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Economic Research Threatened

Amendments to the FY2012 Appropriations for the National Science Foundation (NSF) that would disproportionately cut or completely eliminate funding for the NSF's Social, Behavioral, and Economic (SBE) Sciences Directorate are highly likely in both the House and Senate. There are concerns about deep and disproportionate cuts in spending on social and behavioral research at the National Institutes of Health (NIH). Some of the proposals in Congress for FY2012 budgets could result in the loss of important economic data collected by US statistical agencies.

The AEA joined more than 140 other professional societies in the physical, biological and social sciences in sending an InterSociety letter to the House leadership strongly opposing "attempts to eliminate or substantially reduce funding for specific areas of science such as the NSF Directorate for Social, Behavioral, and Economic Sciences (SBE)." See also the AAAS press release. The AEA Committee on Government Relations (AEACGR) also sent an alert to AEA members and provided talking points to COSSA and to AEA members who wish to support the value of economic research publicly through op-ed submissions or letters to the editor in their local newspaper, in comments to economic blogs, or in other ways. The AEACGR does not object to cuts in economic research that are proportionate to the sacrifices being asked of other sciences. The AEACGR prepared the following set of talking points defending economics from targeted budget cuts.

Defending Economics: Some Reasons for Supporting NSF Economics Research

According to the Consortium of Social Science Associations (COSSA) amendments will probably be offered to disproportionately cut or completely eliminate funding for the National Science Foundation's Social, Behavioral, and Economic (SBE) Sciences Directorate when NSF's 2012 appropriations are voted on by the House in July.

Economists of all people understand the need to take action to deal with the U.S. fiscal challenge. But these amendments would target economics for disproportionate funding reductions and possibly elimination. Policymakers should understand that economic research has profound value for society. Although the NSF budget for the social and behavioral sciences is small (in FY2010 $255 million out of a total NSF budget of $7 billion), eliminating it would have very negative consequences for economic research and economic policy.

The following are some reasons why Republicans and Democrats both should support economic research:

Unique Role: NSF’s SBE Directorate is the only place in the Federal government with a broad mandate to maintain and strengthen the basic science of economics. It provides over one-half of all external support by the Federal government for basic research in economics. SBE’s Economics Program current budget is only $26.5 million. Although other government agencies, private foundations and the private sector support applied and some basic economics research, none have the resources and the incentives to support the new methods, data and broad range of substantive research funded by NSF. Severe cuts in an already small NSF budget for economics would be a major blow to the infrastructure needed to support the best research on extremely complex and important economic questions.

Very High Return on Past Investments: For example, researchers at Stanford University and the California Institute of Technology, supported by grants from NSF, developed the simultaneous ascending auction mechanism as a technique for auctioning off multiple goods whose values are not fixed but depend on each other. The mechanism was then tested experimentally in a laboratory, also financed by NSF, before its implementation by the Federal Communications Commission. Since 1994 spectrum auctions using this design have generated more than $50 billion for the U.S. Treasury and worldwide revenues in excess of $200 billion. These auctions not only benefit the US taxpayer, but ensure efficient allocation of spectra so that the winners of the auction are indeed the individuals who value the spectra the most. This method has also been extended to the sale of divisible goods in electricity, gas, and environmental markets.

Innovation and Adoption of New Technologies: The Economics Program funded and co-funded a number of awards that have resulted in fundamental advances in our understanding of the economic factors that encourage innovation and the adoption of new technologies. For example, Nicholas Bloom at Stanford University was awarded a Faculty Early CAREER Development award for his research into the role innovation plays in determining economic productivity and growth. This research includes developing new data collection methods for measuring management practices and adoption of information technology (IT) in business. Using an innovative double-blind survey, he has been able to gather systematic evidence about the effects of specific management practices on the success and failure of firms. His research also has shed new light on the links between increased use of IT and patterns of international trade between the US and less developed countries. Other work supported by the Economics Program contributes to our understanding of how uncertainty shocks affect decisions made by businesses that in turn contribute to macroeconomic fluctuations.

Lives Saved: Researchers in economics at Harvard University, the University of Pittsburgh, and Boston College have applied economic matching theory to develop a system that dramatically improves the ability of doctors to find compatible kidneys for patients on transplant lists. Organ donation is an example of an exchange that relies on mutual convergence of need; in this case, a donor and a recipient. This system allows matches to take place in a string of exchanges, shortening the waiting time and, in the case of organ transplants, potentially saving thousands of lives. Similar matching markets exist in other contexts, for example, for assigning doctors to residencies or students to schools.

