Should Taxpayers Pay for R&D? – with Jeffrey Miron and Aldo Musacchio

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Given the evidence that I described that I don't think the government funding has a huge effect on the amount of innovation, I would basically say will or no government funding of science. Unfortunately, venture capital doesn't take a lot of risks that are necessary right now to face. Like venture capital doesn't like to support innovations that take like a long time to develop. [MUSIC]

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Welcome back to You Might Be Right, as always, I'm here with my co-host Phil Bredison.

How are you? I'm doing great, and you I hope. And we'll get you, thanks. Good. Well, we're here to talk this session about the whole world of R&D research and development. It's changed dramatically, the federal government has long been involved with it.

Private capital markets are now becoming more and more important.

“And I think looking forward to the future is to just how R&D ought to be funded is a really important topic.”

Right, right, is funding R&D a critical role, primary role of the federal government. We've always led the world in innovation. I think it's important as Americans, we take that for granted what has happened here. And some of that has been because of the government funding. Sure, and there's lots of examples of huge successes there.

I mean, the whole internet, or GPS, if you look at things like Bell Labs, which is kind of a quasi-governed, quasi-governed institution, the transistor, I mean, basic things like that. So it's been very important in the past, but it's being supplied as many ways now by private investment. Think about AI.

Say, exactly, and then health care funding, there's scores of examples of critical

health advances that have been made through government funding. One of the issues is that that takes a long-term vision, and we're not so great at that anymore. Particularly, anything that touches up against a political world. It's what can you do for me now in the next election? Yeah, and in the world of basic research, it takes a tower, and sometimes we're having failures,

which is tough to do in government as well. But obviously, the private sector has now gotten much more involved in health care. AI has been driven a lot by the private sector energy and policy. And you think about all those things, but they're still our huge federal successes. MRNA, the basis of the vaccines we've had is a basic research funded by the federal government.

Yeah, maybe as opposed to prior, because there is private funding out there on large scale, because of some of the rewards of the system we've had. We see private companies being able to do huge innovation that really wasn't as possible before. So again, in this new world, what should the government's role be?

“I think that's the real question today, you know, is government R&D in its current form?”

Is it the way to go forward or should we be looking at changing it? Let's have, we've got some great guests, let's have a good conversation about that. Let's get started. Phil, our first guest is Jeffrey Meir, and he's the Vice President for Research at Cato Institute, and he's also the director of graduate and undergraduate studies in the Department of Economics at Harvard. Again, you Harvard guys were surrounding me and outnumbering me.

He's been on the faculty at Michigan, visiting Professor at MIT, and Chairman of the Department of Economics at Boston University. Jeffrey, welcome to you, you might be right. Thank you so much for having me, my pleasure. Jeffrey, let me just start out in this issue of federal, federal funding of research. Things seem to be changing a lot right now, and the models that we use maybe 20 or 30 years ago are evolving and the private sector has become a more involved.

Well, I guess I'm less confident that anything fundamental is changing or that the private sector is going to be more involved relative to the current.

Indeed, going back before World War II, basically all research and development, all scientific activity was private, not government funded, and that changed over the post-war period.

“So I think the question is not what's inevitable because of technology, it's what choices this politicians are ready to make about whether they want the funds science or not.”

And then, combined with the arguments for and against having government take a role in that. But it seems just to follow for a second and that it seems like one of the things that's happening is that the the the the the the the locus of a lot of expertise and some of these cutting edge fields is moving somewhat out of the academic communities and into the private sector. You think about things like AI and and those kinds of things. Does that imply that the resources that are needed, the intellectual resources that are needed to conduct research are really being spread out in a way they weren't 50 years ago.

I guess in that example, yes, but if we looked across all fields of science, we wouldn't necessarily see the same pattern and I think we would see ups and downs of various technologies moving from one to the other. But many there's a reasonably happy sort of marriage between the activity that goes on in academia on the government-funded science there versus what's happening in a private sector inside private companies. So I take your point and and really understand the your your argument let me maybe push a counterpoint there are things and times when the government is stepped in for things that felt like

they were major national critical issues. Case in point would be operation warp speed and the development of the COVID vaccine.

