The economics of discovery, with Ben Reinhardt

Ben Reinhardt and Patrick McKenzie traced how U.S. science funding, institutions, and incentives produce both great results and persistent frictions. They opened with a corrective: Speculative Technologies helps people start focused research organizations (FROs) rather than being a canonical FRO. From there the conversation sketched the familiar post–World War II picture — government as a large funder, industry participation, and the codified legal taxonomy of basic, applied and development research — and then proceeded to unpack why that tripartite box fails in practice. Reinhardt used semiconductors, LED development and later AI breakthroughs (e.g., the ‘‘Attention Is All You Need’’ paper leading industry follow‑on) to show projects frequently loop between fundamental discovery, applied problem‑solving and engineering development, so neat buckets misrepresent how discovery actually happens.

They moved from conceptual problems to concrete incentives and institutional dysfunction. Reinhardt gave order‑of‑magnitude funding breakdowns (~$900B U.S. research spending; ~ $700B to development; industry ~$600B, government ~$200B, private foundations < $100B) to show most corporate R&D is coded as development. He argued tax and accounting rules encourage firms to label many software and product efforts as R&D, inflating headline numbers. University constraints were the other major focus: the PI‑centric grant model forces one person to fundraise, manage and execute; grant line items favor personnel (grad students/postdocs) over equipment or contracted professionals; and tech‑transfer offices (only ~16% profitable, generating low single‑digit billions total) often impose onerous licensing terms that kill early spinouts. They illustrated downstream harms with anecdotes (professors logging ~40% of time in bureaucracy; a COVID trial stalled by a 200‑question intake form that only a grad student could edit).

Despite critiques, both are optimistic about institutional experiments: FROs, ARPA‑style agencies (UK/US variants), universities like Waterloo that let inventors keep IP, and new nonprofit and for‑profit intermediaries. Reinhardt and McKenzie largely agreed on diagnoses and emphasized more experiments in governance, funding vehicles and hiring rules so research can be organized at team/company scale instead of exclusively at the PI/lab level.