Friday, February 3, 2012

Effect of income tax on technological progress

[A re-post with some new points]

Oftentimes people tell me that science would not flourish as it has in the 20th century had it not been sponsored by income tax. The idea of private sponsorship of science (either in a form of investments, like in any other business, or in a form of donations) would not work, or at least would not work on the same scale as it has under governmental sponsorship. Until recently, I thought so too.

Let’s see if this is true — what effect has income tax (introduced in the late 19th century and made permanent in early 20th century) and, in general, government’s funding of science had on the rate of technological breakthroughs?

I think the effect is pretty clear. Until the end of 19th century, technology has been developing at an extremely high rate. Then, in late 19th – early 20th century, the rate started to slow down and then started to decrease. Saying “look how far we got in 20th century in terms of technology after government started sponsoring its development” is the same as saying “look how far I got walking on my feet after I abandoned my car on the side of the road”.

Recently someone told me that without inflation, there is no growth (apparently, Rick Santorum believes the same). I answered that England and US have grown tremendously in the period of 1700–1900 (when the currency was not only not inflating, but was actually deflating). He said: "yes, but it was the fraction of growth US has experienced in the last thirty years". I challenged him to provide me with evidence that the rate of growth was higher in the 20th century than in the 19th. Meanwhile, Tom Woods claims the opposite:

Going back to the question of governmental funding of science — so, why would private businesses fund science (after all, aren’t they interested in immediate profit?), and why don’t they do so now? Also, even if the businesses did fund science (and of course, they still do), it would be only applied, not fundamental science, right?

This claim is repeated by most scientists I know. No wonder most of them love the government.

Well, think about this: oil companies invest money in geological research that will produce real profit 30 years from now. Sounds to me like investment into fundamental science that gives long-term profit. (I certainly hope that my personal discoveries will provide humanity, iyH, with some practical benefit, in addition to added theoretical knowledge, less than 30 years from now.)

Now, imagine if the government used taxpayers’ money to do the aforementioned geological research? Why would the oil companies spend money to do it then?

Meanwhile, the cost of doing science has risen greatly, because the companies that supply universities with materials know they can raise the prices, since the government will pick up the bill. The same is happening in medicine and education.

At the same time, the quality of service is going down. It is very hard to buy a good antibody nowadays (as opposed to, say, 10 years ago), since the market is full of antibodies that do not work or don’t work well. The companies mass-produce them and sell them, knowing that the government-sponsored labs will buy them no matter what, since they are less careful with their money spending (after all, the government will pick up the bill, and if you run out of one grant, there is always another to be applied for).

And this is just one example...

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