But I would like to see someone specify how far we could cut. Should we be spending the same amount as China? Twice as much? Would that be a stable equilibrium, or would we be encouraging the emergence of global competitors who would then force us to spend more again?

When I think about this, I think of Google. It’s safe to say that Google spends more than anyone else on the development of web services, including improving stuff that they aleady spend more on than anyone else, and do better than anyone else, like . . . web search. You could argue that they should stop, because it’s a waste of money: they’ve already got the top ranked search engine, and webmail program. Why continue to spend money making those things better when they’ve already got such a dominant position? …

I don’t think that many strategic advisors would recommend Google cut back its spending to the level of its next biggest competitor. The reason is obvious: Google’s continued spending keeps competitors out of the market. If they cut back that far, there’s a real risk that someone more nimble will come along and start cutting into your market. Every user that Google loses to a competitor makes their services just slightly less outstanding.