U.S. Could Use a Better Way to Pay for Science

(Bloomberg View) -- We're all for higher productivity growth, yet such growth depends on a lot of little things rather than a single major lever. One of those things is how we fund science.

There's been plenty of coverage of proposed cuts to the budget of the National Institutes of Health, but little noticed is a proposal to significantly reduce how federal grants pay overhead to universities through the category of “indirect costs.”  These payments to research institutions, both public and private, pay for labs, equipment, data storage and basic support services, among other background functions.

To give you an idea of the stakes, respected historian of science Peter A. Shulman tweeted in response to President Donald Trump's budget last week:

My view is more nuanced, but I do think the current Trump proposal is a bad idea, so let's walk through some details and consider what the debate can teach us.

Under the Trump administration proposal, the overhead formula falls from a typical level of 50 percent to 60 percent overhead to a capped 10 percent maximum. The overhead money in a contract is meant to help pay for the science, but indirectly, supports the school more generally -- it frees up university funds from having to meet those same obligations. Because dollars are fungible, higher overhead dollars could mean more student scholarships, more library books, and possibly more bureaucratic waste, in addition to supporting the specified research.

Although many parts of the Trump budget are “dead on arrival,” overhead funding for universities, whether in health projects or more generally, is a vulnerable target, so this issue will stay with us. It is hard politically to justify such a general transfer to universities when federal money is tight, and when the most prestigious research universities are wealthy, tax-exempt and not trying very hard to boost their enrollments.

Yet another issue is opportunity cost. The more spent on overhead and indirect costs, the fewer specific projects can be funded with that same money. To be sure, the Trump budget is proposing outright cuts to research funding (not what I favor), but it is possible to imagine an alternative vision where federal overhead allocations fall and the liberated money allows more scientists to get more (smaller) grants. Would that be a good idea?

If we look to the private sector as a model, maybe so. Private philanthropy is typically more oriented toward specific projects than toward overhead. One view is that makes federal government funding of overhead all the more important to fill in the gaps; an alternative take is that the private sector realizes a lot of overhead funding ends up wasted, and the federal government ought to see the same. There is some truth to both of these stories, but not surprisingly the academic scientific community is stressing the former.

Research funds spent on overhead strengthen the power and discretion of administrators (who capture and allocate the funds), senior scientists, the lab-based sciences and relatively expensive projects. They make universities more hierarchical and less egalitarian places, where the ability to bring in overhead funds yields status and influence.

Spending less on overhead and more on individual projects would favor small-scale research, and would decentralize authority and influence. Lower overhead allocations would give the government more authority over project choice, and the university less discretion, for better or worse. Overall, projects would have to prove themselves more in the broader world of prizes, donors and news coverage, rather than lobbying within the university for support.

One of the better arguments for the status quo is simply that many universities are not nimble enough to make up for overhead reductions, and thus some valuable ongoing research would be lost. Yet we come back to the core problems that the best defensive arguments do not exactly motivate politicians (or citizens) to pump more resources into universities. Scientists and academics are trying to argue that they are incredibly important and competent, and also at the same time fairly helpless, an odd and not entirely appealing mix of traits.

A simple “thumbs down” to the Trump proposal isn't looking deeply enough into the issue. We're in an unhealthy cycle where many of our funding agencies, including for the arts and humanities, have become overly bureaucratized and thus less effective. Trump attacks those institutions, and the more reasonable voices in American society respond by circling the wagons, rather than emphasizing self-criticism and reform. They don't want to hand a victory to Trump, and lose some of their own funding and stature in the process. That's understandable, but I expect this debate to get worse before it gets better, and the net effect is that science itself is becoming less scientific.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Tyler Cowen is a Bloomberg View columnist. He is a professor of economics at George Mason University and writes for the blog Marginal Revolution. His books include “The Complacent Class: The Self-Defeating Quest for the American Dream.”

1. Disclosure: My employer, George Mason University, receives significant revenue from overhead in federal contracts. I as an individual researcher have not received federal overhead or federal contracts.

To contact the author of this story: Tyler Cowen at tcowen2@bloomberg.net.

To contact the editor responsible for this story: Stacey Shick at sshick@bloomberg.net.

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