As federal budget cuts kick in under the procedures known as sequestration, one of the more hotly debated casualties will be research and development funding. A nonpartisan think tank called the Information Technology and Innovation Foundation, for example, predicts that sequestration of R&D would cause the U.S. economy to create 200,000 fewer jobs annually between 2013 and 2016. This would result in a U.S. unemployment rate 0.2% higher than it would be otherwise. Because federal R&D plays a big role in driving U.S. economic growth, ITIF also estimates that the projected decline in R&D will reduce U.S. gross domestic product by at least $203 billion and up to $860billion over the next nine years.

But the trouble with such dire predictions is that they treat R&D spending as though it is just an entry on a spreadsheet. The forecasting process consists of simply extrapolating figures without looking at how federal R&D funds really get spent. Other researchers who examine the way federal R&D funds are dispersed into the economy come to different conclusions.

Two in that camp are Robert Litan and Carl Schramm, economists associated with the nonprofit Ewing Marion Kauffman Foundation, the largest American foundation to focus on entrepreneurship. There are several problems with the idea that more R&D spending automatically translates into faster economic growth, they say. One is that most federal research spending gets channeled into universities, and a lot of the innovations universities create end up sitting on shelves. Rather than pouring more money into commercializing technology that universities develop, Litan and Schramm advocate improving the commercialization process.

Another difficulty they point out is that research funds generally get dispensed through a peer-review system. This system has created a well-connected club of senior researchers who get the bulk of the funds. The problem is that older workers are less likely than younger scholars to “explore ideas that could upend the old order and usher in real breakthroughs,” the two economists say.

Their evidence: U.S. Nobel Prize winners made their award-earning discoveries at the average age of 34. But the average age of primary investigators who have been awarded research grants by the National Institutes of Health is above 50 and has been steadily rising over time. “Until something is done to correct the age bias in grant awards,” say the two economists, “we should not expect that pouring more federal money into R&D will translate into the breakthrough innovations that really drive economic growth.”

One other thing to keep in mind about U.S. R&D funding is that regardless of what happens in Washington, D.C., there will still be a lot of it. The most recent figures available show that about 40% of the world’s R&D spending takes place in the U.S. and most of that is spent by private industry. Interested readers can go to the Wikipedia page on R&D spending by country and calculate for themselves that the 8.7% R&D spending cuts built into the sequester translate into just a bit over a 1% drop in overall U.S. R&D spending.

People researching forces that shape and move the hair in a human ponytail (Yes, this was the topic of a real research paper last year.) might think differently, but it is fair to wonder whether the consequences of that 1% cut will really live up to the worst predictions of sequestration critics.

— Leland Teschler, Editor

© 2013 Penton Media, Inc.