorney announced the indictment of former President Donald Trump on 34 counts of falsifying business records.

These are misdemeanor charges in New York State, but they upgrade to felonies when the defendant falsified business records to conceal another crime.

The DA, Alvin Bragg, has not been precise in naming the crimes that the allegedly false business record entries were meant to conceal. He will likely argue, however, that the Trump Organization’s reimbursement to Trump’s lawyer, Michael Cohen, for hush money paid to Stormy Daniels, constitutes an illegal corporate contribution to Trump’s 2016 campaign.

In the United States, corporations cannot donate directly to political campaigns. Bragg will likely argue that the reimbursement is a campaign contribution because it was meant to prevent a news story that would damage Trump’s campaign. It’s unclear if that argument will hold up in court.

Resolving all this is thorny, but in Libertarian Land the issue is simple: there is no campaign finance regulation.

Proponents of campaign finance regulation assert that contributions affect a candidates’ electoral chances; that contributions influence the policies candidates support; that this influence is undesirable; and that regulation successfully limit this influence.

Each of these claims is problematic.

In a democracy, candidates cannot support policies that are significantly out of step with a majority of their constituents. Also, it is unclear whether contributions influence positions or certain positions attract contributions. Many positions that attract contributions have substantial support, like environmentalism.

Plus, regulation is not successful at “getting money out of politics.” Even if the law were to prohibit corporations or people from spending money to explicitly support a candidate, they could spend money to support policies that align with certain candidates. If the law banned spending that supports specific policies, that would blatantly violate free speech.

These regulations also reward dishonest candidates who evade enforcement or have the legal know‐​how to exploit loopholes at the expense of law‐​abiding, less‐​resourced candidates.

Private solutions, including independent watchdogs and voter advocacy groups, moderate undesirable influence of contributions to candidates.

Finally, campaign finance regulation, like the laws against business fraud at issue in the Trump case, allow government prosecutors to choose targets based on political pressures (as many have suggested in this case). Whether accurate or not, the appearance of political influence made possible by campaign finance regulation reduces confidence in the criminal justice system.

Donald Trump’s indictment would not reach felony status without campaign finance regulation. Regardless of the merits of the Manhattan DA’s case, the indictment is an opportunity to reflect on the misguided existence of such regulation.