No Monopoly on Dark Matter

I’ve been giving additional thought to the Dark Matter debate recently.

One of the flaws in the entire concept has been the unspoken assumption that the US is running a surplus of the magical dark stuff. But as long as we are entertaining this unsupported theory, let’s consider another possibility. How much "unmeasurable" Dark Matter might other nations have?

To pursue this line of thought, we need to quantify the "creation and marketing of knowledge," as BusinessWeek put it. In their laudatory article, they wrote "After
all, we’re talking about intangibles: brand equity, the development of
talent, the export of best practices.

Which leads us to an obvious question:  Why isn’t Dark Matter a Two-Way Street? Does the US have a monopoly on Dark Matter?

I suspect not.

Consider the vaunted efficiency of Toyota of Japan. Their Camry has been the top selling sedan in the U.S. for the past umpteen years. Toyota builds them here — but the US plants cannot satisfy all the domestic demand for the car, so they also export them here from Japan. Despite its status as a best seller, the Japanese engineers are relentless. They recently figured out how to manufacture the Camry engines for less than half the prior costs. Oh, and its has more horsepower — and better gas mileage — than the prior engine; with fewer parts, its also even more reliable.

Dark matter, anyone?

How about India’s technological adaptability? They have the ability to ramp up in practically any knowledge field — from tax accounting to reading MRIs to doing stock financial analysis to writing software code to tech support. Their University system creates engineers by the truckload, who are willing to work at very modest wages compared to those here in the US. What would you call the capability to find a profitable niche, exploit it, attract capital, corporate sponsorship, investment, talented personnel and management? If that’s not Dark Matter, what is?

How about the China’s low costs? A front page WSJ article reported recently that "Multinational companies, drawn by a huge and inexpensive talent pool, are pouring money into research and development in China — a trend that promises to broaden the country’s huge role in the global economy." How would the Harvard boys describe this ability to attract foreign-investment?  Do the letters DM provide a clue?

India and China are just the tip of the Dark Matter iceberg. Consider the following nations’ "Dark Matter" advantages — their intangibles — that may not show up in their GDP data: How about Italy’s preeminent design capabilities? From automobiles to appliances to clothing to art, Italy is the world’s most sought after design studio. Is that Dark Matter? What about France’s role of global tastemaker for food, wine, fashion? And Great Britain’s culture of maturity, independence and business savvy? How do we measure Denmark’s consistently top ranked satisfaction levels amongst its population? The list goes on and on.

When I look at it objectively, I find the Harvard analysis to be only so much primate chest beating.

And that’s before we get to the really really ugly question:  What if we have a deficit of Dark Matter also . . . ?


Toyota’s ‘Simple Slim’ Cuts Costs of Camry Engines 50 Percent
John Lippert
Bloomberg, Feb. 21 2006

Low Costs, Plentiful Talent Make China a Global Magnet for R&D
WSJ, March 13, 2006; Page A1

Thanks to Detroit, China Is Poised to Lead
NYT, March 12, 2006

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  1. john commented on Mar 23

    What have we done lately? As a country, I mean? The last great thing we invented was Just In Time inventory systems and, if we have a bird flu pandemic, that’s going to kill a lot more of us than necessary. The only other great recent invention was Botox.

    Has Ford, GM or the other guy cranked out anything except low fuel economy SUV’s? Then they wonder why they’re going broke. No innovation – so blame unionization and high wages instead of management. If we could just build ’em cheaper they would sell.

    No we are flat out of dark matter – fact is I doubt we ever had much to begin with. Investigate all great inventions of the past 150 years in the US and you find about a dozen names. Everything else has been a derivative with the objective of making it cheaper. Does it take DM to do that? No – just marketing.

  2. th commented on Mar 23

    Some people think once the Fed is forced to slow down money supply growth from the 6-8% range is when the proverbial poop hits the fan. Inflation begets inflation, but there is a limit before something breaks. Many peoples’ hunch is that all these resource allocation problems comes down to the Fed screwing with the currency. Prices are in dollar per “item”, which determines quantity supplied and demanded. I don’t see how one can explain this “dark matter stuff” without first dealing with the Fed.

  3. JO commented on Mar 23


    Taking the irony a step further: is this what you mean by Great Britain’s “culture of maturity, … and business savvy?”

    Foxtons (the estate agents mentioned) are huge in London. Was wondering how they did it…

    And after trying to deal with the UK’s banks for the past nine months, I don’t think much better of them either. Incompetence across the board (big and small banks included).

    Germany was banking heaven in that respect. Straight talk, no nonsense.

    Excuse me for going slightly off topic (and on a personal rant), but consider this “primate chest beating” of a slightly different sort.

    Cheers. And please continue the excellent, irreverent posts.

  4. jw commented on Mar 23

    “Dark Matter” is really nothing more than what a CPA would call a “ULD”, or “unlocated difference”.

    When balancing a trial balance or doing a bank reconciliation there is almost always an error in some accountm, or merely a cumulative rounding error, that results in a differential between debits and credits. To make it balance one just plugs the hole with an entry: ULD = $XXXX.XX

    Thus Dark Matter is merely a way to try to explain a ULD, using an arrogant scheme that puts imbalances in the most complimentary light.

