8 Dec 2017

A Festive Season

Hail readers!

It is winter at last, and the weather here in Amsterdam has been... atrocious. It started out well: we had a beautiful day of sunshine on the 1st of December. The second day of December saw fog, albeit rather beautiful fog (as my photos, to be uploaded later, will attest to). Alas these past few days have degenerated into pouring rain—intermixed with hail—howling wind and cold. Alex is indeed rather miserable.

What adds to his misery is that he has altogether too much work to do: he has already done one exam and presentation today, with two more written exams and one oral left. On top of that, he has one more essay to write, and a statistics project to finish.

For these reasons, Alex has been unable to work much on Fallen Love. He is more than halfway through, but recent progress has stalled, and will only really take off again at the end of this month.

Still: there’s no point being grumpy. ’Tis a festive season, after all. This brief update will therefore finish with an excerpt from Fallen Love:

“You wanted to kill him, didn’t you?” I ask. “Not because you should, but because you could.”

“My dad was right about this much. It’s part of me, Conall: the desire to kill. It’s in my nature, like a cat catching mice.”

“But do cats ever become friends with mice?”

“That’s the million euro question, isn’t it?”

I embrace him, suddenly, unable to contain it any longer. His hair is soft against my hands; his body is still and statuesque.

“Make me a millionaire, Mark.”

“Oh, I think you already are, Conall.”

27 Nov 2017

Why Economic Models are Bullshit (Part II)

Hello readers!

Previously, I wrote a post entitled “Why Economic Models are Bullshit (Part I)”. Therein, I covered one of the problematic areas of macroeconomics: namely, that students are badly taught the subject. But that does not tell us enough about the other side of the coin—the reason why macroeconomic models are, by themselves, problematic (aka “bullshit”). In this post, I explain just this.

Before I begin, and in case you are wondering: yes, I am progressing with Fallen Love. I am about halfway through the revision process; I will post an update later on. For the time being, I am extremely busy both with the book and with my university studies. Consider this my final update for the month.

Anyway, onto the topic of today’s post...

The Follies of Macroeconomic Models

I am not the first to criticise an economic model, and in particular, I am not the first to criticise the discipline of economics as a whole. Some critics speak from a position of ignorance; they sometimes make good points, but cannot articulate their criticisms beyond relatively vague generalities. (A few examples: economic models don’t work because you can’t put people in an equation. Or, economics is not a science. Both hold a grain of truth, but are not extended upon beyond platitudes.)

Some critics, however, are economists. Thomas Piketty and Ha-Joon Chang are good examples of the latter, though the venerable Steve Keen is my personal favourite among the rebels. If you have had read these economists, you may detect some of their criticisms among my own; though I quite fancy that I am original. Anyway, vanity is a vice, so allow me to get to the meat of the arguments...

Problem No. 1: economic models are not dynamic. To clarify, by “dynamic” I mean that the models do not explicitly refer to time—either graphically, mathematically, or even in argument. Some economists (especially those who have never done a proper science, like physics or chemistry) seem to think that economic models are dynamic because... time is in there somewhere.

Of course time is present in these models, in some way—they wouldn’t make any sense otherwise. (They make little enough sense as it is!) The problem is that this relationship is dreadfully ambiguous; there is absolutely no clarity about what happens when, and this leads to a number of conceptual errors and oversights.

IS-LM graph

The above graph is a clumsily drawn example, representing an IS–LM model of a small open economy, with e (nominal exchange rate) on the vertical axis and Y (national income) on the horizontal axis. The two sloping lines are IS-curves, while the vertical line is an LM curve. The shift of the IS curve outwards represents a ceteris paribus fall in taxes.

The moral of this story is that, in a small open economy with perfect capital mobility, fiscal policy doesn’t work: you can’t change national income with fiscal policy measures. Even if we assume this is true (there are economists who do not agree with this assessment), the problem is that the graph is extremely obtuse.

There is a whole time dynamic involved here. First, a fall in taxes leads to an increase in Y, which in turn leads to an increase in r (interest rate) as the money supply is fixed. The increase in r leads to a situation where r>r* (the domestic interest rate is higher than the international); this leads to an influx of capital, which in turn drives up the exchange rate e. The appreciation of e leads to a fall in NX, which brings Y back down to the initial Y.

