Ran across an interesting research paper tonight in the Business and Politics journal. The paper, “Corporate Lobbying Revisited”, by Jin-Hyuk Kim of Cornell University,  attempts to measure the return on corporate spending on lobbyist services. You can see the paper by clicking here.

Kim’s conclusion, is that money spent on lobbying Congress appears to have a return higher than the firm’s cost of capital. Doubling expenditures on lobbying increases the firm’s equity returns by 2.5 percent unadjusted, 2.4 percent relative to the market, and 1.3 percent relative to the industry. While the results do not appear to be very robust (the estimates move around when he changes the specification of the model) this is an important question that merits more work.

JR

A New Type of Chemical Bond Takes Hold

By Adrian Cho
ScienceNOW Daily News
23 April 2009

For decades, scientists have known of three ways for two atoms to bind and form a molecule. Now, researchers have discovered a fourth. Most likely, the advance won’t lead to new materials or technologies: The molecules last for about 1/100,000 of a second and can be made only at temperatures a few millionths of a degree above absolute zero. However, their mere existence confirms a surprising prediction and stretches the conceptual boundaries of chemistry.Binding two atoms into a molecule is like conceiving a child: There aren’t that many ways to do it. In the first two strategies, two atoms bind when their orbitals–the cloudlike distributions of electrons that hover above the atomic nucleus–overlap and merge so that the atoms share one or more electrons. If the atoms are of the same element, they will share an electron equally, producing a so-called covalent bond. If the atoms are of different elements–say sodium and chlorine–then one may hog the shared electron in what’s called an ionic bond. In a third type of bond, called a van der Waals bond, the atoms don’t actually share their electrons; instead, tiny fluctuations make one atom momentarily more positively charged on one side than on the other. This fleeting “polarization” induces similar fluctuations in the other atom, pulling the two atoms together.

Vera Bendkowsky, Tilman Pfau, and colleagues at the University of Stuttgart in Germany have demonstrated a fourth way to bind two atoms. The researchers started out with a gas of ultracold rubidium atoms. Using a carefully tuned laser, they then “excited” an electron in some of the atoms to a very high-energy orbital. That orbital is so large that the electron hovers as much as 100 nanometers from the nucleus, which is about 400 times the radius of a normal rubidium atom. If another, unexcited rubidium atom happens to be about that close, it can bind to the excited one, settling into the outer reaches of the electron cloud to make a gigantic two-atom molecule that’s bigger than some viruses.

 

http://sciencenow.sciencemag.org/cgi/content/full/2009/423/4?etoc

I met an interesting man yesterday at my Berkeley lecture. He has taken the energy transformation framework from my new book and designed a framework for restructuring companies to accelerate innovation and entrepreneurial activity.

JR

My good friend Bret Swanson, a senior scholar at the Progress and Freedom Foundation, has posted  Deep Insights, on Economics . . . and Life, a very kind review of my book Lessons from a Road Warrior, on the PFF blog. I hope the book can help people understand how network failures happen, like the credit crisis we are now experiencing, and what we can to to make the economy less vulnerable to future episodes.

JR

I interrupt our normally serious blog posts with this breaking story, based upon the principal that if you cannot at least laugh in the middle of a crisis you need to get a life.

The lead article in the current issue of the New England Journal of Medicine is titled “Management of Skin and Soft-Tissue Infection — Polling Results.” The article reports the results of a poll taken among readers who are medical professionals (i.e., they didn’t include me) about the best way to treat the case of a college athlete with a skin and soft-tissue infection.  The patient was a healthy 20-year-old college basketball player who presented with a tender erythematous area on the right buttock (a pain in the butt). He reported that there was no direct trauma to the area. (Oh good, I was really worried.) He noted having subjective low-grade fevers the night before presentation and had a temperature of 37.7°C at presentation. The area of erythema was 5 by 3 cm and had a firm central area 2 cm in diameter. Although he reported that he does not like taking medications, he also expressed concern about being ready to play in his next basketball game in 1 week. (He is all about the team.)

There is a nifty graphic showing the votes cast by continent and country. Note that North America is the ONLY place where a majority of voters chose the MRSA therapy. MRSA is the deadly disease you catch in hospitals where the professionals do not follow strict hygiene protocols.

Of the three management options proposed, the most popular — receiving 4585 votes (41% of the 11,205 votes cast) — was incision and drainage plus an oral antimicrobial agent active against methicillin-resistant Staphylococcus aureus (MRSA). The second-most popular option, incision and drainage alone, received 3508 votes (31% of the votes cast). A close third, with 3112 votes (28% of the votes cast), was incision and drainage plus an oral antimicrobial agent active against methicillin-susceptible S. aureus (MSSA).

And there you have it.

JR

My friend Sonia Arrison, host of Digital Dialog and Senior Fellow of Technology Studies at the Pacific Research Institute, has written an article in TechNewsWorld,  Network Theory Can Explain US Credit Crunch, which discusses the chapter in my new book on using network and information theory to understand bubbles and market collapses.

Sonia’s has a deep understanding of communications and tech issues. Her technology columns are collected in Digital Dialogue: Technology, Capitalism, and the Pursuit of Freedom.