Right. It's hard for me to see on their own with private entities coming up with that vaccine as quickly as we did without the federal government support. So there may well be some examples like the operation warp speed, but I'm somewhat sort of dubious. First of all, part of the reason that private efforts would tend to be slow is they have to go through all the FDA approvals and all that in the world I would like to live in in libertarian land. There's no FDA. So the innovators of a vaccine like the once once for COVID-19 could have done the following they could have developed it.

They could have done human challenge trials where they basically get 100 volunteers who agree to be injected. Okay with the vaccine and then injected with the virus.

And then you know about three weeks whether the vaccine works or not. You don't need months and months of trials with 30,000 people and control versus experimental. And then incentive to do that for private company and be able to sell that vaccine to individuals, private companies, to governments, et cetera.

“I think it's a tremendous incentive. So I think there's a perfectly plausible story in which the private sector would have done that just fine.”

But even if it's the story I'm telling is not right in this case, in thinking about government funding of science, we have to think about the whole range of effects. And my view is that there are a bunch of negative effects of government funding of science even if there are sometimes the kinds of positive effects you just write. But the what you're describing with with the development of the COVID vaccine for example is something where there's a very direct economic benefit from investing in this relatively short term.

But I think it's also true that that would not have been possible in any circumstances without all of the work, the very basic research that was done on the MRNA through, you know, through, through largely through federal grants. With things that weren't expected to have any direct, I mean any immediate direct economic impact as well. And I mean, I would think and I'm asking you just to check me on that. That that this more sort of basic research and and frankly the training that it that it provides for, you know,

per scientists and so on is a function that we've very difficult to replicate in the public sector in the private sector.

“So that's the crucial argument that people get that economists develop for why there should be government funding of research.”

In particular, as you just said, of basic research, the kind of research that is foundational that sort of lays the framework.

And so maybe there will be under investment in basic research and then the second part of that argument is you have to do the basic research first to then develop the applied useful research, marketable research, from marketable products that builds on the base for search. So that story is totally reasonable. That's whatever economists learns in economics courses and the basic beliefs.

“I think it's partially right, but it's incomplete. First of all, there are a lot of sources of funding for science that just come from charitable giving.”

People give money to universities to fund physics or math departments who do basic research. People give tons of money to foundations that do research for against about cancer, about ALS, about leukemia and things like that.

Second, there's a lot of research. It doesn't build on the basic research. It comes from trial and error. So we're not necessarily losing out on that by not funding the basic research.

And then, so third, if you look at what DNSF's and the NIH spend money on, a large fraction of it is applied research, not the basic research. So to minimum, there's an argument for cutting back significantly on the funding for those agencies. Last but not least, we could look at the data. If you look at a graph that shows gross national product, the total output of the economy over the last 200 years. It just grows and grows and grows almost with very little exception. You can barely even see the great depression and that graph of the data.

And yet, there was no government funding of science or essentially done until just after World War II. So the correlation between government funding of science and productivity growth does not emerge from that kind of look at the data. So again, I think the standard story is reasonable, but it's probably incomplete and probably substantially overstated. So we kind of zoomed in really quickly to the example of COVID, et cetera. Let's zoom back out. So in your ideal world, and as you've already said, coming more from a libertarian point of view, what role should government play in research?

So I would say some things that are maybe not for what's expected. I would one say we should be far more open than we are, to immigration by high skilled scientists and engineers and doctors, because that brings innovative energy and talent to the country, in ways that would be beneficial. Indeed, in many cases, those people have been trained in the U.S. And then we make them go away, right? I would love to stay many of them, and that would be very beneficial for them. I think you'd find two people who agree with you on that.

“I think along with your diplomacy, you should get a green card and exactly. And we're kind of moving in the wrong direction with the $100,000 fee.”

