Learning, prosperity and government: A case example of the National Institutes of Health

The rise of the university in the late Middle Ages and its gradual separation from rule by church dogma during the Renaissance was one of the important preconditions for our modern prosperity. To the extent it played a role at all in this growth of learning and prosperity, government contributed by slowly relinquishing its control of the academy and the economy. The absence of historical perspective has led to the widespread false belief that somehow the learning foundations of prosperity have their source in government because so many avenues to learning are dominated by government regulation and financing.1

In this brief essay, I will look at one example to show that it is time for a new Renaissance to separate learning from the overweening power of state dogma. Before the early 1960s, the budget for the US National Institutes of Health was relatively small, less than $300 million in constant 2009 dollars. Since then, NIH appropriations have been almost sacrosanct and, despite some recent slowing, have grown at a real rate of almost 5% per annum, about twice as fast as real GDP, and increased their total real resources by a factor of 13.

Yet there is no macro evidence of overall positive effects on the population from this massive spending. (See Figure 1: Trends in National Institutes of Health Spending and Life Expectancy.) Prior to 1960, life expectancy increased at a rate of 0.37 years per year, but after 1960 it grew by less than half that, 0.17 years per year. It is remarkable that the sharp increase in government spending on health research was accompanied by a sharp slowing in longevity improvement. See figure 1

Sources: NIH appropriations –https://officeofbudget.od.nih.gov/pdfs/FY19/Mechanism%20Detail%20for%20NIH%20FY%202000%20-%20FY%202017%20(V).pdf. Appropriations have been adjusted for inflation using the GDP implicit deflator from the National Income and Product Accounts, US Department of Commerce, Bureau of Economic Analysis. American Life Expectancy – National Vital Statistics Reports, Volume 64, Number 11, Sept. 22, 2015, Table 19. Estimated life expectancy at birth, in years, by race, Hispanic origin, and sex: Death-registration states, 1900-1928, and United States, 1929-2011. Note that early life expectancy data are based on a variety of non-standard state reporting and show larger year-to-year variation as a result. Updated to 2017 with the 2018 Annual Report of the Board of Trustees of the Federal Old-age and Survivors Insurance and Federal Disability Insurance Trust Funds, Table V.A4.

Without any significant government spending on health research prior to 1960, human longevity improved spectacularly. Once the government spending became significant and began to increase rapidly, the improvements slowed sharply. There is no systematic evidence that increased government spending on health research actually improved overall health outcomes. Stories about specific discoveries, cures and benefits from government projects are irrelevant because we cannot know whether similar or even better results might not have happened without government. We had 60 years of magnificent results with almost no government intervention. Antibiotics, vaccines, open heart surgery and even artificial hearts were all developed without government and produced big leaps in longevity.

During that 60-year period, physicians, group medical practices, hospitals and pharmaceutical companies made major medical breakthroughs as part of their daily business. Foundations such as the American Cancer Society, American Heart Association and Juvenile Diabetes Research Foundation, privately funded billions of dollars effective research. Private philanthropists from the early days to the more recent Bill and Melinda Gates Foundation have also supported health research.

One might think that the first 60 years showed significant improvement by dealing with the easy low-hanging fruit and, after that, progress would be slower. But the results like open heart surgery that look quick and easy from hindsight did not appear that way at the time.

The research that led to the elimination of the threats from smallpox, tetanus, typhoid, whooping cough, diphtheria and even polio was all funded exclusively by private enterprise and foundations.

It is possible that some theoretical upper limit to human longevity – such as approximately 125 years believed by some biologists – would also slow progress as we approached the limit. But we are a long way from any theoretical limit.

If either the low-hanging-fruit or the upper-limit theory were the explanation for the slowdown, one would expect the change to be gradual as difficulty increased incrementally or the limit was approached gradually. Instead, there was an abrupt shift indicative of some structural discontinuity. The slowdown after 1960 is even more puzzling considering the profound impact from smoking cessation – a behavioural change involving only minor contributions from research.

We might expect some lag between research and effects on life expectancy; so, it is possible that the observed slowdown had its origins in less robust private research some years earlier, thereby justifying government spending to counter it. But that argument would require life expectancy to resume its former faster pace after government’s injection of cash. It failed to do so for more than 57 years.

It would be hard to prove that increased government spending caused the entire slowdown, but government spending most surely did not improve the situation. The slower growth in longevity, however, is likely related to another government intervention. The 1962 Kefauver amendments placed new requirements on FDA approval of new drugs, requiring extensive testing on efficacy in addition the existing requirements for safety. These new regulations quickly slowed the approval of new life-saving drugs substantially.

There are likely some true public health interventions that require government research efforts. For example, diseases like malaria may require public policy to assure the mitigation of disease vectors that are not entirely controllable privately. Creating herd immunity for communicable diseases may also justify some minimal government activity. But even here, government’s spending should not dominate the research, but focus only on its unique role.

