Insights & Advice


Where others fear to tread


In the wake of across the board government spending cuts, this month President Obama proposed a new R&D initiative aimed at mapping the brain. Critics immediately balked over the $100 million price tag, but those protests may be penny-wise but pound foolish given some of the breakthroughs government has achieved in the past.

The BRAIN initiative (short for Brain Research Through Advancing Innovation Neurotechnologies) is designed to promote innovation and job growth while finding ways to treat and cure ailments such as Alzheimer’s disease and brain damage from strokes. It will be funded by the National Institute of Health, the Defense Advanced Research Projects Agency and the National Science Foundation.

Like so many other government-sponsored projects, this one will also involve partnerships with universities and the private sector. The last such health related project, the Human Genome Project, was established in 1990 and cost $3 billion. The returns from that project have been substantial.

“Every dollar spent on the Human Genome Project,” said President Obama, “has returned $140 to our economy.”

That’s not a bad return. The health services sector is only one of many areas that have benefited from government investment. Computing technologies, for example, is an area where the government has played an active financial role in encouraging innovation and new ideas. Break throughs there have quickly found their way into the private sector.

A report late last year by the National Research Council, a government advisory group, calculated that nearly $500 billion a year in revenues generated by 30 well known corporations in digital communications, databases, computer architecture and artificial intelligence can be traced back to government seed money. That was a great investment for society overall. It’s just one of countless examples of our taxpayer money at work in a free market economy.

If you think that the present natural gas boom in this country is an example of free-market capitalism—think again. Over thirty years ago our government spent more than $100 million in seed money (and billions more in tax breaks) to research and develop the fracking techniques that have produced a renaissance in one of our most precious natural resources.

The simple facts are that no corporation today could afford to spend money like that on an idea that may or may not provide a return to the bottom line. In 1975, the first Federal test well in Wyoming produced nothing more than a lot of hot water. In this day and age, the CEO of a private company that produced that kind of result would probably lose his job. Most shareholders would simply not stand for that kind of risk and return proposition.

Politicians are still complaining about the billions we provide in federal energy subsidies to both fossil and renewable forms of energy, but I believe that investment is paying off in a truly big way. We are seeing a renaissance in our manufacturing base as a result of cheap energy resources. An increasing number of global companies are re-positioning their manufacturing base back to America, providing jobs and tax revenues. I’m quite certain that no one in the government or private sector could have imagined that spending $100 million in natural gas research 30 years ago could result in such big dividends today.

That’s why I applaud the White House proposal for BRAIN research. Who knows what the pay-off will be, but I believe government has a role and a duty to go where others fear to tread. History shows that research and development, despite the occasional $500 toilet seat, is still a proper and profitable use of taxpayer money.



Posted in Macroeconomics, The Retired Advisor