None of that is shown on the graph. We only see a new equilibrium point at e2 and Y. Great explanation there!

Problem No2: economic models confuse cause and effect. If you look at the IS–LM graph aforementioned, you might be forgiven for thinking that somehow Y (national income) affects e (the nominal exchange rate). In the sciences, we put the independent variable on the x-axis, and the dependent variable on the y-axis.

To peruse one of many examples from physics:

Force-extension graph

The story here is pretty straightforward: you apply a force, and the material stretches in a particular way dependent on its material properties.

Occasionally in physics, some graphs don’t follow this convention, usually for reasons of convenience.

The problem is that nearly all economics models have it backwards: they put the independent variable (the causation, the mover) on the Y-axis, and the independent variable (the observed change) on the X-axis. This small change makes economic graphs unnecessarily confusing. In the IS–LM model, e affects Y because e affects NX and Y is dependent on NX; however, there is no clear relationship going the other way round.

In formal logic notation,

(x → y) ≠ (x ↔ y)

This says that (x implies y) is not the same as (x and y imply each other). Or to put it in more comprehensible terms: if I sleep through my alarm I will be late; but if I am late, that doesn’t necessarily mean I slept through my alarm (I could have been stuck in traffic!)

Problem No3: economic models make overly idealised assumptions. This is a big one. Economists say that the art of economic modelling is choosing good assumptions; but if so, economists must be terrible at their job.

Let’s look at the previous model I showed: the IS–LM model under conditions of a small open economy with perfect capital mobility. You may now observe that, actually, well—capital isn’t perfectly mobile. You can’t do a runner with a house. What’s more, houses take time to sell (again, dynamic systems!) and the resale value is not always high (risk element). In many parts of the world, there are restrictions on foreigners buying houses.

Because the assumption of perfect capital mobility is wrong, the aforementioned conclusion is wrong as well. Fiscal policy does have an effect on national income—just look at the UK under austerity. It is thought by many economists that Osborne’s economic policy cost the UK a lot of lost income growth. The Sterling did not depreciate and net exports remained pretty dismal (the former stayed high and the latter stayed negative).

A more useful assumption would have been: assume that some capital assets are mobile while others are not. Determine the share of mobile-assets for the economy you are looking at. This way, you get a much better grasp for what’s actually going on.

Problem No4: vagueness. This is a problem that I have rarely seen mentioned, perhaps because it is of a slightly more philosophical nature. Essentially, what I have noticed in economic models is that they can be quite unclear as to what a concept or variable is referring to.

Take the example of r*, which represents the going interest rate across the globe. Or even just r, which represents the going interest rate in a national economy. My question is: which interest rate does it represent, exactly? Investments have many rates of return. We all know that some investors make a fortune on the stock market; others make a loss. Bonds have different returns based on their maturity period.

If we just take a weighted mean of all these different interest rates, we risk missing some important constituent details.

If we look at the globe, we... observe that there are many interest rates, across both private sector and government investments. Even if we confine ourselves to only government bonds, we see that there are large discrepancies based on the countries’ riskiness (Argentina or South Africa have higher interest rates on their bonds than Germany or the US).

At this point, economists just thought: “Aha! We can model interests rates as being r* + P, where P is the risk premium.”

Except it’s not that simple; the concept of risk premium is itself vague. How do you quantify a risk premium? No one knows. Investors make investment decisions based on their perception of that risk, but the risk itself is uncertain; the interest rate we observe is just the expression of a social belief, not some neat numerical correction.

To put it in philosophical language, the ontological status of the risk premium (and numerous other macroeconomic concepts) is misunderstood. And the consequences are not just philosophical; they can lead to a number of conceptual errors with serious policymaking implications. One prominent example is in neoliberal economics, and its belief in the divine importance of the market price.

In a debate about rent prices in London, the neoliberal economists might say: “All these social housing schemes are nonsense. Why should the state interfere and distort the housing market price?” The use of the word distort is very important—it suggests that the market price is almost like a physical quantity, a reality that should not be meddled with. In reality, of course, the housing prices of London are really just a reflection of the (deluded) expectations of property owners on future prices, among other things.

