It's not a contradiction: wanting a small state implies both wanting a low burden of regulation on the private sector specifically, and also wanting a great deal of care to be taken with how money is spent by the government. It isn't a general argument for allowing arbitrary levels of public sector fraud or waste, and it feels bad faith to conflate these two things as if one implies the other. Nobody in the history of politics has argued on principle for a state that has high taxes yet doesn't enforce any rules on how the money is spent.

In this case, the administration believes a lot of the work the NSF funds isn't actually scientific. In that they are correct. The replication crisis has been rolling for 15 years now with no real improvements, largely because the people who distribute the money don't care if it gets used for things that are genuinely scientific or if it gets used for things that merely have the surface level appearance of being scientific. The NSF funds vast amounts of pseudo-science that can be trivially identified and people have been talking about these problems for years with no resolution. Apparently, they need some friction and bureaucracy as otherwise they won't do their jobs correctly. In a free market government intervention isn't required to solve this problem because free actors will just stop funding pseudo-scientific work after a while, but the NSF isn't running a free market, and so the problem just never gets solved.

This article focuses on social science but talks a bit about the general problems at the NSF at the end, and although it was written in 2020 thus at the start of the Biden administration the proposals the author makes for fixes are basically what's happening right now:

https://fantasticanachronism.com/2020/09/11/whats-wrong-with...

Nobody actually benefits from the present state of affairs, but you can't ask isolated individuals to sacrifice their careers for the "greater good": the only viable solutions are top-down, which means either the granting agencies or Congress (or, as Scott Alexander has suggested, a Science Czar). You need a power that sits above the system and has its own incentives in order: this approach has already had success with requirements for pre-registration and publication of clinical trials. Right now I believe the most valuable activity in metascience is not replication or open science initiatives but political lobbying

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An NSF/NIH inquisition that makes sure the published studies match the pre-registration (there's so much """"""""""QRP"""""""""" in this area you wouldn't believe). The SEC has the power to ban people from the financial industry—let's extend that model to academia.21

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It is difficult to convey just how low the standards are. The marginal researcher is a hack and the marginal paper should not exist. There's a general lack of seriousness hanging over everything—if an undergrad cites a retracted paper in an essay, whatever; but if this is your life's work, surely you ought to treat the matter with some care and respect.

Why is the Replication Markets project funded by the Department of Defense? If you look at the NSF's 2019 Performance Highlights, you'll find items such as "Foster a culture of inclusion through change management efforts" (Status: "Achieved") and "Inform applicants whether their proposals have been declined or recommended for funding in a timely manner" (Status: "Not Achieved"). Pusillanimous reports repeat tired clichés about "training", "transparency", and a "culture of openness" while downplaying the scale of the problem and ignoring the incentives. No serious actions have followed from their recommendations.

It's not that they're trying and failing—they appear to be completely oblivious. We're talking about an organization with an 8 billion dollar budget that is responsible for a huge part of social science funding, and they can't manage to inform people that their grant was declined! These are the people we must depend on to fix everything.