Helping to Lift Millions out of Poverty in Developing Countries: Microfinance has spread very rapidly in the last decade, raising the hope that it has the power to lift millions out of poverty by providing them with access to capital. Loans are often given to groups of five to ten women who are jointly liable for the loan to the group. Basic research findings from NSF grants in economics led to important practical advice for microfinance practitioners. Economics grantee Esther Duflo was named by TIME magazine one of the 100 most influential people in the world in 2011 for her work this area.

Many More Accomplishments: NSF funded research is periodically evaluated by external panels of distinguished scholars and the reports are posted online (http://www.nsf.gov/od/oia/activities/cov/sbe). The 2010 evaluation of economics identifies many examples of significant substantive results, new theoretical and statistical methods, and important new data. The report also highlights achievements in economic theory, econometrics, macroeconomics, international economics, finance, industrial organization, environmental and resource economics, labor, public economics and economic history.

Government Policies Improved: The book Better Living Through Economics (Harvard University Press, 2010), edited by John Siegfried, documents how fundamental economic research improved government policies. These include chapters on price indexes (written by Michael Boskin), trade liberalization (Anne Krueger), air-transport deregulation (Elizabeth Bailey), monetary economics (John Taylor), welfare-to-work reform (Rebecca Blank), and antitrust (Lawrence White). NSF Economics supported much of this research.

Nobel Prize Winners: Forty-three out of sixty-eight Nobel prize winners in economics had SBE grants.

Outstanding Young Economists: SBE supports top researchers in economics at a very early stage. NSF has funded every John Bates Clark medal winner since 1961, including most recently Jonathan Levin. The John Bates Clark medal is awarded to the American economist under the age of forty who is judged to have made the most significant contribution to economic thought and knowledge.

Key Government Positions: SBE grantees in economics move from academics
into key positions in Republican and Democratic Administrations. The most recent chair of the Council of Economic Advisers, Austan Goolsbee, and the previous nine chairs, including Christina Romer, Ed Lazear, Greg Mankiw, and Glenn Hubbard were NSF grantees. Ben Bernanke was an NSF grantee.

Timely and Important Economic Problems: SBE-supported conference series such as the Carnegie/Rochester Public Policy Conference Series, the Brookings Panel, and the NBER Summer Institute bring the best academic research to bear on timely and important economic problems.

Data Infrastructure: NSF/SBE supports unique and very important data collections. For example, the Panel Study of Income Dynamics (PSID) is a longitudinal survey initiated in 1968 of a nationally representative sample of U.S. individuals and the family units in which they reside. The panel provides economic and social data from observations on the same families that now extend over thirty-seven years. Such data are not available elsewhere. It is a unique tool for research on measures of social behavior and economic performance throughout the life cycle and across generations. It continues to be critical for research on poverty, savings, fertility, labor supply, and intergenerational relationships.


AEACGR letter responds to criticisms of economists

On July 20, 2010 the House Committee on Science and Technology's Subcommittee on Investigations and Oversight held a hearing "to examine the promise and limits of modern macroeconomic theory in light of the current economic crisis.  The hearing explored the failure of mainstream macroeconomists to foresee the recent financial and economic collapse and the role of macroeconomics in policy making generally... The National Science Foundation (NSF) is the major federal funding resource for economics.  Members and witnesses discussed whether the federal government should support new avenues of research through NSF."


Press Release  House S&T Committee
For the testimony go here.

AEACGR sent a letter to the subcommittee's chair and ranking minority member highlighting past benefits from NSF's relatively small program in economic research. Excerpt from the letter:

"At the end of the hearing Subcommittee Chair Brad Miller asked the speakers how they would reallocate the $27 million in the NSF budget that is spent on basic economic research.  As an aside, he said this isn't very much money.  We agree.  This small program supports the ideas, the tools and the people not just for basic research on the macroeconomy but also for basic research on economic questions concerning the environment, international trade, unemployment and other pressing matters.  It does so with a peer review process that favors younger researchers and a wide range of experimental and innovative approaches. The question that I would respectfully suggest we should be asking is why so little money is allocated to economic research when so much depends on it."


DOL Certification of Foreign Hires for College and University Teachers

The American Economic Association has been trying for many years to get the U.S. Department of Labor to modify its recruitment and documentation procedures for certification of foreign hires for college and university teachers, namely that "a copy of at least one advertisement for the job opportunity (be) placed in a national professional journal." DOL interprets "national professional journal" as a print publication. DOL's "Frequently Asked Questions" states that "The employer must use a print publication." Job Openings for Economists, like almost all academic job listings, is electronic only, so job advertisements in JOE do not fulfill this requirement.