Problem No5: the role of risk, uncertainty, and expectations. This is another area of economics that is under active research, and in which we are starting to see improvements. I’ve decided not to go detail here; the topic is quite technical, and anyway, I’m doing research on it right now. Perhaps I will cover it in a future post. Until then, I will (again) recommend reading the venerable Steve Keen, along with various other economists such as Frank Knight and Gunnar Myrdal.

Concluding Remarks

What I have written ultimately only scratches the surface; there are much more fundamental questions to be asked about macroeconomics and its ability to accurately model and predict real world economies. Nevertheless, I think the five key problems I have highlighted constitute a good set of methodological problems with macroeconomics—and they are problems that can be feasibly solved.

My conclusion for students, policymakers, and other economists is this: presently, economic models are pretty rubbish. They are in urgent need of improvement—or else economists will find themselves stuck in the credibility crisis they are now in. But better models will demand the work of newer, wiser, and better educated thinkers.

In other words, we need a twin revolution; a revolution in the way we teach economics, to attract stronger students from a wider variety of fields, and a revolution in the way we do economics. Will the field rise up to this challenge? Perhaps. People like Steve Keen give me hope. On the other hand: there are a lot of economists who prefer to keep their head in the sand. What can I say? I hope they die quickly.

17 Nov 2017

Why Economic Models are Bullshit (Part I)

Hello dear readers!

Previously, I wrote on a number of topics, chiefly among them: my exams, and Fallen Love, my upcoming novel. Alas the former has prevented me from working on the latter; Fallen Love will probably not be finished until January, as I stated. Still, with my exams finally over, I can get back to working on it.

You may be wondering as to the title of this post. Your guess would be correct—this post is indeed a brief argumentative essay (read: rant) about economic models, on which I have spent the last week of my life revising for. I am taking both micro and macroeconomics, but this post will mainly be about macro; I will get onto why in a moment.

A Pedagogical Disaster

The simplest reason for my particular hatred of macroeconomic models has to do with teaching. That’s the simple reason, but the more complicated reason has to do with content (though the two are, of course, tied together).

To put it simply: the teaching has been disastrous. More than half of our class failed the first exam—this is in a selective university, mind you, with many of the student body having attained excellent grades in secondary school. One reason was the teacher. We had two teachers, and the first was quite dire.

“That’s one bad apple,” you say. “There are bad teachers in the world. That doesn’t mean macroeconomics is bullshit.”

This fact alone does not prove my point—except that this is not a single, isolated phenomena. Economics students across the world routinely struggle with their courses, complaining that they do not really understand it; that indeed, “it”—macroeconomic models—don’t make any sense. One bad teacher is one thing. But can the entire pedagogical structure of economic teaching be at fault?

I would argue yes. The most common complaint I’ve heard in my university is that (and I am paraphrasing only slightly) “I draw the graphs, but I don’t know what it means or why.” There are a few reasons for this. To begin with: concepts. Macroeconomic concepts are strongly under-explained. The course introduces things like “inflation”, “GDP”, “unemployment” and (my personal favourite) “money”—but these macroeconomic concepts differ significantly from the prima facie conception that students begin the course with.

A case in point: a number of students conflated the AS–AD model with the supply-and-demand model from micro economics. They even sound similar—one is “aggregate” supply and demand, the other just vanilla supply and demand.

AS–AD graph

Microeconomic supply-and-demand graph

Although they look extremely similar, they aren’t the same. The microeconomic model has P (prices) on the vertical axis and Q (quantity) on the horizontal axis—this arrangement is problematic, but I’ll get to that. Anyway, the AS–AD model has P (price levels) and Y (real GDP, output) on the respective axes. These are different concepts. Price levels are a measure of weighted, generalised prices across a macroeconomy (usually they are calculated in the form of the CPI)—they’re not the same thing as the price in a market. Y, representing real GDP, is sometimes called output, leading students to conflate it with quantity output.

Money is the worst, however. Students have no idea what money actually is (in fact a lot of economists don’t understand what money is, but students are even worse). In a macroeconomic context, money doesn’t just mean the euros in your pocket; it represents a wide range of things, from liquid assets held in bank accounts (M1) to savings accounts (M2) to more nebulous concepts of money that are too technical to go into here.

This is also why students struggle with the IS–LM model, which rests on a complicated set of assumptions about money and what money does in an economy.