I think the government enforcing intellectual property protection, patents and copyrights, is certainly a crucial part of trying to promote innovation.

If you can't know that you can earn a high rate of profit for some non-trivial period of time, from investing hundreds of millions or billions of dollars in a new pharmaceutical or whatever, that might well have a very chilling effect on the amount of such innovation. So government enforcing patent protection certainly makes sense. Beyond that, having the government actually fund research by things like the NFH and the NSF, I'm very skeptical about, because while it may have some benefits in the way we describe the minute ago,

“I think there's real potential for cost. And I think we've seen a prime example of that in the last year and a half, that funding can get politicized.”

That funding can be used by an effective executive to try to force universities to behave in one way or another, and sometimes any given person might agree with the way they executed is pushing the universities. But in other times, you might be very unhappy that as universities are being told they have to do this more in favor of D.I. or less in favor of D.I. or they have to fund stem cell research or they can't send fund stem cell research and things like that. So I would, given the evidence that I described, but I don't think the government funding has a huge effect on the amount of innovation.

I would basically say little or no government funding of science.

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Available wherever you get your podcasts. I mean, I've turned it around from the opposite direction. We've been talking about federal funding of research, which is largely money going into into universities. From the same point of a major university research university, for like a better word, it seems to me that that's maintaining in a way the presence in the role that they have in training the next generations of scientists and experts and so on is a really important one.

“And from your seat at one of those major research universities, if federal funding were to go away, does that compromise that role?”

Does that compromise that role in society that these universities are playing? I mean, that role existed before there was any significant federal funding. So from that perspective, I don't think it needs to compromise it. I can imagine it would change it. It would might be that more of the graduate students and the postdocs and physics chemistry biology labs would be partially or significantly funded by private companies. And that might mean they were expected to spend a year of their time in graduate school working as an intern in those private companies.

And that might be very healthy in many cases. I don't think that's necessarily a bad thing. It might tilt the number of students from those programs who decide they want to go work in industry relative to going and becoming academics. That's not necessarily a bad thing. It might be a better balance. So I don't think it would fundamentally change the model, but it might tweak it a bit. I don't see as necessarily a bad thing. I mean, I'll just talk about my own field in economics. We're training all these students every year, say 25, 30 year, they all want to get academic jobs.

A lot of them don't get academic jobs, but they go work for Uber, for Lyph, for finance companies, for... They're doing their productive things, they're helping all those kinds of private businesses work more efficiently because of the training they got in economics. We're from Tennessee. Obviously we're Oak Ridge National Lab is played a major role in whether it be in research for defense purposes.

“And then lots of other innovation that has spun out of the lab and we see that benefit. Do you see the role for national labs?”

I think that's a separate case. I certainly accept that there's this huge government role for national defense. And part of that role may well be research and development of things specifically needed by the national defense mission. So quite plausibly that does make sense. At the same time, it might be that for the government to get efficient cost-effective production of the kinds of research it needs, it's relying on private activity to do that. But there may be secrecy issues that are dictated in the other direction.

Tom Cases.

Go back to the universities for a second. With this pressure that has come out, I guess Harvard has been at the forefront of that, one of the past years.

I'm often wondering, I'm kind of curious, but you're feeling, you know, when the 50s, if the university's really made a kind of bouncy and bargain with the government to allow them to come in and the devil is sort of asking for his due at this point. Does that ring a bell with you? Absolutely rings a bell. My frustration in listening to the complaints and faculty and administrators is, I certainly don't want the Central Administration to be telling universities how to operate. Even though I agree with many of the criticisms, there's plenty of crazy things going on in universities, but I want the marketplace to determine that to police that, not the central government.

So seeing, we get to keep all this money. You can't say anything about how we use it. That's just not what a college would call an equilibrium. It's not sustainable. And so yes, we're now getting, we're reaping what we've sold over the last six or seven decades.