    But the reality does not require a PhD in Economics to explain. These imbalances are simply a reflection of the role the US$ plays in global trade, and the perception that the size and strength and durability of the US economic and political system makes our assets a convenient, liquid, certificate of deposit, if you will.

    Thus, there is really nothing there THERE. And if the US$ goes into a skid you’ll see “Dark Matter” join “Titanic”, “New Ecomomic Paradigm”, “Y2K”, and a host of other terms and phrases in the Discredited Notion Hall of Fame (I can see the inside baseball humor among investors already, when explaining some future stock sporting an outrageous P/E: “It’s really a value stock when you add the DM to their balance sheet… BWAAHAHAHA BWAAAAAHAHAHA!!!”)

  5. ajwnyc commented on Mar 23

    John – wasn’t Just In Time invented by the Japanese?

    Barry – yet another excellent post. To your last point, about the potential for a deficit of dark matter, I’ve found that dealing with UK buy-side clients has become inreasingly challenging as an American based solely on growing cultural antipathy. Admittedly very limited anecdotal data points, but from my perspective we’re already in deficit.

  6. jpmist commented on Mar 23

    Ever read “Zen and the Art of Motorcycle Maintenence”?

    Dark Matter seems to be just another name for Quality which is almost by definition impossible to quantify. . .

  7. The Stalwart commented on Mar 23

    Barry Ritholtz on Dark Matter

    Barry Ritholtz has a really sharp piece up today on the question of dark matter and whether hidden intangibles like quality and knowledge, if added into the economic mix, would more than offset our seeming imbalance with the rest of

  8. anon commented on Mar 23

    “If that’s not Dark Matter, what is?”

    India has close to 50% illiteracy rates. This is a dark matter. How do so many people live trapped in such a system?

    That being said, Americans sometimes consume too much and in profligate manners. Dark matter can not inevitably bail out everyone.

  9. anon commented on Mar 23

    here is another one

    Intangible assets depreciate probably over much longer lives than physical assets. So, for example: a personal computer may be good for 3, maybe 5 years. A machine at a manufacturing plant may last 7 years. ON THE OTHER HAND, goodwill may last 30 years or longer. R&D and know-how may last a long, long time as well. The terminal value (value > 5 years out) is very high from intagible assets compared to machinery and widgets.

    Look at the internet. The seeds for this were planted in the 1950s. It was not commercialized until the 1990s.

    You can also utilize intangible assets more than physical assets. A farmer with a $200,000 combine uses it 3 weeks during the year. It is idle the other 49 weeks. Intangible assets, on the other hand, can often be used 24 hours a day, 7 days a week – all year round.

  10. B commented on Mar 23

    I am beyond confident that American will be THE global economic leader for my entire lifetime. And I am very young.

    This is a topic I am quite confident that I am very capable of articulating. Our intellectual dominance is actually increasing. Which, if you think about it, is not actually that difficult to grasp. I could cite study after study or fact after fact but America is far from hitting the skids. That’s why I am uber bullish on the future………after a correction and maybe a nasty one and maybe even a recession. That is, assuming Smoot-Hawley doesn’t rear his ugly head.

    I’ve spent a fair amount of my career as a leader of leaders in high powered organizational structures. I may have been a sh*tty leader but I’ve had the good fortune to be immersed in tremendous educational opportunities on leading leaders and creating an environment of developing creativity and talent.

    I can assure you those are significant keys to our success. They’ve always been a part of Americana but now people actually understand the behavioral dynamics behind such capabilities and they’ve monetized it and captured it as a methodology. It is nurtured and cultivated in our top universities, companies and by our top industry leaders. And as PATHETIC as our K-12 system is, it is actually nurtured in the way we teach our children at home and in our schools. The Chinese, as an example, do not, have not, will not, have that culture for a long, long time. India will outperform China’s command and control leadership style which trancends all of society over the long run. And, I’d quite imagine by a significant and measurable amount unless the Chinese can affect truly transformational change. And I don’t mean saying they are going to do it or even doing it. I mean being effective at it. That’s a pipe dream in a corrupt, do it because i said to do it, command and control military structure economy that shows no signs of change.

    We sure as hell do not have a lock on intelligence. But we do also have a near lock on attracting people who actually reinforce our ability to continue this remarkable capability that is uniquely American. I am not saying that other parts of the world cannot or will not be economically successful. Nor am I saying other cultures don’t exhibit similar capabilities. But as the human race advances its knowledge base as an ever increasing exponential base there is a strong argument to be had that the haves are increasing their knowledge base at a similar pace over the have nots.

    Doesn’t help us with our current account problem and it doesn’t help us solve our financial dilemmas but those will work their way to equilibrium whether painfully or not. And, remember, much of those imports are oil and the biggest nonoil import are parts/finished goods of American businesses. So, any new ideas or patents or intellectual capital created by American companies overseas now belong to our intellectual capital base.

    Very interesting read.