Anyway, onto the next pedagogical error: mechanistic teaching and oversimplification. Our teachers presented all of these models as a series of mechanical steps, expressed in equally mechanical equations. “What happens if taxes increase under the classical model?” (Some curves shift.) “What happens if labour supply increases under the AD-AS model in the short-run and long-run?” (A complicated mess.) “What happens in the Mundell-Flemming model if, under a fixed exchange rate condition...” (I give up.)

There was very little explanation of why all these things happened. Why would a government want to increase taxes anyway? Why does the model look at these variables? What explanatory power do these models have, and what assumptions do they make?

These are all key questions that remained unanswered. This leads me onto the third pedagogic mistake: not teaching history. These models did not fall out of the sky. They were developed by economists—in a particular time and place, in a particular intellectual climate, and in a particular historical context. It’s difficult to understand these models, much less criticise them or apply them, without this precious context.

Yet, even without all these mistakes of pedagogy, there are more fundamental reasons why macroeconomic models are difficult for the students to comprehend. To repeat the title of this post: macroeconomic models are bullshit.

Conclusion Part I

I realise that you are probably tired of reading this, dear reader, so I will save my juicy critique of macroeconomics for the next post (titled “Why Macroeconomics is Bullshit, Part II”). For the time being, I will let you ponder the parlous state of economics teaching in our schools and universities.

Until then, make sure to check out Fallen Love in case you haven’t already.

30 Oct 2017

The Long Autumn

Hail readers!

Today I shall be giving you a brief update, regarding both my progress on Fallen Love, and the state of my life at present (the two being, of course, inextricably linked).

To wit: progress on Fallen Love has been slower than I was perhaps hoping for. Nonetheless, I have made some progress. I read, edited, and rewrote over 100 pages in the book since last week. The changes were, primarily, related to tense, description, and the mechanics of writing; but I also rewrote a chapter in order to change the course of events slightly. I have not made substantial changes to plot and characterisation—the reason is simply because I haven’t got to that part yet. The beginning of the book serves more as a foundation; it is the later chapters that really advance the plot and, by extension, the character development.

Why has progress been slow, you wonder? Partly it’s because I have not received all of the feedback from my beta readers, and what feedback I did receive was mostly not that useful. I will ask you, reader, to consider helping me. If you think you can beta-read, drop me an email (work DOT alexstargazer AT gmail.com) and we’ll see. I very much appreciate help and feedback at this point.

It’s also been partly because I’ve had a lot of work to do. Last week was lecture-free, but I nevertheless had an essay to finish, a quiz to submit, and a statistics project to work on. This week I will also be busy. Tomorrow I have another quiz; after that I should do some work on two essays; and I also need to enrol for next semester’s courses (a complicated business).

The week after this, I need to focus and revise for my second round of exams. I will also have to squeeze in an annotated report and presentation.

I hope you understand why I am moving my goals for Fallen Love further in the future. Previously, I hoped to have wrapped up the revision process by November; that was naive, a hope guided by the fact that it will soon have been a year since I started writing Fallen Love (and a year since I gave up on the Ark). I am planning, instead, on having finished the revisions by January. Then I will start submitting to agents.

I am also going to Romania this Christmas—the first Christmas I am spending in my home country for a very, very long time. In the past 15 years I have been to Romania only in the summer, except once in February. What can I say? Christmas will be very busy this year.

My blogging efforts will remain sporadic over this period, as university, the book, and life will take up most of my attention. Although, I am taking breaks in the form of reading, and so I will continue posting my reviews. You can read my (very substantial!) backlog here.

Until next time!

3 Oct 2017

Writing a Book at 14

Hello readers!

Following from my previous announcement, I can confirm that I’ve sent the completed draft of Fallen Love to my beta readers, and they are presently reading it. In the meanwhile, I have decided to grant you all a treat: an essay, originally published in the student journal, that elaborates on my experience writing the Necromancer.

Perhaps you can interpret it as a reflection on the past—and a guide to the future. For me, it invokes great nostalgia. For you, it may enlighten the sometimes mysterious world of writers.

I will be back with news of Fallen Love soon, in any case. Until then!

What’s it like to write a book at 14?

When I tell people I wrote a book at 14, it would be an understatement to say that I get a lot of responses. But beyond the look on people’s faces, writing the Necromancer changed my life in many deeper (though sometimes subtle) ways.

