Fed Backs Funds for Research
By LUCA DI LEO
WASHINGTON—Federal Reserve Chairman Ben Bernanke made the case for public research funding, saying government spending on research and development can help boost economic growth.
"The primary economic rationale for a government role in R&D is that, absent such intervention, the private market would not adequately supply certain types of research," the Fed chief said at a Georgetown University conference Monday. But he added that, given current budget constraints, the U.S. needs to weigh its decisions cautiously.
The White House and Democrats remain locked in a budget fight with Republicans. The U.S. government hit its $14.294 trillion debt ceiling Monday, setting off political maneuvering to avoid a default before the beginning of August.
While the U.S. struggles to contain the deficit, President Barack Obama has been making the case for more government spending in research and innovation to boost growth. Mr. Obama wants to invest more in clean energy and information technology, as well as biomedical research.
Mr. Bernanke said innovation and technological change have played a role in lifting growth. He said the government also could help by trying to increase the ranks of U.S. students of science and engineering, as well as favoring immigration of skilled scientists and researchers.
Innovation and technical advances have transformed economies around the world over the past two centuries, Mr. Bernanke said.
He noted how advances in semiconductor technology have, in recent decades, redrawn many fields, such as communications and health care.
The U.S. has seen many instances where federal research initiatives and government support helped technologies emerge in areas such as agriculture, chemicals, health care and information technology. The Internet revolution of the 1990s was based on scientific investments made in the 1970s and 1980s.
Total public and private R&D spending in the U.S. has been fairly stable over the past 30 years at around 2.5% of gross domestic product, Mr. Bernanke said.
Though he didn't say if that was the right level, the Fed chief noted how some economists have argued that expanded government support for R&D could, over time, significantly increase economic growth.
"That said, in a time of fiscal stringency, the Congress and the administration will clearly need to carefully weigh competing priorities in their budgetary decisions," he added.
While the U.S. still leads in overall R&D spending, Mr. Bernanke said that in recent years, spending has increased sharply in some emerging-market economies, notably China and India.
During his State of the Union address at the start of the year, Mr. Obama used the Cold War imagery of the Soviet Union's launch of the Sputnik satellite more than 50 years ago to underline that what the U.S. needs today is more investment in research and development to compete with rising powers like China and India.
"A reasonable strategy for now may be to continue to use a mix of policies to support R&D while taking pains to encourage diverse and even competing approaches by the scientists and engineers receiving support," Mr. Bernanke said.
Write to Luca Di Leo at luca.dileo@dowjones.com
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