“Is the global positioning we have vis-a-vis China? Does that change your thoughts and position relative to R&D dollar spent?”

Maybe kind of correlated with what you said about you would look at dollars we spent at Oak Ridge for national defense being different.

I mean, mainly I think that our concern about China is utterly well-founded, but most of the things we're doing, I think, are in a wrong direction. And China, one, is running such a central like planned and totalitarian economy that it's planting the seeds of his own destruction. If we let it keep doing the silly things that it's doing, like industrial policies, it will harm itself. And by not importing, by not allowing more migration from China, we're hurting ourselves much more than we're hurting the Chinese.

I don't think it's really, it's not an exception in terms of what kinds of policies we should be pursuing. One of the, you know, I mean, one of the sources of a lot of innovation in this country is, it was an organization that I think of as sort of a quasi government, all that's technically private, and that would be something like Bell Labs, which was able to do what it does because of it being a highly regulated entity and the ability to put into the cost basis, the cost of doing these things.

“Is that a model that this, it's obviously gone now, but is that a model that we could look at as a way of funding, you know, funding some of the more basic kinds of research without involving government directly in the process?”

I think it's an interesting and reasonable model. It's much closer to being basically private than too much determined by government.

It is an example as to why we shouldn't be as so apopleptically opposed to monopoly as we are into current policy because one of the things monopolies do is spend some of their profits on research and development. Okay, and that's a healthy thing. The other interesting thing about Bell Labs goes back to an earlier part of our conversation. Bell Labs hired a bunch of people who were basically, you know, head in the clouds nerds. They were doing very abstract things that had basically nothing to directly to do with telephone service.

But they were smart and they had interesting things and they talked to the applied people. And so that again is incentive for a private funding of basic research. Because having those basic researches either as consultants or as employees of your company is going to have some positive spillover on the more applied people who are working in your company on new more applied aspect of innovation. So I think the Bell Labs is actually a really interesting example.

Would it be possible to replicate that today?

“I mean, some degree I think it is. They have companies that are very large when we're talking about meta or we're talking about open AI or any of those that are very large that are at one level making monopoly profits.”

But they have this resources to devote to all of this innovative activity. And we're seeing the fruits of that for every single day. And some of that is applied research, but some of that is pretty basic research where no one quite knows what the use of some new AI thing is going to be. But the nerdy guys think it's fun to innovate and fool around with that and sometimes they'll turn out to discover something very useful. And give us some examples of transformative, totally private led innovation recently that shows now we really don't need the federal government to play a role.

That's a good example. I mean, it's hard to think of something that was totally private because the government is involved in a lot of different things. Right. But I think the open AI is probably the best example. The AI is the best example. That does no significant component coming from government. Of course, there's some people working in computer science labs at some universities who are getting some government funding from the vast majority of all that activity is private. Well, we always ask all of our guests one question taken from Howard Baker to always remember the other the other side might be right. Can you think of an example by the way you've done a wonderful job of illustrating the libertarian position. You've been consistent with your thought on that, which I really appreciate.

But can you think of another time when you said, you know, I didn't have this right the other side maybe maybe was on to it a little bit more than I was.

And I totally accepted that. I applied for NSF and NIH grants in my career in a pane of a bunch of them and absolutely five a government funding of science was crucial.

“And then by sort of done accident, I designed this course at Harvard called a libertarian perspective on economic and social policy.”

And I went back and for reexamine the economics, the arguments for all the major government policy issues, including this one, and decided that maybe I had got it wrong. So this would be sort of one prime example. Thanks a lot. This has been a great, a great conversation. We appreciate it very much.

My pleasure. Thank you very much for having me.

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Bill, our next guest is Aldo Masakeo. He's a professor of management and economics at Brandeis International Business School. He does research in as expert in corporate governance in state owned enterprises and in the role of government in financial markets. He's the co-author of a book re-inventing state capitalism, which looks how governments around the world are rethinking the role they play in their economies. Welcome, Mr. Macasio.

