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
Sounds like an interesting book and may do a review of in my blog.
Dr. Rutledge
What about Global Free Trade Zones and Protectionism— need your leadership
John,
I am glad to see you squeezed in time enough to complete this book. We need to hear as much from you as we can.