Henry Clay’s American System
The Most Beautiful Word in the Dictionary
Abraham Lincoln the Tariff Whig: the same civil war being fought over the same issues
The global impact of america’s industrial revolution
McKinley: under free trade the trader is the master and the producer the slave
Herbert Hoover’s Secretary of the Treasury Andrew Mellon
A New Hope: The birthing of the American empire; Industry in WWII
Government organized consortium of oil companies to commercialize fluidized catalytic cracking to win the war
A new world order: free trade
The Empire Strikes Back: Free Trade Globalists’ Ideology Reigns Supreme
Michael porter and the value chain, Stan Shih’s smile value curve
Return of the Tariff: Trump-Biden Consensus and America First
Debt financing, subsidies, bitcoin consensus protocol
Title: The Off-Diagonal Fallacy: How Business Schools Broke American Industry and How We Fix It
Introduction: The Race to the Bottom and the Big Mistake
Every engineer has felt it. That nagging feeling that something is off. That despite working on the most technically challenging, high-value problems, it feels like you’re being punished for doing the right thing. Meanwhile, people on the other end of the business spectrum, the ones in tech sales, finance, and branding, seem to be reaping all the rewards. It turns out, you’re not crazy—this is the result of a massive strategic error made decades ago, and now we’re paying the price.
Let me introduce you to the Off-Diagonal Fallacy—the fundamental miscalculation that led the U.S. to abandon manufacturing, offshore its industrial base, and convince generations of students that working in sales was better than working in engineering. It all comes down to a bad assumption about how value chains actually work.
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The Matrix of Industrial Collapse
To understand this mistake, let’s use a simple 5×5 matrix where each row and column represents a different part of the value chain:
1. R&D + Branding
2. Design
3. Manufacturing
4. Sale
5. Service
Each element in the matrix represents the synergy between different functions. Diagonal elements represent the direct profitability of each function on its own. The off-diagonal elements represent the synergies between these functions—the hidden forces that make an economy competitive.
Here’s the mistake: Business schools in the 1980s and 1990s assumed that the off-diagonal elements were negligible. That manufacturing wasn’t necessary for strong R&D. That design didn’t need to be physically close to production. That sales could thrive even if we didn’t make anything domestically. They treated the value chain as if it were diagonal, meaning each function could stand alone.
Here’s what that looks like:
The Off-Diagonal Fallacy (Incorrect Model)
This assumption led to offshoring manufacturing because, on its own, it looked unprofitable. The logic was: If R&D and branding are where the big money is, let’s just do those! Manufacturing is low-margin anyway—let someone else do it!
And so, we outsourced production. But what actually happened? We broke the entire system.
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The Reality: Manufacturing Was Never Just an Isolated Step
The real economy doesn’t work like a diagonal matrix. Manufacturing is a keystone function—it creates synergies that amplify the value of everything else.
When you treat the value chain correctly, the third column of the matrix (manufacturing’s effect on everything else) is huge. That’s because without it:
– R&D suffers—without production facilities, prototyping and iteration cycles slow down.
– Design loses touch with reality—you can design the perfect widget, but if you don’t have a close feedback loop with manufacturing, you lose practical innovation.
– Sales becomes hollow—how do you sell something if you don’t control the supply chain or production quality?
This is what the correct matrix looks like:
The Correct Model: Restoring Synergies
Notice something? The third row (the effects of the other steps of the value chain on manufacturing) is ambiguous. Why? Because the challenge now is whether the rest of the value chain (sales, service, R&D, and design) can bring manufacturing back before it’s too late.
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The Plan to Fix It: The CHIPS Act, IRA, and Reshoring
For the first time in decades, U.S. policymakers are acknowledging the mistake and trying to reverse it. The CHIPS Act, Inflation Reduction Act, and infrastructure investments are attempting to use our remaining strengths (R&D, branding, service) to restore the missing link: manufacturing.
The core question is: Will the elements of the third row be strong enough to resurrect the elements of the third column?
This is a big gamble. We’re throwing hundreds of billions of dollars at semiconductor fabs, green energy manufacturing, and industrial policy. If the synergy effects work, we’ll rebuild our industrial base before we lose our competitive edge in R&D and design. If they don’t, well… we may have already passed the point of no return.
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Lessons & Takeaways
1. The mistake wasn’t just offshoring—it was misunderstanding how industries interact.
2. Manufacturing is a keystone, not an isolated function.
3. Business schools and policymakers used the wrong economic model—one that ignored synergies.
4. Restoring industry isn’t just about subsidies; it’s about restoring the entire value chain.
5. We’re in a race against time to fix this before our R&D and design capabilities decay as well.
Michael Porter, TSMC, and China understood this years ago. The question is whether the U.S. will learn before it’s too late.
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This isn’t just an academic exercise—it’s personal. If you’re an engineer, a scientist, or anyone who builds things, you’re living through the consequences of this policy mistake.
But here’s the good news: We’re all going to make it. The tip of the iceberg just got a little wider. If you’re in manufacturing, deep tech, semiconductors, or clean energy—you’re in the right place at the right time.
Time to rebuild.
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