John Siegfried, Secretary-Treasurer of the AEA, called this problem to the attention of some prominent economists in the Bush Administration. He pointed out that a DOL requirement for print advertisement, when virtually all academic listing services are electronic, causes wasteful costs and a large waste of time by personnel at colleges and universities. This is a particularly pressing problem for economics because over 70% of new Ph.D.s need a visa to work in the U.S.

Later Avinash Dixit, then President of the AEA, asked some of the leading economists in the Obama Administration for help with this problem. He challenged the argument from DOL that there is a wider distribution of print job listings. He compared the small number of subscribers to JOE's printed listing (300 at the time printing JOE was discontinued) with the following unique visits to JOE's website: September 2008: 22,584; October 2008: 36,420; November 2008: 46.639; December 2008 (through the 21st): 29,931.

In October, 2009 Dan Newlon, the AEA's new Director of Government Relations, met with Elissa McGovern Chief of the Policy Division of DOL’s Office of Foreign Labor Certification to find out why DOL continued to require a print job advertisement for certification of foreign hires by colleges and universities. According to McGovern there had been extensive discussion of this issue in 2004, when there was a major revision in the foreign certification regulations and it was decided not to allow electronic advertisements because professional associations make their job listings available only to members of their professional societies. Although print publications are mailed only to subscribers, they are available in library reading rooms, etc. She said even if DOL decided to make a change, this proposed change would have to compete for attention with other regulatory changes that are under consideration. Newlon said JOE advertisements are freely available to anyone over the Internet and the regulation (20 CFR 256.18) does not specify the advertisement has to be a print advertisement, so it might be possible to just change the FAQ.

McGovern asked him to provide a one page information sheet with a rationale and supporting evidence for allowing advertisements in electronic national journals to meet certification which is available here. He also sent her a survey of JOE advertisers on the use of print and electronic advertisement and a press release that the Conference Board would use only online advertisements as indicators of job demand because of the sharp decline in print job advertisements.

In March, 2010 McGovern answered an inquiry from DOL’s Office of the Assistant Secretary for Policy about the rationale for not allowing electronic advertisements to meet DOL certification requirements. On June 22, 2010 Dan Newlon and Katharine Abraham met with William Spriggs, Assistant Secretary for Policy, DOL to ask that DOL allow advertisements in electronic publications that are freely available over the internet. This memo to Spriggs summarizes the explanations offered by McGovern and the responses by Newlon and Abraham. Spriggs said this issue did not have a high enough priority for consideration at this time.


COSSA Updates

The Consortium of Social Science Associations (COSSA) produces a biweekly newsletter, the COSSA Washington Update, that covers:

The special budget issue on the Administration’s 2011 funding request is here.

For example, see the June 28, 2010 Update for more information on the following:

"Peter Orszag, director of the Office of Management and Budget, has told his staff that he will leave his post, probably in mid-July after the issuance of the mid-year economic report." "In a Dear Colleague Letter the National Science Foundation's (NSF) Social, Behavioral, and Economic Sciences Directorate encourages scholars to consider how the Gulf oil spill and other disasters may provide an opportunity to pursue research that will produce fundamental, theory-enhancing contributions to the social, behavioral, and economic sciences."

"The National Institute on Food and Agriculture (NIFA) has produced summary data regarding its FY 2009 funding of competitive research grants under the Agriculture and Food Research Initiative (AFRI)."

"The National Agricultural Statistics Service (NASS) of the U.S. Department of Agriculture has issued of notice of invitation to suggest nominees to serve on its Advisory Committee. The deadline for submission is July 9, 2010."

"The National Science Foundation (NSF) seeks proposals from junior faculty for its CAREER program. The full proposal deadline for those applying to the Social, Behavioral, and Economic Sciences (SBE) directorate is July 22. For those applying to the Education and Human Resources (EHR) directorate, the deadline is July 20."

"U.S. Department of Health and Human Services Secretary Kathleen Sebelius announced $250 million in new Affordable Care Act investments to support prevention activities and develop the nation's public health infrastructure."

The Agency for Healthcare Research and Quality (AHRQ) research grants "support research to develop, disseminate, and translate rigorous evidence that can be used by public and private policymakers, by health system and community leaders, and by managers of healthcare organizations who want to reduce unnecessary healthcare costs (waste) while maintaining or improving healthcare quality, i.e., who want to increase value and efficiency in the organization, delivery, and financing of health care for all Americans… The deadline is January 7, 2012."

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