So let me just throw you the obvious first question. What role should government play and funding American innovation?

The private capital markets are much different than they were in the past. What role should private entities play and what should the government do? Thank you. And thanks for having me feeling built. It's a pleasure. If you had asked me this question, 10 years ago, when we published the book, I think the answer that everyone would have wanted to hear is like, no role for the government. So the private enterprise should do everything. And I feel like in the last ten years we've been rethinking really the importance of government, especially in an economy that is competing so fiercely with giants like China.

And then militarily we're competing with Russia with China, with Iran, with North Korea. So I feel under the current scenario, it's a good opportunity for us to rethink the role of government and to think about in which industries a government can give us that that initial push. And hopefully, I mean, the US is a strong believer in the crowding in instead of the crowding out sort of using government to crowding the private sector, providing incentives so the private sector can actually develop the industries.

But with an initial push from the government, that for I feel has been a very successful model in the US for innovation and for the development of very complex industries.

“Let me ask you a question, you obviously are an expert on international aspects of this. How does what we do in the US today in the way that we better leave on research and development?”

How does compare with other developed countries? Great question. And in fact, the US, let me talk about specifically military, cutting edge research, specifically the role of DARPA, the Defense Advanced Research Program Agency. If you think about DARPA, the way the US government has been promoting innovation, again, is the crowding in ideas like the government provides grants to subsidize the initial discovery process, the initial sort of R&D. The grants are not huge, but they incentivize the private sector to develop new technologies and then the Department of Defense provides other incentives to procurement and that's kind of like the gold standard in innovation policy around the world and sort of industrial policy around the world.

For everyone tries to copy the US, but it's very hard in most countries. The system of government doesn't is not very good at preventing corruption, even relatively advanced countries like South Korea or advanced developing countries like Brazil. The system of government is not good enough to prevent corruption, so you see a lot of political intervention in these processes, but everyone looks at the US as sort of like the gold standard in that sense. There'd be some of us who'd worry that we're letting political issues and questions creep into our decision-making process on these.

Exactly. So that is the million dollar question in this debate. One key for instance, again, I'm going to refer to DARPA just simply because I've been studying that for the past seven years, so something that the US has done relatively well in the past in promoting this this crowding in of the private sector is the sun setting of the help.

“The help comes in sort of like a very short time span. For instance, in the case of DARPA, the grants are like three to five years and that's it. That's the end of the support.”

If you don't develop the capabilities to continue with that industry, you're not going to get more support.

I think that's what has differentiated until now the US from developing countries, for instance, where where the help becomes like a permanent sort of form of life support or in Japan, remember Japan in the 80s and 90s when we were talking about zombie firms. That's what we're trying to prevent. So in a way, if you ask me like, is the US thinking in the right way about in this recent investments in companies as long as we keep it like short term and then the companies do the take off and they become sort of dissociated from the government, I think we can do the right thing.

DARPA has obviously been very successful. I mean, you know, the internet owes us life to it obviously and I'm sure there are many others. But DARPA is because of its military focus is focused on what I would say more sort of practical and applied research. And you have some of the most valuable things and some of the places that I think people think the government may have as largest role is in funding more basic kinds of research that don't have immediate prospects for commercialization or media things.

And obviously, you know, some of the many things we've done particularly in the healthcare field, you know, rise out of that very basic research where the purpose of it is not there.

“So is the model we have for that, which, you know, I think it's largely funding through universities, is that workable is that common in other countries.”

I would say most countries have copied more that model, sort of the NIH and SF model of providing support. If you look at what is happening in healthcare in the US and I'm not going to make it about political parties, it's just it is happening in the healthcare. We are adopting something called ARPA, it's like a model to provide grants that is similar to DARPA but apply to healthcare. I feel like we're learning the lessons that we've been I mean DARPA has been around since the 50s, right? So we've had many decades of experience and now we're applying that to healthcare.