  11. Anon Y. Mouse commented on Mar 23

    India’s much touted ability to “ramp up in practically
    any knowledge field” is highly over-rated. Have you
    gotten any “customer service” at an India-based call
    center lately?

    What India has is lots of english-speaking fairly
    intelligent people who are, most importantly, willing
    — and able — to work for significantly less than
    their first-world counterparts. If you talk to people
    who manage software projects, for example, you’ll find
    that their ability and track record is not any better,
    and in some cases, noticably worse, than American
    engineers and programmers. There are still cultural
    differences that haven’t been overcome that often
    result in substandard results, by our measure.

    Nonetheless, the “pointy-haired bosses” usually find
    their performance “good enough,” and often overlook
    any deficiencies because of the cost savings. They
    are blinded by the cheap labor, and figure that even
    at having to do things over or fix mistakes, they’ll
    still come out ahead.

  12. B commented on Mar 23

    Wanna see another piece of bullsh*t as it pertains to the “World is Flat” goofs.

    The net of the Duke study is that auto mechanics, hamburger makers and used car salesmen are included in the Chinese engineering graduation rate. The US is graduating more engineers than India and our base is already significantly larger. And China….well……their statistics are a joke as outlined here.

    40% of the world’s research dollars and 35% of the world’s researchers are in THE USA.

    OMG China and India are going to ruin us!

  13. royce commented on Mar 23

    Yeah, the big advantages for China and India still revolve around low cost labor. Although I’m limited to the consumer end of things, I haven’t seen much in the way of superior Chinese or Indian innovation.

  14. David Silb commented on Mar 23

    Yes the Japanese invented “Just In Time Inventory.”

    I won’t research Botox. The Brits, in following our lead are facing the same pressures we’re facing now.

    After reading all the responses I think you guys are missing the point. “Are we using our Dark Matter to its best potenial, or are we just plain out of the stuff?”

    Combines, literacy rates in other countries, the internet commercialized in the 90’s started in the 50’s (I might add that there was no way to take advantage of it until the PC’s came along.) are All well an good. But are you guys using them is a form of denial?

    What I think Barry is getting at is the fact that right now on the horizon nothing seems to be in the works that might move us further. We seem to be waiting (nationally speaking) for something to happen.

    I personally blame the guy in the White House. His poor diction and wanting abilities at articulation as he tries to explain things in the most simplest and extremely basic means, leave me cold.

    As our nation’s leader, his administration really is doing nothing towards the future as far as inventiveness goes. Sure we’re locking down the borders, tightening up our defenses and “hunting down” terrorists, while our economic competition works to invest in their futures.

    OK, the world’s a dangerous place, and it always was and will be going foward. I think if you want to see good security at work New York City and State have the best formula going right now. It relies more on brains than brawn. They’ve added whole new departments in the NYPD devoted to thinking about threats to the City. (Wish our CIA was as devoted to the nation.)

    Dark matter if it exists, its in short supply round here. Even this blog has some intelligent and creative people and we can’t even agree.

    Oh where is our Obelisk. Where can we find the ability propel ourselves forward?

  15. D. commented on Mar 23

    Everyone seems convinced that innovation will keep the US on top of the world.

    That’s funny because the Romans were pretty advanced yet it didnt’ stop humanity from receding into 1000 years of Dark Ages.

    In my opinion, since we are social animals, diplomacy is going to supersede everything in determining our future.

    One of the biggest risks that I see with the US is its navel-gazing. I find it astounding how little most Americans know about the ROW and how many are not afraid to admit that they don’t care.

    To win a war, you must grab what your enemy wants, but if Amercicans barely know their enemy, how can they ever find the Achilles heel? It’s like Hitler sending his tanks into Russia in a deep freeze without anti-freeze.

    A me, myself and I attitude only works as long as you have everything. And right now, the USA is a little short on capital, energy, water…

  16. Barry Ritholtz commented on Mar 23

    Oh, there are things that can move us forward — Nano tech, Stem Cell research, alternative energy — tons of stuff.

    Paul Kedrosky points to Genetic Engineering News list of 10 new technologies that will make a difference:

    Nuclear Reprogramming
    Diffusion Tensor Imaging
    Comparative Interactomics
    Pervasive Wireless
    Cognitive Radio
    Stretchable Silicon
    Universal Authentication

  17. trader75 commented on Mar 23

    One major problem with ‘Dark Matter’ as a theory is that it runs into Occam’s Razor: it isn’t really necessary as an explanation for why the trade deficit has been sustained so far. Consider the combination of these four factors:

    a) US dollar hegemony via 50 years of economic and military might

    b) mercantilist policy in Asia and the middle east (a willingness for exporters of oil and ‘stuff’ to extend credit to their biggest customer)

    c) Heavy dependence on export flows for internal domestic reasons (Beijing has to keep all those peasants employed in factories, the house of Saud has to keep the jihadis calm)

    d) negative consumer savings rates in 2005 for the first time since the Great Depression

    What you get is a logical and straightforward picture that doesn’t require the addition of a dark matter component. America is living off its historic mojo and going deeper into debt to do it, a high flyer who refuses to pare back their lifestyle in line w/ their newly reduced income. The game goes on because our mercantilist credit-suppliers have gone into the box canyon with us — they have no political will or short term capability to cut off the taps without major dislocation in their own economies.

