- So easy, even the DMV can do it!

In a move typical of the kind of responsible government we’ve come to expect in New Jersey, Governor Jon Corzine yesterday signed a bill to pile an additional 450 million in debt onto the already desperately overburdened taxpayers to get the state government involved in stem cell research. As it stood last week, New Jersey was the 4th most indebted state in the country; so taking on an additional 450 million can’t help our fiscal situation.

Besides, up to now I thought stem cell research was the domain of scientists, doctors, researchers, and drug companies. But apparently it’s become so easy, even the same people that brought you the department of motor vehicles are getting into the act. What’s that you say? … It IS the exclusive domain of medical professionals? Then what in the world is Corzine thinking when he reaches into the taxpayer’s pockets to pay for it?

The way that most medical research is funded is a company with medical expertise calculates the possible benefit of a new drug or procedure, develops a plan, and then raises the money to fund the research. They calculate the probability of success, they take the chances, and they reap the benefits. This bill that his majesty just signed will change none of that. The companies will still do the research, and they will still benefit solely from whatever profit can be made by it, but the taxpayers of New Jersey will provide the funding instead of the open market. The only thing that will buy for us in return is the right to tell the company where the research will be done. But there are a few problems with spending taxpayer money to support this thinking.

For starters, when it comes to stem cells research, much of it is already being done in New Jersey, which has long been a popular center for the medical industry. Johnson and Johnson, Pfizer, Merck, and dozens of others including many smaller “biotech” firms are all either based in the state or have research facilities here. The medical industry is already one of the state’s largest employers, so why exactly do the taxpayers of New Jersey need to take on additional debt to bring into the state, people that are mostly already here?

The truth is, they don’t. This bill probably won’t benefit the state in any measurable way on that front, but when it comes to improving the political fortunes of his majesty the governor, it will be money well spent.

Because much of the raw material for stem cell research is provided from abortions, it’s become a fashionable topic of the political far left. And since it involves lots of photo ops with angelic and brave young people in wheelchairs, it’s emotionally difficult to oppose for the political right. It’s a 450 million dollar photo op to make his majesty look more admirable and less like a “scoff law”.

Personally, I have no dog in the fight about the research itself. I’m an expert in quantitative finance not medicine and don’t consider myself qualified to discuss the merits of it. But for me the issue has never been about whether to be for or against any kind of medical research, only about whether or not government should be involved in it in some way. For me that’s a much easier question.

When it’s the open markets providing the funding, the people coming up with the cash will typically have some stake in the success of the strategies they fund, so they will provide more money for the teams most likely to produce a successful result. Got that? “High chance of success” = “more money”, “Less chance of success” = “less money”. It’s a pretty straightforward and consistent rule, but it only applies if the free and open financial markets provide the money.

But when it’s the government lending the taxpayers money, those rules go out window. The funding then goes to whoever meets the politically established criteria of the people in power. That almost always turns out to be people who wouldn’t be able to get funding in other ways because they lack the credibility of others in the field. One can make the argument that sometimes the big find comes from the lesser team, and I suppose that’s true as far as it goes. But the statistics of medical research tell us that the odds favor the leaders. So the net effect of allowing government to fund the research instead of the open market will be to provide more money for people less likely to achieve success, all on the taxpayer dime. We’ll be betting on the dark horse, the outsider, the long shot, and it’s a bet that is unlikely to pay dividends, let alone pay back the state’s initial investment.

After years at Goldman Sachs, you would expect Jon Corzine to know this, but since he’s left the financial industry and entered government his personal goals have changed. Back in the day, his job depended on providing a return to his investors, and now his goal is to provide moving if expensive photo ops with brave and angelic young people in wheelchairs. This 450 million that he wants to take from the taxpayers will no doubt turn out to be a nice investment for his personal political fortunes, even if it is unlikely to help the people who are actually ponying up the dough.