I don't know the results because it's a very recent effort, but everyone is excited because we change the model again to this model of like we provide initial support to crowd in the private sector and then we face out the support so that the private sector takes off and takes the innovations to market. Okay, but just to push a little further on that, the, you know, there's a lot of research which is done in universities in particular, which is basic. It's not focused toward the commercialization or the immediate applications.

It's a vehicle for training future scientists who may have a lot to contribute in the years. Is the model we have for that now, which has come under some pressure up, you know, in the last couple years with these removal of grants and money from from just favorite universities, is that a work of model going forward.

I mean, the first first clarification like the model of innovation we have for instance for military purposes also supports basic research.

Okay, so it has like an arm for basic and then for applied and then for advanced applications like super top secret. I feel for instance NSF has been learning the lesson of like, okay, we're only supporting a basic research, maybe we need to kind of develop a channel to have the applications and they have a program called iCorp's. And it's another sort of form of grabbing which universities can train scientists to become entrepreneurs. So we're trying to move away from the pure basic research.

“And kind of like we don't care about the applications to a system in which I think we're going to start giving more credit to applications.”

We're not there yet, but it's it's going in that direction. Let me kind of follow up on something earlier. There's a lot of things at federal government like can't literally make states do or can't make institutions higher ed do. But they can heavily influence it by either making grants or cutting off grants. So given that, how effective is it to have a federal government play a role, which is it's just it's going to be political it just is and we like it when they're funding things we like and we don't like it when they're cutting off things that we like.

Yes, I mean that that's my main concern that that I feel like in the US suddenly we're talking about industrial policy in a very sort of political size and polarized environment.

“Which is not I would say the ideal thing to do but but I mean there's never an ideal moment to launch policies like this.”

And so the first thing is like the design of the contract for me is key here and and the more we can design the contracts in the right way the more we can keep sort of the politics out if if just kind of like listen to me and and obviously they're going to be cases where the politics are going to be kind of like there's going to be a gray area in which we don't know if the politics are ruling of the meritocracy is ruling but if the if the contracts are based on merit they're based on targets.

There's they have some setting classes that is we are the support is only temporary and it's only for an initial push.

And then the government acts as a sort of like creates networks of knowledge but also networks so that the commercialization of those technologies is facilitated hopefully like the political intervention is lower. Obviously in the way the world operates right now we're in the middle of a special operation in Iran and with with such sort of military tensions going around in the world obviously the governments are going to direct a lot of the efforts towards military objectives or or towards strategic sectors that have to be protected given that we have any is that controls of key resources etc.

“And in in that sense I feel that there's going to be put the politicization is going to be necessary sort of the context but the the contracts count can counter balance some of the politicization.”

One of the one of the things that seems to me to have also happened and. You know maybe the last half of the time between World War II and now has been in the United States the direct investment of the government and in private industry this obviously the intel example here from recently and I guess seem attack would would qualify in that in that regard as well. How do you feel about that that's something very different.

“It is something very different I mean some of those investments have also the kinds of guardrails or incentives that that I would want to see that is they're usually investments to support to sort of like limit the downside.”

But then when the companies are actually doing well and they don't need the government support there is sometimes there is an out but there is also a way to transform some of the support let's say if the government gives loans. The company starts to do very well and you can actually get some of the upside by getting equity.

Again, if you ask me even the strategic position in which we are right now, given that we're basically rivals with countries that are very aggressive in this kind of interventions.

And they made on their minds some of the development of key industries we have I feel like in just from that strategic point of view like having those policies is necessary and that's why making sure we have the right incentives and making sure we have checks and balances for those interventions is going to be key. I don't see a world right now in which the government doesn't take more of a key role in strategic industries like rare earth lithium like some key minerals that that we can not just like let it up to the market to do it because the risk is to high and there.