    And on top of that, as Caroline Baum has observed, large foreign purchases of US treasuries are credit stimulative if not economically stimulative, with the perverse result that the more dollars we send that China and the middle east can’t spend, the more they got recycled back into treasuries to push down long term rates. The credit line gets bigger the more we fall behind: A bizarro cycle that has only encouraged the housing bubble / shopping spree.

    As for America being the economic leader for whoever’s lifetime, methinks it requires a touch of hubris to say that about ANY country, given how fast the pace of change has accelerated and will continue to accelerate. We may indeed still cultivate the best, the brightest and the smartest, but they are only a modest chunk of the population. For America to wind up in a world of hurt, things don’t have to change radically. All we have to see is a proliferation of the trends in existence right now.

    If, say, 20% of the US population is seeing its opportunities and income double or treble thanks to opportunities in this brave new world, their spending habits will put the further squeeze on the other 80%. Remember the Silicon Valley effect? Policemen and teachers living in trailers because San Jose was so damn expensive they couldn’t afford a place to live? We’re seeing that strata wash over the entire country in slow motion. It may be true that the nation’s piss-poor savings rates are due to a disproportionate amount of spending from the haves vs the have-nots. But if so, you still have the major issue of at least 50% of the population–if not a good chunk more–treading water in a rising-cost environment as the IP-enabled folks charge ahead.

    America’s woes stem from the fact that countries can’t downsize (the GM problem) and the realization that as globalization takes hold, winners and losers will be determined less by geography and more by specifics of talent and skill. Think ‘American Idol’ on a global scale.

    I think this ‘who has more engineers’ thing is sort of a canard. If you are a smart and focused player in the global economy, you have a great shot whether you live in China, India or the United States. If you are NOT a smart and focused player in the global economy, your outlook is in trouble–regardless of where you live. Our troubles will not come from falling behind in the great engineer race. They will come from income disparity pressures that could tear our society apart… and a sharply populist response could / would make high earning individuals, not to mention multinational companies, reach for their passports.

    The west’s traditional societal models are going away, in large part because they were based on an anomaly in the first place. The west had an extraordinary burst of prosperity in the 20th century which, in the second half of the 20th century at least, was inordinately boosted by rampant poverty in the non-western world. Now that the non-western world is catching up and getting in the game, they are bidding up the cost of energy, bidding up the cost of materials, and bidding down the cost of manual labor and brain power, which for a long time were artificially high. It’s a new equation–and one that we should welcome, if we are honest, because high-minded notions of America should not be sustained on the back of four-fifths of the world being poor.

    Bottom line: Pretending the old days will be back is folly. They will never be back. Dark matter is a somewhat silly, and unnecessary, effort to pretend that things haven’t changed. Clearly they have.

  18. B commented on Mar 23

    Jesus Christ!

    There are more perma-bears on this board than I have seen anywhere. Bitch, Bitch, Bitch. Woe is me. Chicken Little, the sky is falling. You guys need to get a life and a girlfriend to cheer you up. ie, GET LAID! Arthur Hill, a trader I respect greatly, has posted on here a few times in the last few months that this place wreaks of negativism. Man, is he right. You know, I really don’t think Barry subscribes to your theories. Looking for a slow down or a correction is one thing. You doomers don’t have ANY precedence in the last 100 years for your arguments except once when TARIFFS and PROTECTIONISM caused a depression. AND IT’S BEEN ALOT WORSE THAN THIS. Other than that, your arguments are so far outside of the bell curve…………… are really expecting a fat tail. Really fat.

    You all think you found a kindred spirit in the author of this board but I have never seen a post where he supports any of these combo Ted Kaczynski/Bob Prechter notions.

    What are you going to have to bitch about when we have our correction, the Fed starts reflating and Barry says full steam ahead, go long equities and do it hard?

    This correction will likely present the best buying opportunity in the last eight years. Every cycle that is supportive of this phase even post 1929 and 1968 supports it….IF history has any semblance of repeating itself of sorts.

    And by the way, I see more innovation and opportunity than I have ever seen in my life. There are whole new industries being created. They ain’t makin autos either. That is a stodgy, conservative industry that has resisted change for forty years. And that includes Honda and Toyota which are great companies but not exactly bastions of innovation.

    Mark my word. GM and Ford will rise from the ashes to be very dominant forces in global automobile production that will set standards of excellence. They have finally reached the level of crisis which forces change to large, insular organizations. They may go bankrupt first but I am highly confident even those old economy companies will have a better future than anyone could ever imagine today.

    Barry, if you are going to monetize your blog with a subscription, you better include gold, because that is likely the only investment the majority of people on here own. BAAAAH HUMBUG!

  19. trader75 commented on Mar 23

    Dude, calm down!

    I don’t know what perma-bears you are talking about, and I hope you ain’t talkin’ ta me because I am more long than short right now (and making money on both sides).