While the emotional appeals to end one disease or another or help suffering individuals are powerful, government spending is not usually required. Private-sector funding has several advantages. It will be more likely to focus on the research that is important to people and delivers value. Pharmaceutical and biotech firms will invest in those treatments that are in demand and have a reasonable probability of working. Private charities can raise money more easily for those conditions that are perceived as a threat. Government-funded research is prioritised by political criteria that will keep politicians in power, not those that are most beneficial.

Simply pointing to the putatively positive results from some government-funded research is not enough to justify its existence. The same, or even better, results might not have been obtained in the absence of government funding, but we may never know because when government is spending money on a specific type of research, there will almost invariably be less private spending, hence fewer private results. Economists call this phenomenon “crowding out”.

If government does research on the causes for some disease, private investors are less likely to spend money in the same area of inquiry because the return from that investment will, of necessity, be smaller. The benefit of any private results will be diluted by the government effort. This is not some ‘selfish’ motivation, but perfectly rational economics. Investors will put their money where they can expect a reasonable return. If government has entered the field, their chances for financial success in that field will be diminished, and investors will seek another opportunity. If government funding finds a cause or cure for a disease, that will most likely be because once government money entered the field, others reduced their effort or abandoned it altogether. Government was not smarter than the private investors; it drove them away. There are exceptions, of course, where private investment continues because the opportunity is so large or because they believe that the government approach is inefficient and ineffective.

Aside from the investors’ hesitancy owing to lower returns, there are also strong scientific reasons why government entry will crowd out other research. In most scientific fields, there are usually only a limited number of lines of inquiry that are believed likely for success. If government pre-empts those leading areas for investigation, private researchers will likely look elsewhere.

Research requires a corps of highly trained individuals. At any given point in time, there will be only a limited number of individuals qualified for specific research topics. If government hires a large portion of them, it will crowd out the interested private employers. Of course, if the demand is strong, new qualified people will become available – getting the needed training or upgrading their skills from a related field. That may increase the overall labour supply for the specific specialty, but in the meantime, the government-paid scientists are making progress and getting the results.

In short, a ‘good result’ from government research is not a validation of government’s prowess. It is validation of the scientists’ skills who did the work. The scientists worked for the government because government force compelled taxpayers to fund the work and, thereby, made it financially and scientifically harder, if not impossible, for the private sector to do it instead.

In addition to crowding out others, government will inherently waste vast sums of ‘research’ funds on stupid projects with political patrons. When a private company makes a dumb choice, the investors who voluntarily backed the effort may lose out. But when government stupidity wastes money, it destroys the wealth that it has extracted by force from you and me. This entire space could be filled merely listing stupid NIH projects.

This radical shift 50 some years ago in the way humanity ‘did’ science alarmed President Eisenhower, who had seen the effects up close both as President of the United States and as President of Columbia University. He warned in his Farewell Address in 1961: “The prospect of the domination of the nation’s scholars by the Federal employment, project allocation, and the power of money is ever present – and is gravely to be regarded.”2

At about the same time, the physicist Thomas Kuhn published a stinging critique of the scientific enterprise from the inside.3 He noted that scientific disciplines usually have a reigning paradigm at their core that purportedly explains most of the known aspects of the discipline, such as the standard particle model of particle physics or global warming in climate science. There are two things that have always been true about paradigms. (1) Each will eventually be replaced by a new, or at least radically revised paradigm, and (2) scientists are usually rewarded in their field for supporting, strengthening, and extending the ruling paradigm. As a result, our wisdom grows more slowly and painfully than it needs to.

Our retarded scientific development and the derivative growth in prosperity are products of the social-emotional side of our humanity overriding, at least temporarily and in part, the rational and scientific side that demands data to validate paradigms and rejects those that are not proven with data. Government’s intervention in the enterprise of science adds to the suppression of rationality by forcibly reallocating resources to the inquiries and to the preferred results that are favoured by the politically dominant rather than the scientifically challenging. The currently popular appeal to ‘settled science’ is a canary in the coal mine. The appeal to authority rather than challenge and verification is the instrument of government compulsion and allocation, not the principles of learning.


  1.  For in depth analysis of the general problem of government’s role in scientific research, see Terence Kealey, Sex, Science, & Profits, How People Evolved to Make Money. Vintage Books, London, 2008.Terence Kealey, The Economic Laws of Scientific Research, MacMillan Press, Ltd, London, 1996. He has aided my understanding on this topic, but the NIH example is my own fault.
  2.  President Dwight Eisenhower, “Farewell Radio and Television Address to the American People,” January 17th, 1961, https://www.eisenhower.archives.gov/all_about_ike/speeches/farewell_address.pdf.
  3.  Thomas Kuhn, The Structure of Scientific Revolutions, (Chicago, University of Chicago Press, 1962).