Inside the Beltway: Washington News and Analysis

Caveat Emptor

by Michael S. Lubell, APS Director of Public Affairs

Politics is ten% policy and ninety % marketing. This year, the White House seems to be taking its cues from a well tested packaging strategy. If you’re selling corn flakes, and you want to increase your profits without hiking the price, make the box larger and downsize the contents. Caveat emptor!

Whether it’s Social Security or science budgets, the Administration’s marketing approach this year has been the same. Let’s consider Social Security first. In his 60-day selling blitz, President Bush touted personal investment accounts, which he said would generate far higher returns than the federal treasury notes in which Social Security invests. He’s right of course, and the odds are that you won’t even have to make your investments over a forty year period to have a good shot at coming out well ahead.

In fact, Gary Burtless, who holds the John C. and Nancy D. Whitehead Chair of Economic Studies at the Brookings Institution, has calculated that for more than a century, beginning in 1871, the historical 15-year average return on stocks has been 6.3%. Furthermore, he noted in Congressional testimony some years ago that "over long periods of time, investments in the US stock market have outperformed all other types of domestic US financial investments, including Treasury bills, long-term Treasury bonds, and highly rated corporate bonds."

But now read the contents label on the President’s package. If you opt to invest some of your Social Security tax in individual accounts, you will have to return part of your gain to the government. How much? According to the White House plan, inflation plus 3%. If inflation, itself, runs at about 3%, which is the Bureau of Labor Statistics’ common assumption, you would fork over 6% of your profit. Add a 1% management fee and you’d be out of pocket 7%. Net-net, you would suffer a 0.7% loss. Caveat emptor!

It’s much the same with the packaging of the science budget for Fiscal Year 2006 that the Administration released on February 7. In commenting on the White House R&D budget a week later, John H. Marburger, III, President Bush’s Science Advisor, asserted that the Administration’s plan "maintains and selectively strengthens" scientific research. While admitting to having to make "hard decisions," he pointed out that the National Science Foundation’s budget would rise by 2.4% to $5.6 billion, at the same time that most other domestic discretionary programs would be declining.

But read the contents label. It’s true that Research and Related Activities would receive an additional $113 million, a gain of 2.7%. But of that, $48 million is attributable to a transfer of funds from the Coast Guard to operate its two icebreakers for the NSF’s Polar Program. According to analysts familiar with the issue, however, operating the icebreakers would actually cost NSF an estimated $70 million for the coming fiscal year, resulting in a net increase of only $43 million for Research, or a just under 1%. But even this gain could be illusory, since it doesn’t include any down-payment on the estimated $500 million that will be needed in the next few years to repair or replace the two rusting vessels. And as for Science Education, NSF would have its role reduced bymore than 12%. Caveat emptor!

The Administration also offered up the core programs (STRS) of the National Institutes of Standards and Technology (NIST)–which have produced three Nobel prizes in the last eight years–as an example of its commitment to research. According to the White House Budget Request package, the Commerce Department’s Technology Administration would commit an additional $47 million to Research in STRS, an increase of 12.7%, based upon the AAAS R&D budget analysis.

Looks stellar, but read the contents label. As advertised, the Administration would also proceed with plans to terminate the NIST Advanced Technology Program. But the proposed budget provides no money for the close-out costs, estimated to run about $50 million. Assuming NIST bears the costs, the $47 million gain for STRS becomes a $3 million loss. Caveat emptor!

It’s much the same story with other federal agencies, where the total R&D number might go up, but research funding would go down. The notable exception is the Department of Energy, where no amount of clever packaging can mask the dramatic cuts to science, now estimated to run in excess of 4.5%. At least give Ray Orbach, the Director of the DOE Office of Science, and Sam Bodman, the new Secretary of Energy, credit for truth in marketing. This year, they’re about the only ones who deserve it.