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"Indirect costs" are overhead, and 60% is too high (much higher than average in the US right now), but it's not all administrative overhead. Everything from lab equipment and computers to the lights and air conditioning in the research buildings is being paid for by that indirect take. You could make grant recipients itemize instead, but then you either have administrators (more administrative overhead!) do the itemizing, or you have often-highly-paid researchers wasting time on figuring out what fraction of their PC upgrade needs to come out of grant A vs grant B.
This feels like the ivory tower version of "What do you mean the plumber is charging $200! He worked for an hour to replace a $50 part!" You might want to look for a cheaper plumber next time (and in this analogy, I do think it's a problem that spending other people's money doesn't give grant committees so much incentive to price shop), but if you can't find any cheaper plumbers then it might just be possible that you're not considering his whole cost accounting.
It's one of those spectrum things or Russel conjugations. Hard to know when it goes from being somewhat convenient bundled billing to unaccountable slush fund. They are effectively lying on many of their budgets. I've seen some where the PI is taking less than a week's salary for the project. Everyone "knows" that's fake and that there's no real accounting of what the guy is spending his time on.
If they limit overhead unis probably will just start itemizing a few more of the regular things. I won't be surprised to see them start charging for their tuition 'waivers'. That'll still be a fake number that mostly finds its way into a slush fund. They'll pump up the base numbers with more 'newly standard' stuff, drop the overhead a bit and end up with about the same overall number.
I've seen "the PI is barely getting paid" budgets before, but they weren't lies, they were common cases where the bulk of the work was being done by a postdoc or one or two grad students, with a faculty member PI just providing supervision and answering questions for a couple hours a week for each such project. Arguably the most important thing the PI was doing in those situations was "having the paper qualifications for the bureaucracy to allow them to be a PI", and maybe that should raise some eyebrows, but about bureaucratic requirements rather than funding. Even then I'm not sure changing requirements would change much, because the second most important thing the PI was doing was acting as a guarantor, using their track record of good collaborative work to indicate that they were good at picking successful postdocs and students and that they'd help keep that record up if the current project ran into problems.
I might have just been lucky enough to be around honorable people, though. E.g. these were the sorts of PIs who would insist on a paper's first author being the lowly student who did most of the work, whereas I've heard that "the first author is the one with seniority" is sometimes the rule elsewhere.
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I just don’t have much belief in price discovery where the main buyer is price indifferent
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