Sunday, September 2, 2012

Economic Lipitor: Let the Money Flow

and… Archimedean Theorem VI

On a few occasions, I have been advised to simplify my writing style to make it "more accessible".  This will not be one of those cases in which I fully heed the advice but, trust me, if you get all the way to the end, you'll appreciate that I took the admonition to heart.  You just have to make it to the end.

Federal Reserve Board Chairman Ben S. Bernanke and my chemist brother Dr. James D. Martin could actually benefit from sitting together and hearing each other discuss their respective disciplines.  By the way, turning the conversation into a Pay-Per-View event might go along way in stabilizing the national economy!  Who knows?  Chairman Bernanke could explain, as he did in Jackson Hole this past week, how the near zero federal funds rates successfully place the U.S. economy into a suspended animation state like Japan in the late 1990s where we avert some crises while deferring potentially longer-term sequelae.  My brother could discuss his cutting edge understanding of the nature of crystalline structures in transitional chemical states to understand structural kinetics in near zero conditions.  I'm being dead serious.  If the Federal Reserve economists took a field trip to a chemistry lab at North Carolina State, we may all be the better for it and I'll do my best to explain my rationale for this argument.

My story starts with a letter written on March 14, 1888 from Professor Friedrich Reinitzer to Dr. Otto Lehmann at the Polytechnical School of Aachen regarding cholesteryl benzoate extracted from carrots.  In his letter he recounts observing two "melting points" (one at 114.3ºC and another one at 178.5ºC) and observed notable color and clarity properties at these various points.  His letter, meticulously recording the precise nature of experimental conditions and the physical observations throughout the course of the evaluation, put in motion the on-going inquiry into and commercial use of liquid crystals.  What Professor Reinitzer gave the world was the realization that molecular "structure" was far more dynamic than previously thought and what Dr. Lehmann went on to give us was an appreciation for the breathtaking magnificence of the nature and structure of crystals.  One hundred years and the Framingham (Massachusetts) Heart Study later, we understood that, to deal with arteriosclerosis and heart disease derived from a derivative of this first inquiry, cholesterol, we'd need another crystal - Atrovastatin Calcium (Lipitor).  Pfizer's Lipitor crystal would alter liver function to decrease the plaque building up in our arteries.  By understanding the nature and state in which crystals are permanent structures vs. transient states, Pfizer pocketed $130 billion and some people had less coronary artery disease.

What's truly fascinating about the work of Bernanke, Martin, Reinitzer and Lehmann is the degree to which they do not enjoy the collaborative impulse to see their respective disciplines intertwining with profound effect.  And while I cannot explicate each dimension of similarity, I would like to try to take a moment to link some important 'ground truth' observed in this inter-disciplinary view.

In the past, I have written about the importance of understanding value exchange and enterprise through chemical and physical principles (covalence, fusion, thermodynamics, etc.).  However what liquid crystal sciences provide us is an opportunity to consider the relative merits of permanence vs. persistence.  I will deconstruct these principles further but, in the immediate, consider the following.  The only human construction we've ever endowed with perpetual existence is the corporation.  We lampoon antiquarian societies for their gods and goddesses, their deities for good and ill, but we fail to contemplate that we've stipulated that certain artifacts and idols of our own creation must have the implicit right to that which we mortals can merely aspire - perpetual existence.  And here comes another Archimedean Theorem VI:

The energy required to perpetuate an artifact
is the inverse function of said artifact's capacity
to address the objective for which it was

Liquid crystal chemistry informs this theorem.  If we are architecting for permanence, the structures will increase their frictional rigidity with lower dimension and thermal states.  If we want persistent flow, the higher the temperature and the greater the anisotropy may be desirable.  To bring this home - by reducing the fire of the economy in the current model to suppress yield (the current FOMC policy) - we add rigidity to the system for perpetuation of structure.  However, at the same time, our actions for rigid preservation auger entirely against increased fluidity, dynamism, and exchange.  By collapsing yields to near zero, flow has to be autologous (generated by yourself) because no gradient exists beyond the gradient you manufacture.  For those of you having a hard time following, the success of the past 6 quarters of intervention appears to exist only because the market liquidity is self-dealing.  Through what the Chairman referred to as "maturity extension program" the Fed sold short-duration Treasury notes and bought longer-duration notes creating the illusion of extended maturity. 

We would do ourselves a collective favor by taking a step back from our god-complex of "creating" for a moment and ask ourselves a more basic human question.  Do we need most (or any) of the structures that we vigorously defend.  Where was the mandate that said that every human endeavor needed to be shrink-wrapped into a corporation, an association, or an institution?  Even in the era of the modern corporation, the greatest achievements have not come from within calcified, plaque-filled structures.  A corporation didn't bring us the digital age - a collaboration of Australian, British, American, German, Japanese, and Russian combatants seeking to hide information from each other variously - so elaborately enciphered communication that the transistor computer was developed.  President John F. Kennedy's audacious space race wasn't 'won' by a company.  Goaded by losing to Sputnik on October 4, 1957, untold tens of thousands rallied and came up with the Apollo program and Tang - my generation's Gatorade! 

So why is it that so many "transformation" impulses lately have decided to form corporations, associations, or organizations?  The approximately 30% capital inefficiency (by the way, the explicit cost to maintain the inefficiency corollary to Archimedean Theorem VI) of tax-deductible agency which leads so many to vehemently defend the necessity of a corporate structure could easily be eliminated by changing the singular reliance on monetary animation.  I wonder how many of the U.S. religious faithful have stopped to realize that their tax deductible tithe of 10% to their respective organized houses of worship is explicitly subsidized by the U.S. government in the form of tax exemption at the cost of restraint of freedoms of activity.  For example, could it ever be the case that one's religion might jeopardize the prohibitions such as:
-  attempting to influence legislation;
-  intervening in political campaigns; and,
-  violating "fundamental" public policy?

Somewhere along the line, we've forgotten Professor Reinitzer's lesson.  By focusing on a structure in isolation - no matter what it is - we are distracted from its utility and, in time, become more consumed with the preservation of the institution and artifact.  Then, as Chairman Bernanke tiredly concluded, we venture into untested waters using, as our only compass, the reflected light of our self-made certitude.  If, as he stated, the policy goal is to release the flow of money (or value exchange) and gain employment (or productive engagement), preservation of statutory, crystalline rigid instruments and artifacts in motionless states near zero Kelvin is antithetical to the goal.   We actually need nematic, smectic and chiral phases of alignment and transformation where we invite existing systems to transform into transitive utilities.  For in the final analysis, we don't gain from permanence of form and substance.  Rather we rise on the persistence of productive mission. 

So here's where it gets super easy.  When you contemplate the anachronism that is the United States' "Labor Day" when, for inexplicable reasons we are encouraged not to work, let's embark on a path to transition this legacy of Smith and Marx into "Engagement Day".  See if you can find a pathway to work with someone with NO AGREEMENT save the manifest evidence of working together.  See if, through that process, you find that you need much less organization, budget, logistics, planning, etc.  And, if that works, repeat.  And if that works, repeat at scale.  Having done this for over two decades, I can assure you that it leads to the greatest flows of value you'll ever experience.

1 comment:

Thank you for your comment. I look forward to considering this in the expanding dialogue. Dave