Sort of the discovery risk is to high and in that sense I feel you're going to see more of this now if you ask me about the Intel case that's a little bit more controversial because we're not sure Intel was the right company to sort of save if I may use that term. If we should have maybe put the 9 billion dollars we invested an intel into something new or to the development of new chips, but given that we cannot trust and the foundries that we have in Taiwan are going to be safe it's I guess strategic strategically justified to invest in foundries in the US.

Let me ask you a I guess a somewhat related question the world is different today that there's so much investment capital out there that can move toward private companies towards solving our big problems. That I mean from venture capital on a small level to the the rewards at the end of a of a tech solution being so big there there's a lot of capital that can flow there given that. Do we do we still need as much as big a role for government and and this is we might maybe did 30 years ago. Yes great question great question and this is typically the people who like to argue against some of these like ideas I've advanced this is the argument they make and yeah I would love for venture capital to take like all these like crazy risks and things like that.

If you look at the history of for instance artificial intelligence in the US we had a program in DARPA in the 80s trying to do image recognition self driving cards things like that so we've been investing in this industry for decades and it takes a long time for some of these things to pan out like. No venture capital would have waited 30 years for this to happen and and sometimes the government in that sense can play that role of of giving that initial push when the when the uncertainty and the risk of discovering whether something is going to work or not is too high.

There are some some people who say for instance in some biotech innovations governments may be better than venture capital simply because it's more of a patient investor in other industries I feel like the venture capital is starting to branch out and intervene for instance in military innovation this is very interesting. We used to have only the government supporting initial sort of research and initial discovery in military innovations now when some of the largest venture capital firms have arms with like hundreds of millions of dollars in funding to do exactly what the government was doing before so so we're starting to see.

The blurring of some of these things as you say because there's so much capital going around so much private capital going around that now they're venturing into these sort of more high risk ventures but I am not sure they support the super super ultra high risk like the long shots which is what for instance in the case of the US DARPA has been doing for many decades. When we talk about the direct investment I mean one of the lessons seems to me that the political process is not very good at picking winners I mean I mentioned the same attack before and I've even during the you know bottom of the administration there were investments in in solar thanks for example that just you know you can look at and say that well that was that I mean that was a stupid investment.

“And so you know the question my mind has always been you know is is government is it just easy to quit during I mean during the time that I've been in office I think when I was when I was mayor here.”

We stayed awake from in our pension funds venture capital because there would immediately be so much pressure to.

From people to investing this company here locally and so on that the political process seems to be you know not really up to the task of how to pick how to invest that capital wisely. Yeah yeah thanks for bringing out the solar panel case from 2012 on the President Obama that's like. I have a PhD student who did a whole dissertation on that on how ineffective our policies were in that instance where we put tariffs on Chinese companies the Chinese companies just open. And new shops in countries that didn't have the tariffs and continue to export the solar panels and then the firms that we're trying to protect them failed here in the US and we didn't really develop a solar panel industry the way we we thought we could do so that's a good that's a good example of how you don't want politics to get in the in the way was very clearly driven by lobbyists.

“Big big lobbying firms including the firm that Elon Musk owns solar remember that Elon Musk actually bail out his own firm I think solar city if I remember correctly.”

And so I agree with you that picking winners is a really bad idea.

This has been a really helpful discussion let me ask you one final question that we always ask our guests and that the name you might be right comes from the idea you need to listen to the other side because you don't always have it right. Can you think of an example where you realize you know the other side of the argument might be better than than than my side.

“Yeah for sure I mean I feel like the whole sort of history of the literature for instance on privatization and like on the limit the role of the state has been documented documented for decades.”

Yeah that having the government embedded in the selection of winners or champions that are going to receive financial support is like a bad idea in general.

And sort of I'm trying to think of ways to to make to keep the government out and keep the politicization of this decision south but you know what it may be the case that politics at the end always wins and and we're going to end up with like agencies that give money to the friends of our politicians or the siblings or. The kids of our politicians so maybe I'm like completely wrong and and like these approaches like completely the wrong one you may be right.