    As for Ted Kaczynski Bob Prechter, WTF are you talking about?

    I’m talking about clear trends based on hard data points and observable realities here and now. You seem to be reading from your own wacko script. And on top of that, you think GM will become a global-dominant force? Who’s the one wearing a tin-foil hat here?

    You know, it’s a really dangerous thing to assume you understand someone else’s position when you really don’t grok it at all. I hope that habit doesn’t bleed over into your trading activities.

    And by the way, if the market ramps up hard later this year, I will be long out the wazoo. That’s what traders do. And notice I never said a thing about how markets will or will not react to all this in the short to intermediate term. It’s entirely possible that the asset inflation beat goes on for quite a long while. No one ruled that out, least of all me. Bob Prechter my ass.

    B, you have said some pretty savvy stuff on these boards, and I for one appreciate your contributions. But think hard about labeling other people permabears who aren’t necessarily permabears at all… and think especially hard when You turn out to be the one drinking the “Mom, America & Apple Pie” kool-aid. I believe great opportunities will exist and will continue to exist. But I also believe the world is a complicated place, and not one that lends itself to what-me-worry views like “America will be great for the duration of my lifetime” or “GM and Ford will rise again.” I’m trying to make sense of the current data and you are the one making Kudlowesque predictions… not to mention shouting Jesus Christ and slapping people with labels that make no sense.

    Kumbayah, brother. When the markets are going up I’m long. When they are going down I’m short. Maybe we can find a common bond there. Just dispense with the name-calling and the hand waving will ya?

  20. sally commented on Mar 23

    Our universities are getting less foreign graduate students. Part because of 9/11 effects, in part because of improving facilities elsewhere. Entrepenurial clusters are slowly growing elsewhere, things can shift rapidly.

    Many of the industries we dominate are “knowledge based” which means they have relatively low entry costs. Even in media Japabese anime, “hello kitty” take nice market chunks.

    Things cycle. In the eighties we were worried. Then came the Clinton years and we reveled in our strengths. But relative strengths can shift in decades long cycles. Europe, Japan, the “tigers” may gain along with emerging economies.

    Reading “assasin’s Gate,” “Cobra II” and other studies of our recent foreign ventures does not assure me that our management is always anywhere near competent. Ditto GM etc.

    I think things like the financial indistry are headed for a crash since many of the best paying jobs are protected niches not required with modern tech. Some countries are building from scratch which gives them a chance to eliminate inefficiences.

    Behaviorally when people say they are not threatened, as many here do, you know the odds are high they are fumbling losers, complacent and smug. the successful run scared.

  21. Michael J commented on Mar 23

    Barry –

    Concerned are missing the point on “dark matter” in both the original post and the long comment.

    1) Dark Matter is not (solely) about ingenuity, invention, brands. It is about those things, owned by Americans but FINANCED with overseas capital. Comparisons to Toyota, etc miss the point.

    2) The reason we NEED a “dark matter” theory is that despite all the capitall account “borrowing” that is supposedly going on — we are net POSITIVE in terms of interest received on investments. (?!?)

    I think if you have experience in the financial and operational world of U.S. business, the “dark matter” argument holds intuitive weight. Many investment funds (or general businesses) manage capital under terms such as — “you provide the capital and I receive 25% of returns as GP”. Whatever the structure of this partnership — hedge fund, real estate, operating company, start-up — the net effect is the same and is the equivalent of the capital manager saving 1/4 of the capital of the operation. The U.S. is the world’s capital manager.

    Regarding savings, consider the situation of a typical U.S. technology entrepreneur: I take my small nest egg and use it to finance my living expenses while I start a software business. According to BLS I am a large net negative saver. Then my company IPOs, or is bought, etc and all of a sudden I am independently wealthy — having never saved. (?!?)


  22. trader75 commented on Mar 23

    “You doomers don’t have ANY precedence in the last 100 years for your arguments except once when TARIFFS and PROTECTIONISM caused a depression. AND IT’S BEEN ALOT WORSE THAN THIS. Other than that, your arguments are so far outside of the bell curve…………… are really expecting a fat tail. Really fat.”

    By the way, I can understand where some of your confusion is coming from. You assume that I’m trying to argue from past precedent, as your critique shows. But I’m not. By definition, things change, and sometimes change radically–there are certain points in history where past precedent does not apply, because there IS no past precedent of any kind.

    Modern day example: how do you value a company like Google? What past precedents do you have to really capture the value of their potential business model–or the pitfalls? Answer: there is no real past precedent, only rough approximations that don’t exactly fit.

    So you look at the current data points and the current landscape and you combine logic, experience and critical thinking skills to determine what’s happening (and take a shot at determining what might happen next).

    There are all kinds of trends that turn into nonsense when you try to extrapolate them too far into the future. The more potential for disruption between point A and point B, the sillier long-term extrapolation becomes. Case in point: life expectancy. What will the average lifespan be for a human being born in the year 2000? Heck, for a human being born in 1980? The government has studies and predictions, but they are absolutely useless–maybe worse than useless–because we have no idea what medical and scientific advances will take place in the next thirty to fifty years. By the time you and I get old (I turn 31 later this year), we may have the capacity to live to 120 or 130 with decent quality of life. Or maybe not. WE JUST DON’T KNOW.

