This is our national identity crisis in a nutshell: Do we want government spending half its money on redistribution and military, or re-dedicating itself to science, infrastructure, and health research?
We like to think of ourselves as an innovation nation, but our government is a warfare/welfare state. To build an economy for the 21st century we need to increase the rate of innovation and to do that we need to put innovation at the center of our national vision.
Innovation, however, is not a priority of our massive federal government. Nearly two-thirds of the U.S. federal budget, $2.2 trillion annually, is spent on the four biggest warfare and welfare programs, Medicaid, Medicare, Defense and Social Security. In contrast, the National Institutes of Health, which funds medical research, spends $31 billion annually, and the National Science Foundation spends just $7 billion.
Source: Economic Report of the President 2010 and Federal Budget 2010.
The federal government does spend some money on innovation, but mostly for innovation in warfare. The Department of Defense, for example, spends $78 billion on R&D. Good for the DoD, at least they are thinking about the future. But most defense R&D is for weapons research that is unlikely to generate significant spillovers to other areas of the economy. The basic and applied non-weapons research that has the best chance of creating beneficial spillovers is a small minority of defense R&D. DARPA, the Defense Advanced Research Projects Agency, for example, helped to develop the Internet but DARPA's budget is only $3 billion. Even when we lump all federal R&D spending together regardless of quality it amounts to just $150 billion, a mere 4 percent of the budget.