The Economic Value of Investing into Medical Research

Vansh Lorish '28

Of the total $912 billion the federal government spent on health in 2024, $48 billion was budgeted for medical research managed by the National Institutes of Health. According to the New York Times, in 2024, the NIH was responsible for at least 60,000 grants to universities and hospitals for research on cancer, genetics, infectious disease, and various other medical topics.

Under a federal administration that is cracking down on wasteful spending and emphasizing government efficiency, including expenditures by the NIH, the value of medical research is under question. However, investing in medical research has benefits beyond the medical world and into the economic one.

A simple way of evaluating the high economic value of medical research is the high return on investment for funding the NIH. In the fiscal year 2023, the NIH claims to have generated $92.89 billion in economic activity. Analysis done by United for Medical Research supports a similar trend, determining that for every $1 invested in NIH-funded research, $2.46 was generated in new economic activity. The same analysis states that NIH funding indirectly supported over 400,000 jobs, whose wages are mostly paid through additional payments from the federal government, known as overhead costs. Overhead costs involve costs not directly involved in the actual research. Funding medical research doesn’t just help the careers of lab workers, assistants, and department heads but also custodians, maintenance workers, delivery workers, and other jobs involved in the upkeep of labs. Income generated from these jobs and the spending involved in buying supplies cycles money through the economy.

In addition to increased economic spending, medical research indirectly contributes to long-term GDP growth. From 1972 to 2002, life expectancy in the United States, when attributed to the investment in medical research, increased by 7% and continues to trend upward. A production function model of aggregate economic growth comparing worker output and worker health, as David Bloom et al. from Harvard School of Public Health estimated– each extra year of life expectancy increases worker production by 4%. Longer lifespan averages have increased the size of the working population. Furthermore, advancements in therapy, vaccinations, physical therapy, etc., reduce the likelihood of absenteeism due to injury, sickness, and mental health issues. Moreover, workers are happier and more energetic the healthier they are, leading to more productivity. According to macroeconomic principles, medical research's increased human capital and labor productivity drive long-term economic growth.

While investment has gradually impacted the economy over the decades, medical research has recently proven its value in shortening the effects of supply shock. According to the National Bureau of Economic Research, firms across the globe experienced supply chain disruptions and accelerated inflation after the COVID-19 outbreak. By 2021, economists estimated that COVID-19 cost the United States economy $16 trillion. The NIH was responsible for quickly allocating resources, disease prevention efforts, and response programs crucial to pandemic recovery. According to ScienceAdviser, in an NIH and Moderna clinical trial with financial support from the federal government, the first injections of mRNA prototype vaccines on volunteers happened only 65 days after the nucleotide sequence necessary for creating the vaccine was made public, which eventually led to the release of the Moderna vaccine less than a year later, in 2020.

Additionally, the NIH launched its ACTIV initiative, which prioritized the development of vaccines and therapeutics for the COVID-19 virus. Bringing together more than a dozen pharmaceutical companies and government agencies, the program accelerated the selection and development of clinical treatments, further speeding up progress. According to NBER, the U.S. economy began to recover by late 2022, with COVID treatment preventing a more extended period of market strain.

Consumer behavior was also heavily influenced by the outbreak of COVID-19. According to the NIH, the derailment of the standard way of living caused an increase in depression, fear, and overall panic, leading to “unusual” purchasing behavior. According to research by David Bloom and David Canning from Harvard School of Public Health, consumers became more “rational” in their spending habits during COVID-19. Consumers shifted most of their purchasing power towards buying essential goods rather than spending money on products such as electronics due to the uncertainty of living in quarantine. The NIH’s efforts to end the pandemic returned consumer behavior to “normal,” helping businesses that consumers may not consider essential by restoring their pre-pandemic demand.

Undoubtedly, federally funded medical research in the United States has improved citizens' welfare and supported the economy. However, under the new Trump administration, budget cuts of 15% to overhead costs for the NIH may threaten decades of research. According to NBC, slashing overhead costs could force universities and programs to stall or completely abandon research efforts involving cancer, antibiotics, cardiovascular disease, disabilities, and children’s health. Support of these research programs is essential for a future of healthier Americans and, therefore, a growing, more productive economy. Although federal judges have extended temporary blocks to the budget cuts, the actual economic ramifications of stagnant medical progress have yet to be seen.