    The same thing applies to the current big picture situation vis a vis technology and globalization. When is the last time we’ve been in the situation we’ve been in now? When is the last time the developing world stepped up to the free market plate on a grand scale? When is the last time economies the size of India and China have tried to develop as fast as they can on a technology-enabled scale? Answer: THERE IS NO LAST TIME. THERE IS NO PAST PRECEDENT.

    That means two things:

    1) extrapolating from the past is folly when the present has witnessed a sufficiently radical break from the past, and

    2) in a situation like this we are forced, more than ever, to use skilled judgment, creative logic, and critical thinking skills in trying to determine what is happening / what may happen next.

    By the way, you insist on pigeonholing me as a doomer. But that’s part of the problem: in times like this, one dimensional labels don’t apply. In spite of all the turmoil going on, I think there could be more opportunity in the next few decades than there has been in the past 100 years. How does that make me a doomer exactly? Oh, right, because I don’t think 20th century societal models will work in the 21st. But that’s only one piece of the puzzle. And if you continue to assume that I’m reading from some dusty-ass permabear playbook, then you will never understand my position at all.

  23. tom jones commented on Mar 23

    One might also add “inefficiencies.” Our health care is well over 16% of the economy as opposed to under 10% in other industrial nations. We have higher infant mortality, lower life expectancy and more seriously sick people. This is 7% percent tax.

    The Defence Budget coupled with the current war budget is over 500 billlion. Add Does, expendiitures, veterans benefits not included and interest paid on money borrowed and we pay 4% more of our economy on war than rivals.

    Then lawyers… then CEO pay, the top are payed huge sums to increase short term value at the cost of long term viability.

    This raises the price of our goods and services. Efficiency does count.

  24. trader75 commented on Mar 23

    “2) The reason we NEED a “dark matter” theory is that despite all the capitall account “borrowing” that is supposedly going on — we are net POSITIVE in terms of interest received on investments. (?!?)”

    Michael J:

    This is a fair enough observation — but would you deny there is something of a bait and switch going on?

    It’s possible that the ‘net positive’ dark matter conundrum is an indirect result of US dollar hegemony, or reserve counting games, or simply dubious data. Lord knows there are enough questions floating around the accounting methods of the trade deficit.

    Suspiciously, though, the financial press isn’t really entertaining the possibility that the dark matter phenomenon is dubiously calculated, or worse yet a form of modern day seigniorage. Instead, this theoretical ‘phenomenon’ has somehow been straightaway turned into a cheerleading tool, a big boo-yah for American innovation supremacy. That is certainly the undertone — and the element that deserves a response.

  25. B commented on Mar 23

    The financial services industry is the largest user of tech as a percent of sales of any industry in America. Fact. Low barrier to entry? Allstate? Goldman? Schwab? Citi? Morgan Stanley? I don’t think so.

    American universities have restrictions on foreign studensts from 9/11 which will eventually reverse. Other country’s universities had better improve because they are awful. Our universities continue to innovate and lead by getting better themselves. More research is done at American universities than the rest of the world’s universities combined. That is an amazing fact.

    Knowledge based industries have low barriers to entry? Oh really? Patents? Copyrights? Intellectual capital law? Hmm…I don’t see the Chinese knocking down our door in cracking the human genome, nanotechnology, biotechnology, software, consulting, chemical sciences and on and on and on. I guess we’ll soon see them overtake us with a low barrier to entry because it’s ONLY based on the most important indicator of corporate prosperity: Intellectual capital and innovation.

    Hello Kitty? Now I’m really worried. Next thing you know, Godzirrah will be taking over the American entertainment industry.

    Complacent and smug? Let me assure you, the majority of American companies are uber competitive and paranoid about their ongoing success. Competition has improved the breed and most are more competitive than ever. Most profitable ever as well as we see record profits as a percent of GDP. I’ve been in the board room of some of America’s most successful companies. I can assure you there are very few insular, complacent management teams. Very few.

    I just totally disagree with all of these negative opinions. Totally. There is nothing wrong with having a negative opinion. But there is nothing to support your arguments other than what you PREDICT.

    Where are the international players from China and India? Two companies in Korea compose the majority of the stock market capitalization. Japan is dominated by a few global players and little new business creation. If Japan is where the best competition can be found, bring it on. I could list one hundred industries they have no significant presence in that we dominate. I know quite well. I’ve been to Japan often and my significant other is Japanese.

    I appreciate all of the authors who do a great job of writing books but the fact is the prevailing wisdom amongst most average Americans is our party is over. I see it all of the time. It’s reflected in the Misery Index Barry quotes. Most Americans are very sour on our future. Crowd think is debased to the lowest common denominator. ie, The dumbest retard of the bunch. I’ve worked with hundreds of the most successful companies in America and I can assure you America’s mantle is quite assured.

    I guess I should get back to work to ensure our dominance. lol.

