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Federal R&D Spending Cuts Seen Causing U.S. ‘Innovation Deficit’

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Not good. Who do we blame for this bad policy?

As the attached chart illustrates, R&D outlays peaked in fiscal 2011 at $140.9 billion, according to data compiled by the American Association for the Advancement of Science. This year’s projected spending of $131 billion represents 3.4 percent of the federal budget, which would be the fifth straight annual drop in percentage terms.

“Federally funded research pays powerful innovation dividends, which, incidentally, accrue to savvy investors,” Quinlan wrote two days ago in a report. He cited the U.S. role in developing technology for cancer drugs and for hydraulic fracturing, the energy-drilling method known as fracking.

Investors may increasingly have to go outside the U.S. to find similar payoffs, the New York-based strategist wrote. He cited the association’s figures, along with a study that the Massachusetts Institute of Technology published last month.

MIT’s report, entitled “The Future Postponed,” was produced by a committee of 30 professors at the university in Cambridge, Massachusetts. They highlighted battery technology, biological engineering and other fields in which the U.S. is falling behind in R&D.

“America is short-changing its future by forgoing outlays in basic research and development,” Quinlan wrote. He referred to this shift as the answer to a question he’s often asked by clients: “So what keeps you awake at night?”

All available taxes are funding the entitlement machine leaving room for little else.  Plus, it's not all bad.  Some R&D is being made up by the private sector, though companies tend to under-invest in basic scientific research.  

There's a long, long list of world-changing innovations that can be traced back to federally funded R&D over the years. The Department of Energy's research labs spawned digital recording technology, communications satellites, and water-purification techniques. Pentagon research laid the groundwork for the Internet and GPS. The current shale-gas fracking boom couldn't have happened without microseismic imaging techniques that were developed at Sandia National Laboratories.

But that's not necessarily the best way to look at things. The key question here is how much of this innovation might have happened without government involvement. And as Stanford's Roger Noll explains in this NBER essay, economists have fairly nuanced views on this.

But the situation is murkier for other forms of public R&D. Many government programs are focused on advancing commercial technologies in specific industries — and those could well be crowding out private-sector activities. What's more, some government R&D programs are so focused on demonstrating their usefulness to Congress that they stick with "safe" research that the private sector would have done anyway.

So what do you recommend?

I'm of the opinion that even if there's waste we should publicly fund a lot of research.

Because just one more brilliant innovation could more than make up for the waste. 

Entitlement reform + better government funded research.

How could government do better than DARPA, NASA, and NSF?

Those things work as I believe they have a 15 year time horizon and believe in "moonshots".  Most corporate R&D is 3-7 years ROI.   So, if nobody like DARPA, NASA, NSF, and even NIH is funding longer term research, it hurts us all. 

Okay then we agree that more long term research through those organizations is good for all of us. 

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