I agree that it's not a conscious process, but I don't know if it's a matter of efficiency -- a lot of high-value work gets done cheaply at Universities. There's plenty of competition for grant money, too.
The inelasticity seems to be on the labor side of the equation -- no matter how badly students and post-docs are treated, they keep coming back for more. My intuition is that stricter limits on fellowships (i.e. at most X years of government funding; more like the UK system), would provide less perverse incentives for everyone. But any politician to propose such a move would be pilloried for opposing science.
The inelasticity seems to be on the labor side of the equation -- no matter how badly students and post-docs are treated, they keep coming back for more. My intuition is that stricter limits on fellowships (i.e. at most X years of government funding; more like the UK system), would provide less perverse incentives for everyone. But any politician to propose such a move would be pilloried for opposing science.