  26. trader75 commented on Mar 23


    I hope your general optimism in correct–I have no desire to see America succumb to internal divisions and populist pressures. (Plus it’s easier to make money in bull markets).

    But at the same time, I think it’s becoming less and less appropriate to automatically equate the success of America’s high profile companies with the success of the average American citizen.

    Consider this quote from Steven Roach:

    “China’s export juggernaut is not what it appears to be on the surface: Fully 62% of its export growth over the past decade came from Chinese subsidiaries of multinational corporations headquartered elsewhere in the world — Asia, Europe, and America.”

    Bully for Multinational Corporations. Bully for export-led growth in the developing world. But what happens to those western workers who can no longer cut the mustard–or who see their wages stagnate at the same time their cost of living rises significantly. This is the plight of the average American. It’s not “consulting jobs for everyone.”

    I am not a protectionist… there is nothing down that road but pain and misery, and I don’t think we have the moral right to deny developing world workers their shot at life anyway.

    At the same time, I don’t see how we can pretend the world is the same. Historically, global sea changes bring about significant dislocation and turmoil. They always have. Creative destruction is a beneficial process in the long-term that happens to create clear winners and losers in the short-term. It’s always been this way.

    Optimist, pessimist, boomer, doomer — the situation is too complex for simplistic labels. It might be folly to overlook the opportunities ahead… but it’s dangerous to pretend the problems don’t exist.

  27. bionick commented on Mar 23

    If by “dark matter” we mean quality, then we certainly have a deficit of it. The population as whole can’t recognize and don’t care about quality. Consumer items are just a big pile of crap; things break fast and work poorly. There was an article in USA Today a few days ago about a recall of high end plasma TV sets because of some defect; that represents a trend: even high end stuff is becoming crap. In this little college town everyone talks about revitalizing the downtown area, but only cheap beer and pizza parlors survive. The couple of theaters with very affordable tickets (a six-pack) struggle to attract audiences. What’s the solution? Build a movie theater; let’s feed them with movie flicks and popcorn. I say these unimaginative kids will turn out unimaginative adults. Style, taste, design and high culture are not our cup of tea.

    If by “dark matter” we mean education, the situation there is also reminiscent of the trade deficit. See Science vol 307 page 1849, there were around 10 000 bio med postdocs in 2004 in the US without a US citizenship (not counting foreign-born with citizenship), compared to under 8 000 of post docs with a US citizenship. The number of former was rapidly increasing, while the number of latter remained steady over a decade. These post docs are becoming leading figures in companies and universities. Some Anglo-Saxon US-born PhD made a big stink some time ago (probably in the same issue of Science in the letters section) that something like 20% of tenure track faculty at NIH are Asian-Americans, while Asian-Americans comprise only around 3-5% of the population. The nation, as represented by our dear president, is anti-intellectual.

    The problem with educational dark matter is that it is for hire and can pack up and leave. Many leading academics of Chinese origins have now a dual association with an institution here and another in China. FBI worries that these foreign-born employees are stealing our tech secrets. Some believe that although we can teach them what we know, we can’t teach them how to acquire new knowledge: it is our innate curiosity and sense of progress that drive our innovation; and these can’t be imparted to others. The names of Aristotle and other ancient Greeks are brought up as an illustration (as if we were Greeks). Of course others, like DeWit (see, call that stereotyping; of course, he is paid by the Rikkyo University in Tokyo.

    Perhaps, our dark matter is our military. Come summer, we will parade our aircraft carriers in front of the Chinese and shoot a few missiles for show. That’ll send them a signal, they’ll either buy our treasuries or else.

    And so it seems the dark matter is either the Greek in us or our big gun.

  28. B commented on Mar 23

    High end flat panel TVs have literally MILLIONS of components and are highly complicated devices. They are a marvel of technology. The quality is just fine in general BUT, I suspect you would like to get an extended warranty on anything that is four figures and has millions of components and if one goes bad, your product doesn’t work. Btw, the factories for all of those TVs are in Asia. I guess we are losing our competitiveness. Oh, wait a minute. The factories are staffed with cheap labor. Who is the dominant equipment provider for the highly complex, very advanced, super expensive manufacturing gear used to make those TVs? AMERICAN COMPANIES.

    So, we don’t really care who wins in the retail market. We’ll sell them all the gear then they can beat the hell out of each other in the retail market over slim margins and eventually go belly up while we take big fat profits in equipment, training, maintenance and services on the manufacturing gear.

    I think the general quality of merchandise is quite high. The problem is that many manufactured items are tremendously complex and the testing routines and testing equipment for such highly complex devices are sometimes complex beyond imagination themselves. Complete test routines are almost impossible without missing something. So, it’s not that quality is diminishing. Failure per unit of complexity is down significantly. That’s why Mercedes was having such quality problems with their cars. It was the electronics complexity in a Mercedes which is equivalent to a supercomputer a decade ago.

