Leaders of the scientific community have declared that American science is in a crisis due to inadequate federal funding. They misconstrue the problem; its roots lie instead in the institutional interactions between federal funding agencies and higher education. After World War II, science policy elites advocated for a system of funding that addressed what they perceived at the time as their most pressing problems of science-government relations: the need for greater federal funding for science, especially to universities, while maintaining scientific autonomy in the distribution and use of those funds. The agencies that fund university research developed institutional rules, norms, and procedures that created unintended consequences when they interacted with those of American higher education. The project system for funding, justified by peer-review and coupled with rapidly increasing R&D budgets, created incentives for universities to expand their research programs massively, which led to unsustainable growth in the demand for federal research money. That system produced spectacular successes but also created the unintended longer-term problem that demand for science funding has grown more quickly than government funding ever could. Most analysts neglect potentially painful reforms that might address these problems. This case demonstrates that successful political coalitions can create intractable long-term problems for themselves. © The Author(s) 2020.