Given the fact that the politics is going to be a part of the process so thank you very much we've enjoyed having you as our guests and we appreciate your time. Thank you. Thanks Phil. I thought to inching guests with very different port of views.

I'm curious any take always for you.

“The same way for me was that I think I think clearly that the involvement of the government in front probably should evolve in some ways because I really do think a lot of the expertise that.”

20 years ago was limited to universities as distribute us up in a lot of other kinds of places now but I also think it's. It's so important that we ought to be just conservative about it that rather than make some some dramatic change. You know like like Jeffrey was was talking about.

Maybe take these things a step at a time because you know we might be wrong.

So you know the more I listen to good arguments on both sides of issues I'm reminded comes down to fundamentally what do you believe government's role should be in our. In government's not this amorphous entity up there it's us what should we collectively pay for so most people would agree we should pay for national defense and interstate highway system and things that nobody can do on their own. No matter who they are. Should we pay for health care for someone who spoke six packs of cigarettes today I mean different argument right.

This is one of those that I do think we should the government should only do what only the government can do I'm going to borrow a line that you you've given me before.

And I do think the private sector has innovation and the mindset to actually solve a problem that you're just it's hard to get out of government and. When we build a lot of layers in you know our our our when Jeffrey was talking about I don't think we need an FDA I'm not certain I'm ready to go that far maybe it's the conservative approach that you said. But I do think there's layers of bureaucracy in the FDA that aren't adding to the result.

“There's no there's no question about the need to evolve I think and rethink some of these things in this environment I mean it you know the expertise in the country is getting so much more broadly distributed now as we just said.”

I do think though that came out of this that that the private sector. Is a is you know especially effective in things that have relatively short term economic benefits I mean private sector is I mean they're they're capitalists I mean they want to invest in things and they want to get to get you know get money and return. There's lots of things that that's difficult for and yeah I guess there's foundations that will support things so I don't want to go back to the days of you know Michael and it's low and lead of energy.

I mean I think that would be a step backwards you know as society gets more complex I think there are things that that that government can do better potentially do better than can be done individually and you know I think a lot of the discussion between liberals and conservatives is really around what are those things. In your point well taken that the market often harms has a short term focus but we both know that democracy and politics do as well right that it's about the next election and. As as Jeffrey pointed out you know once you add politics and anything then there's pressure that comes with that and so we're seeing that now with the.

President Trump in the federal government saying okay major universities unless you do what I want you to do I'm going to take that grant away and that's.

“There's short term thinking in politics just like there is in the market right but I think in things like.”

You know if if all of us people were politicians can learn to keep our hands off things once in a while I mean there are things you know like what the NSF does in the NIH and so on. And they've managed to get some insulation from from that and and been able to you know maybe make mistakes but been able to. Focus on you know some basic lines of research that people think have got a sense of the future I also worry about I mean I really am concerned about this issue of. You develop the next generation of scientists may that's something that we are not doing as well as a country I think as some others you talked about if you talked about China.

And the availability of funds inside of the university for grants and so on I mean as a fundamental part of how you train scientists and I wouldn't want to go to graduate school and first thing I got to do is go out and find a bunch of money.

Fair point but I wouldn't make an argument that a lot of the innovation that's coming today is coming out of the market it's coming out on point out one but there's a lot of there's companies like.

“talent here who are using technology to identify bad guys around the world in ways that I'm not certain whatever come out of a government lab.”

I agree with that but you know we talked about we talked about AI a couple times in this and yeah a lot of the current stuff you hear about the last five years.

I don't know what the sector led but it builds on I mean there's 30 years of research in AI that have gone on in universities and taking through step by step by step and so on that.

“That's what what's these companies are doing today would not be possible without that foundation.”

Fair point and for our listeners you know while this might be a little bit of a nerdy topic like who should fund R&D and people spend a lot of time.

That it it dinner parties it is kind of shows the fundamental different views that we can take and hopefully we've done a good job of showing the two different sides. This has been an industry one.

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