    Why do you care of what ethnicity PhDs are? Frankly, if every Asian American wants to get a PhD, that is great. Ditto for every other ethnicity. And if every country wants to send their best and brightest here to study, that’s great for world prosperity as well. They likely go back home and have a little bit of that free market in them and a fond place for our society and goods & services. Maybe they’ll want to strike up a business arrangement with an American firm when they enter the work force. That was the premise behind a Ernst & Young or Arthur Anderson accountant. When they leave, they’ll get jobs and bring us business. It is the God given right of all people to rise above the sh*thole of living in a card board box.

    Here’s a novel concept. Let’s say the global GDP is 100 units and America’s take is 25 percent. If the global GDP grows to 300 units yet our take is 15%, are we better off? Hell yes. We want global growth and prosperity.

    And, the only way our immigrants will want to leave is if we become more xenophobic that what appears to be happening today. I’m just waiting on people to get their sledge hammers out and start hammering on Korean TV and Japanese cars like they did in the 1970s.

    Whew, fighting the perma bears is too much typing. I’m outa here for a long weekend. Keep up the growls. ARGGGGGGGGHHHHHHHHHHHH

  29. Ami Ganguli commented on Mar 23

    B: I wonder if you could define what you mean by “leadership”.

    Norway has larger per-capita GDP than the U.S., and Finland and Sweden have more per-capita R&D. What makes the U.S. special is the combination of wealth and size. That’s what’s enabled the U.S. to “lead” the world in so many areas.

    Now the problem is that that India and China are both larger than the U.S., and getting wealthier at a rapid pace. Even though they may never catch up in per capita terms (the same way that the U.S. may never catch up to Norway), their total GDP will almost certainly exceed the U.S. some time in this century (barring some sort of huge political upheaval).

    When that happens they will probably end up spending more on R&D in absolute terms, but less per capita than the U.S.

    Who would you then consider the leader?

  30. bionick commented on Mar 23

    I don’t think that we are about to go belly up any time soon. In fact, I would side with those same Greeks who had thought that the fatal blow always comes from the side we least expect and the time we least expect.

    My points were (a) we respect raw power, (b) we are uncultured and (c) we are really anti-intellectual as a nation in that we neither inclined to pursue intellectually challenging occupations nor really reward those who do (one probably feeds the other). Instead, we simply import intellectuals in hard disciplines. Now, I don’t have data for MBA programs; but I suspect there are more US citizen students in MBA programs relative to non-citizens. My guess would be that such situation exists not because foreigners do not want to enter MBA programs, but because they are out-competed by the locals. These traits of ours are nothing new and have been with us probably from the founding.

    You seem to assume that we are all one big happy family. I don’t know if that is so. Some seem to uphold that there are usually winners and losers.

  31. dsquared commented on Mar 24

    Barry, if you have access to Multex in your buy-side eyrie, get hold of some of the work that Eric Lonergan was doing in 2000-2001. I remember him talking about something very like the “dark matter” theory then.

    It’s all about the vintages of capital. In general, the longer you have had a factory, the more efficient it is. US investments overseas have an older average age than foreign investments in the US, and this is what explains the difference in rates of returns which is the engine of the “dark matter” model (the overseas returns are also dragged down by the disastrous Japanese speculation in US real estate of the 1980s and a few big dot com deals done by Vivendi).

  32. Razib Ahmed commented on Mar 24

    I think still there can be no comparison between USA and China & India in terms of skilled manpower. It is not fair to compare a software engineer of India with an ordinary American. The comparison has to be an ordinary Indian with and Ordinary American person. Most of the new hardware and software products are first created in the States. Indians and Chiense are still too far in this regard. The main problem of these two countries is that their development is highly focused in just few cities. In the case of India, if you exclude the richest ten cities, then the rest of the country is so far behind. However, both India and China have the potential to be at the top but they must ensure a proper and universal development for their entire population first.

  33. Razib Ahmed commented on Mar 24

    I think still there can be no comparison between USA and China & India in terms of skilled manpower. It is not fair to compare a software engineer of India with an ordinary American. The comparison has to be an ordinary Indian with and Ordinary American person. Most of the new hardware and software products are first created in the States. Indians and Chiense are still too far in this regard. The main problem of these two countries is that their development is highly focused in just few cities. In the case of India, if you exclude the richest ten cities, then the rest of the country is so far behind. However, both India and China have the potential to be at the top but they must ensure a proper and universal development for their entire population first.

  34. zack commented on Mar 25

    If, as I’ve observed, the global labor arbitrage values a degree from the Indian Institute of Technology as highly as one from Carnegie-Mellon, one of the big victim will be the high-end private university.

    Anecdotally, it also seems to be affecting the public universities. I recently completed a biology degree while attending classes part-time and noted that the number of declared majors in the College of Engineering overall was down an average of 35% yoy for 3 years running.

    Who can blame them? Hell, I paid over $100K for my BS and MS back in the 80s. Inflation-adjusted, is it a viable economic proposition to take on $250K in debt in order to compete with someone with a 2-year certificate that perhaps cost $500 USD, fully aware that you can never be as good as they are cheap?

    No, if US students choose technology and engineering careers at all, they’re going to use places like University of Phoenix online, ITT, etc. Charts are spotty on them, but this is why, longer-term, I’m watching stuff like APOL, CECO, ESI.

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