JR

We have a winner. Our daughter’s Blue Heron Inn has just been awarded a spot on Coastal Living Magazine’s top 22 hotels and inns in America. And well deserved. Manda and her husband Chris have created an absolutely wonderful place where people can escape from the real world and enjoy themselves. Here is what Coastal Living had to say about the inn.

The Blue Heron Inn, in Solomons Island, Maryland, offers four especially large guest rooms, but the most beguiling spaces are the smallest: window seats tucked into dormers. Both top-floor rooms have a pair, one each facing the Patuxent River and the sailboat-filled harbor. Just add a good book and a glass of Chardonnay from the “honor bar” for a blissfully lazy afternoon. Amanda Rutledge Comer, a trained chef who operates the inn with husband Chris, prepares wonderful breakfasts and will cook dinner on request. Guests also have access to bicycles, a kayak, the inn’s dock, and first- and second-floor balconies that overlook the harbor. Rates range from $165 to $235; 410/326-2707 or blueheronbandb.com.

Congratulations to Manda and Chris. Hope to see you at the breakfast table.

JR

This morning I was riding in a taxi through the Beijing traffic on my way to Tsinghua University to host a Roundtable discussion with a dozen of China’s leading economists and a host of graduate students. My host for the Roundtable, Professor He Weiwen, overheard 2 interesting stories on the driver’s drive-time news radio broadcast: 

1) Congress and the White House were approaching agreement on key aspects of the proposed financial rescue package. (Does this tell you how much China is interested in our financial markets?)

2) A poll in that morning’s Global Times newspaper showed that more than 50% of Chinese people believe the US is becoming a more socialist country.

Good for our brand image? I don’t think so.

JR

Oh, forgot to mention in the last post. I wrote a new book too. Actually we wrote a book–I was assisted by my daughter Elizabeth, who edited the book (and got me to finish it.) She is the real warrior on this project. Now that it’s done, she gets to sleep for about a month. Daughters Katie and Jessica also worked on the project, as did Pamela (who works on every project.)

It’s called Lessons from a Road Warrior. It is an attempt to lay out the analytical framework that I use to thing about the global economy, about financial markets, and about investing. It does so by describing the things I learned that changed my thinking from a mild-mannered professor in the early ’70s who believed (most of) the things in the textbooks to the recent work I have been doing at the Chinese Academy of Sciences using non-equilibrium thermodynamics, network theory and neuroscience. My goal has been to replace standard macroeconomics and finance theory with something simpler to understand and use that actually works. Pretty radical, huh?

The book will be available on Amazon in a few weeks. Until then, it is available directly from us at the Rutledge Capital website for $19.95 plus shipping. Or send us an email for bulk order terms at JR’s email address, jr@rutledgecapital.com.

The central idea in the book is very simple. All economic activity is made up of work. To a physicist, work is a transformation of energy–in particular solar energy. Economic activity, then, is comprised of people’s efforts to transform current and stored solar energy into goods and services. Instead of GDP, we should be measuring GNW, Gross National Work.

In physics, energy transformations are driven by energy gradients–temperature differences, pressure differences, etc.–according to the laws of thermodynamics. In economics, work is driven by price, wage and return gradients. We call it arbitrage or simply market behavior. Equilibrium happens when prices, wages or returns on capital have been driven together so there is no longer a differential to exploit by moving resources. Non-equilibrium is where all the interesting things happen.

A market economy accomplishes this work using a vast parallel-processing information network where prices are used to transmit information about relative wants and scarcities, in the spirit of Friedrich von Hayek. Recessions, depressions, panics and bubbles happen when the information network experiences an abrupt and temporary blackout which network theory refers to as a cascading network failure. Today’s mortgage market crisis is an example of such a blackout. It will end only when asset markets are able to clear again.

In this framework, policy works by creating gradients, driving wedges between prices, wages and returns, which then lead to resource flows as investors engage in arbitrage activities. Investors who are able to anticipate those gradients can earn above-normal returns by allocating capital ahead of the disturbances. This leads to a weather-map metaphor for investing, which is described in the book. The storm systems that should be on every investor’s weather map today include energy, tax policy, protectionism, China, and political and social instability.

I hope that you enjoy reading the book.

JR

I am in Shenyang tonight. Gave a lecture to 700 students and faculty at Liaoning University here today. It is the 60th anniversary of the founding of the university celebration, which is appropriate since I just had the 60th anniversary of my personal founding last month.

After the conference I had dinner with some great State Dept. guys here. They told me a wonderful story about some North Koreans I’d like to pass along to you. Next week I am going to North Korea myself–tell you all about it when I return.

Year before last a group of North Korean people sneaked across the border by swimming across the Yalu River at night. The next day they showed up at the South Korean Embassy in Shenyang asking for political asylum. While the South Koreans were talking it over the North Koreans went outside and climbed over the wall to gain entry to the US Consulate which is just next door. Now what?

The US guys allowed them to stay at the Consulate while our government tried to figure out how to handle it. They ended up living in the cafeteria for more than a year. During this time two of the people, a 21 year old boy and a 23 year old girl, fell in love. Finally, the US government made an arrangement with the Chinese government to fly them all to the US as political refugees. The 2 sweethearts wanted to go together so my friend Bill found a host family in Louisville, Kentucky who would take them both in.

They are still in Louisville today. They are still in love.

Maybe there is hope for the world after all.

JR