Shrinking funding for scientific research shrinks the economy

Slashed funding in the sciences will result in magnified losses to the economy because of “multiplier” effects on domestic discretionary spending

The new budget proposed by the US administration significantly cuts funding for science. This includes substantial decreases in money for environmental and health sciences administered by federal agencies, including the Environmental Protection Agency (EPA), Centers for Disease Control and Prevention (CDC), and the National Institutes of Health (NIH). In fact, the proposed decrease to the NIH is 19%! This substantial decline in support for medical research will not only hurt people who need cutting-edge medical therapies, but it will also disproportionately shrink the US economy.

Before I lay out my reasoning behind that statement, I want to point out that this article is my first to discuss a “political” topic. But because we’re talking about funding for science, it’s of interest to me; and generally, science funding enjoys broad bipartisan support. Regardless of partisan ideals, we should be able to use a dispassionate, economic, scientific analysis of the impacts of the proposed budget. Now, I must admit that as a researcher who has received funding from the NIH, who will suffer significant cuts to their budget, I am somewhat biased. But let’s be real. I don’t work in biomedical research just to have a job or grow the economy — I want to help people live better lives. It turns out, however, that biomedical research provides jobs and grows the economy.

“The Budget”
Every year, the legislative and executive branches of the US government are supposed to reach a consensus on federal spending. Much of the federal government’s fiscal spending is to “entitlements,” including Medicare and Social Security. These are mandatory payments, separate from the discretionary budget. So when the administration talks about “budget” or “appropriations,” they’re referring to discretionary spending, which is enacted through the legislative process.

When choosing how to allocate federal funding, lawmakers must think through — to the extent possible — how these spending decisions will ultimately impact society and the economy. When considering these potential impacts, it’s also important to consider “multipliers,” at least if you’re interested in how much bang you can expect for your buck. Another way to think of this is return on investment (ROI). When congress enacts a budget, this is an investment in American people and the economy.

Multipliers
The economic concept of a multiplier boils down to this: if the government spends one dollar, how much does the economy grow? If every dollar spent results in one dollar of economic activity, the multiplier is 1. However, this scenario rarely happens. For example, money put into savings doesn’t grow the US economy, resulting in multipliers less than 1. On the other hand, if this money drives multiple rounds of spending, it disproportionately increases US economic activity, resulting in multipliers greater than 1 (examples to follow).

According to Samuelson’s textbook, the Government Expenditure Multiplier = 1/(1-the marginal propensity to consume). This formula can be simplified to a straightforward question: how much consumption does each federal dollar drive?

Healthy workers are productive workers
Simply stated, healthy Americans fuel the economy. For example, a sick worker produces less — and can be lost from the workforce if they don’t recover. Medicine and clinical research can improve their health, thereby returning them to the workforce, where they can contribute to the US economy. How? Federal dollars spent to keep workers healthy allows the workers to productively generate income for themselves and their employers. In turn, they spend that earned money to consume goods. These multiple rounds of spending are the engine of the multiplier effect.

Think about some specific examples. If someone is stricken with a chronic, disabling condition for which we have no cure — like my friend who was recently diagnosed with ALS — this person cannot work. Until medical research provides them with effective treatments or a cure, their economic productivity is lost. While ALS, and other chronic, disabling conditions are severe examples of this, the scenario plays out even more frequently with other illnesses, such as the flu.

Every year, millions of Americans get the flu; hundreds of thousands are hospitalized, and tens of thousands die. Americans have access to a flu shot, which is highly effective (and it doesn’t give you the flu), but this vaccine must be updated every year. During my PhD studies, I worked on the study of a new type of flu shot that will theoretically protect people from a broad range of flu strains for longer periods of time. A vaccine like this could have a massive impact: decreasing time off work, shortening hospitalizations, and reducing deaths every flu season, ultimately allowing US workers to be more productive as a whole.

This illustration highlights just one example of how medical research broadly impacts multiple rounds of spending. Federal dollars through the NIH provide jobs for scientists that do medical research. Their discoveries then inform medical practice, which treats sick workers (here a fisherman) that pay money for the treatments. The healthy worker can now work to catch and sell fish. Then, as part of the economic cycle, the scientists and clinicians all buy food. Thus, this example shows how one dollar of federal spending increases the total gross domestic product by five dollars!

Consider the broader impacts
In the case of illnesses, one might imagine that the government could just give all sick workers a disability paycheck, which would directly subsidize them and bypass their need for rehabilitation. While this could be considered a great option while we look for the treatments and cures they need, it has a narrow economic impact, and thus, a multiplier much closer to 1. However, if medicine is developed to treat or cure the worker, they can return to productivity and contribute to the US economy.

According to data, the economic multiplier for medical research spending is at least 3–7 (see AAMC or UMFR reports for ~3, AMSNY, 7.5), and may even ultimately be much, much higher (for example >200, see Economic Impact of the Human Genome Project). So this means that the administration’s proposed budget cut to the NIH alone of $5.8 billion will reduce the future US GDP by at least $17 to $44 billion, and possibly over $1.2 trillion (more than the entire proposed discretionary budget). That’s a significant blow to the US economy.

Edit (5/23/17): The updated FY2018 budget proposal now has a $7.7 billion cut to the NIH which works out to $23–58 billion dollar projected DECREASE in US GDP, using the above multipliers.

So, while federal dollars spent supporting medical research pay my salary and support my work, I do my part to pass this money into the economy by purchasing goods from businesses (such as the restaurant). Additionally, the fruits of my research can inform the care of sick workers to improve their health and return them to productivity, where they not only fuel the economy with their work, but they also purchase goods and services. And in the end, we all pay taxes, returning the money to the government to be reused — we hope — to benefit society.

When the government cuts funding for research, the sciences suffer, researchers lose jobs, and the sick worker remains sick, leaving only the fish happy.

Thank you to Sadie Cox & Crystal Herron for editing and helping me write this!

So, in keeping with my geekiness, I read way more books and articles about economics than the average biomedical researcher (by my own rough surveys of my peers). However, that’s much less than real economists, and perhaps many reading this, so please share your thoughts as a reply to this article!