08/28/2013
Bill GardnerThe US fiscal year ends on September 30 and the government reaches its borrowing limit a few weeks later. Because there will be drama about whether the government will, like, function, there won’t be much discussion about whether we are spending on the right things.
During the 2011 debt ceiling crisis, the President and Congress passed a sequester that forced the National Institutes of Health (NIH) to spend 5% less on health research. From Science Magazine,
Including ongoing (already awarded) grants that are ending, the total number of research grants will drop by 1357 to 34,902 awards.
But there are still 35,000 active research projects. What’s the harm?
Set aside the consequences to researchers (including me) who compete for these grants. The NIH should be evaluated on whether it saves lives, not jobs.
It does save lives. David Cutler and Srikanth Kadiyala estimated the returns to investment in medical research by looking at improvements in survival from heart disease, the most common killer of Americans. (Austin has written on Cutler’s work on the value of health care here, here, and here.)
The value of medical research is longer, healthier lives. …the average 45 year old will live an additional 4½ years today over what he or she did in 1950, solely because cardiovascular disease mortality has decreased. About two-thirds of this change, or 3 years in total, results from improved medical treatment and one-third, or 1½ years, results from behavioral change… Using [standard methods for estimating the values of years of additional life], the value of medical treatments [per American citizen] is about $120,000. Similarly, the value of behavioral changes is $30,000.
OK, improved medical treatment of heart disease gave each American $120,000 worth of future life. But is this still a good deal after you subtract what that American had to pay for living longer?
The typical 45 year-old can expect to spend about $30,000 in present value on cardiovascular disease care over their remaining lifetime. There was some spending on cardiovascular disease in 1950, but this was small. The increase is therefore about $30,000. Compared to the $120,000 of benefits, it is clear that this spending increase is worth it. We estimate a rough rate of return of 4 to 1 for medical treatment changes. Typically, society is happy with rates of return of about 1.1 to 1. The rate of return we estimate is an order of magnitude higher.
NIH research on health behavior and cardiovascular disease was an even better deal.
The cost of behavioral change is the money spent on researching these behaviors and conveying that research to the public. From 1953 to 1997, NIH spending on all factors related to cardiovascular disease—-including behavioral knowledge and other research—- amounted to around $3 billion dollars per year or $10 per person per year. For a person with a 50 year taxpaying span, this is about $500 over their lifetime (ignoring discounting). There are also costs of disseminating this information to people… another $500 of expense. Total costs of behavioral change are therefore about $1,000 total. [Hence] Research and dissemination costs of about $1,000 per person brought benefits of about $30,000 per person. The return here is 30 to 1.
Of course, the NIH spends money on many other disorders. Our research investments on some disorders were probably less successful than cardiovascular research. However, there are likely also some disorders — such as AIDS — where we achieved an even better return. If you accept Cutler and Kadiyala’s analysis, we get a far above market return on investments in health research. Reducing the deficit by spending 5% less on the NIH isn’t responsible. It’s stupid.
However, Molly Ball believes that the sequester was a good idea.
by virtue of its very do-nothingness, the do-nothing Congress got a big thing done. First, in the fiscal-cliff deal struck around the new year, wealthy Americans’ income-tax rates went up, a policy change long sought by the president and his party. Then, in March, the budget ax known as sequestration fell, chopping $1 trillion from federal spending over the next decade—a cherished goal for fiscal conservatives. [And] More revenue plus less spending equals a lower deficit.
We cut the federal budget deficit and that’s great. But the across-the-board spending cut in the sequester was mindless. And mindlessness is the rule, not the exception. Peter Orszag (former director of the Congressional Budget Office under Barack Obama) and John Bridgeland (director of the White House Domestic Policy Council under President George W. Bush) wrote that
Based on our rough calculations, less than $1 out of every $100 of government spending is backed by even the most basic evidence that the money is being spent wisely.
The sequester is Exhibit A among stupid spending decisions. In the coming weeks, can we perhaps think about how to reduce government spending?
