I routinely forego summer salary in order to make sure the students are fed. This works because I receive a perfectly adequate 9-month salary from the state (and also my household has two incomes).
As a result, she's applying for grants at the moment to pay a few students a paltry sum to stay and work in her lab over the summer. She will work for free. Any students who can't cover their own room and board on their own probably couldn't afford to stay and work; they need to spend 30 or 40 hours a week in the lab, which pretty much excludes other sources of income. My wife makes the point that it's unfair that poor students can't afford the experience to work in a lab as an undergraduate, even if it will benefit their careers in the long term.
Capitalism is like this, but I don't see why in this day and age there isn't sexy research that you could do just about anywhere. Research -> Patents -> Profit. Just like in most startups, if the revenue model is nothing to sell and just hope VCs keep you flush, it's not going to work out in most cases.
It sounds like the research simply isn't profitable so the lab fails. That is the definition of capitalism, and the same reason most startups fail.
We need to make good research easier to monetize and more profitable, not figure more ways to hand out grants. At least that's the Economic argument.