Bloomberg Anywhere Remote Login Bloomberg Terminal Demo Request


Connecting decision makers to a dynamic network of information, people and ideas, Bloomberg quickly and accurately delivers business and financial information, news and insight around the world.


Financial Products

Enterprise Products


Customer Support

  • Americas

    +1 212 318 2000

  • Europe, Middle East, & Africa

    +44 20 7330 7500

  • Asia Pacific

    +65 6212 1000


Industry Products

Media Services

Follow Us

Bloomberg Customers

Summing up Dark Matter

Posted by: Michael Mandel on June 23

Brad Setser has a very comprehensive post where he grinds through the data on foreign income, entitled “So, is Michael Mandel right? Did intangible income (dark matter) ride to the rescue in the first quarter, offsetting rising US debt?

I’m not going to compete with Brad on number parsing, in part because I’m not sure I trust the data he is using.

Instead, I’m going to take the big picture view of dark matter and the trade deficit. I’ve written out two lists. One list includes signs of U.S. economic strength, and the other list is signs of U.S. economic weakness.

Positive statistics about the U.S. economy:
—Fast productivity growth
—High profits for U.S. companies operating abroad
—Willingness of foreign investors to put their money into the U.S

Negative statistics about the U.S. economy:
—Big trade deficit
—U.S. as big net debtor
—Slow real wage growth

Six statistics. In theory, all six can be true simultaneously. But it takes a lot of twisted reasoning to reconcile the negative stats with the positive stats. For example, if the U.S. is really such a big debtor, why are foreign investors so cheery about lending the country more money? Hard to understand. Or if the U.S. really is producing more, why did the trade deficit—net imports—jump so much?

It’s much simpler—and more reasonable—to assume that one or more of the stats are wrong or incomplete.

The ‘dark matter’ view says that the negative stats are misleading, because they leave out the flows of intangibles which are central to U.S. competitiveness and productivity growth.

On the other side, the true ‘pessimist’ view says that U.S. productivity growth has been overstated, perhaps by the housing bubble. That would explain slow real wage growth, and the large trade deficit.

I’d lay my bets on the dark matter view. But it certainly would make me feel better to see wage growth accelerate.

TrackBack URL for this entry:

Reader Comments


June 23, 2006 08:16 PM

*** the true 'pessimist' view says that U.S. productivity growth has been overstated...That would explain slow real wage growth, and the large trade deficit. ***

My bet is that 1) wage growth is underestimated and, by the way, 2) inflation is overestimated, which may imply 3) productivity growth is UNDERestimated.

That would explain "slow wage growth" (the stat is wrong in any meaningful sense); and the large trade deficit (domestic production grows rapidly, but people can afford to increase consumption at a still higher rate).

It would also explain why people somehow continue to buy and own more and more goods and services (despite slow wage growth), and why much of the groceries I typically buy have gotten *cheaper* over the last several years.

Except for gasoline, I have difficulty thinking of anything I buy that has gotten more expensive since I moved to my city 7 years ago, but I could catalog many, many items that have clearly gotten cheaper, often drastically so. (Boy - they're not going to quote me on the evening news saying that, are they?)


June 26, 2006 03:49 PM

Wage growth has appeared slow only because healthcare costs are eating up money that would otherwise go to wages. Healthcare is almost all the gains in the employment cost index.

Here is an article explaining how.


June 26, 2006 06:05 PM

hmmm -- my data all comes from the BEA. that doesn't mean it is right, but i didn't make it up either.

And i think the evidence suggests that the return on Japanese and European "intangibles" in their investment in the US is even more mismeasured than the return on US intangibles ... remember, the US doesn't have lots more investment abroad than foreigners have invesment in the us (taking investment to be equity investments of various kinds,not debt). the US isn't the UK at the turn of the century.

do you really think the return on fdi in the us is really only around 4%?

Mike Mandel

June 26, 2006 06:27 PM


The question is not how much investment, the question is how smart the investment is. We know that the U.S. has had much higher productivity growth than Japan and most of the least part of that has to do with corporate practices.

Leaving aside the car companies, which foreign companies are doing noticeably well on their investments in the U.S.?


June 27, 2006 07:56 PM

Michael -- why wouldn't foreign firms active in the US participate in this rapid productivity growth? i.e. is there any evidence that say productivity in Toyota USA is lower than at GM?

Toyota and Honda certainly seem to be doing well, judging from market share. Ikea is ubiquitous. Lots of european brands seem to have a Soho presence -- presumably b/c they make money. German car exporters are doing ok too ... DB and CS own US banks that seem to be doing fine, if not quite as well as goldman.

is there any real evidence suggesting that the true return in nominal terms of foreign fdi in the US is between 2 and 4%

Mike Mandel

June 29, 2006 08:23 AM


Is the Japanese subsidiary of Goldman Sachs more likely to share the culture and business know-how of its U.S. parent, or of its Japanese rivals? The answer I think is obvious.

The same thing the other way around. If a schlerotic and slow-moving European company invests in the U.S., the subsidiary is likely to be slow-moving as well.

Corporate ties are important.

As for the true return on foreign fdi? I'm the guy who is supposed to be distrustful of the published data, not you, and now you are telling me that I should just ignore those numbers! I'm deeply hurt. (Besides, I always assumed that a lot of those Soho stores were loss leaders, just to have a U.S. presence in New York--just look at how few pieces of clothing they actually have on the rack!)

robert porter

August 29, 2006 02:05 PM

i want to tattoo myself in japanese
I want to know the symbols that represent the dark matter
dark matter in japanese I've seen them before like five kanji characters
any info e-mail me

Thank you for your interest. This blog is no longer active.



Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.

BW Mall - Sponsored Links

Buy a link now!