Firstly, allow me to address the obvious factor here: commitment. Writing a 108,000 word high-fantasy book is not something you do on a whim. Indeed, it took me over six months to complete the first draft—a feat that required writing multiple hours per week—and a whole 18 months to get feedback, edit, seek agents, do more edits, and eventually hire professionals to do the artwork.

This leads me onto the second obvious question: motivation. Why, exactly, does a fourteen-year-old undertake such a quest? In my experience, laymen often draw on analogies with entrepreneurs: perhaps, they think, I wrote because I want to build something. Maybe I want to make the world a better place. Maybe I’m just in it for the money, or the pleasure of throwing down a 500 page book and saying ‘I wrote that.’

But this is only a small part of the reason I write. To understand my motivation, you need look a bit deeper, and trace the origin to my love of reading. I have always loved reading, even from an early age, and this was particularly true of the years just before I began writing. A transcript from the school library showed that I read about 400 books between the ages of 11 and 14.

The old adage is true: behind every writer there is a profligate reader.

So how did my love of reading affect me? It is safe to say that I became enraptured by the world of fantasy. Like the children in Narnia, I had opened the wardrobe and found a whole world waiting for me. Eragon and Northern Lights kept me up at night. I saw myself in their shoes: I fought urgals on the back of a dragon; I met angels; I fought dark magicians and consorted with vampires.

I was, in truth, smitten by the occult. My fascination was endless. It seems almost inevitable that I came to write about it; that my ideas grew, morphed, and took a life of their own.

One grey October afternoon, I began writing. I believe the necromancer compelled me to write that day; that the curve of his arrogant jaw, the icy power held in his ‘cold orbs of sight,’ all but forced me to put him down on paper.

Laymen often ask writers where their inspiration comes from. This, I am afraid, is the best answer I can give you.

The first few chapters I wrote were not worth the paper they would have been printed on, however, so I had to rewrite them from scratch. This is true of nearly all first time writers—you can blame it on the fact that writing fiction is… hard. It is difficult for a non-writers to understand just what kind of challenges writing presents: the elaborate art of writing itself; the magnificent difficulty of capturing whole personalities, often in few words; the intricacies of plot—all to name a few.

The rest of the book was a journey. I followed Linaera—apprentice mage and unwitting protagonist—through her journey into the Northern Mountains. I watched on as Nateldorth, Great Mage, uncovered dark conspiracies in the capital, Dresh. Most of all I followed the necromancer. I was witness to him: to his betrayal, his descent into madness, and his ultimate redemption.

Books are journeys. The journey of my book was in a way my journey: where my characters struggled, I struggled with them. For them it was question of facing up to existential challenges. For me it was knowing their motivation, and building all the twists and turns of plot that made up their lives.

Writing the Necromancer was often a pleasure. I liked the dark, unexpected turns of the plot; the characters’ inner lives; and most of all, I enjoyed writing in the world of Arachadia. I loved the towering mountains, the vast, sprawling forests; the great stonework of the mage buildings and the fine craftsmanship of the wooden cathedrals; the world of dormant dragons and powerful magics.

Of course, writing the Necromancer was often a challenge. I was young, and devoid of experience. I often struggled to write fluently—it took much work to correct the early mistakes. It was as if a vast realm had been entrusted to a young king; a king with many ideas but few ways to actually conquer.

But conquer it I did. Perhaps I did not quite succeed. Perhaps there are other worlds yet unconquered—other vast and distant places full of promise. But writing the Necromancer was not the finishing line; it was only the first milestone of a long journey. I do not know what dragons still slumber in the path I am taking.

Nor does it matter. My advice to my younger self—as well as to other would-be writers—is perseverance. Many monsters lie in wait (some of them are called publishers, critics, and yourself) but the treasures they guard are beautiful.

24 Sep 2017

It is done

Hail readers!

Previously, I mentioned that I was close to completing Fallen Love, my upcoming new novel. Well: there’s no more ‘upcoming’ about it anymore. Fallen Love is finished!

Of course, I also mentioned, in my previous update, that writing the ending does not serve to complete this quest of mine; there is still much work to do, in the form of getting more feedback, making revisions (a sizable number remain to be done) and of course querying agents.

But still: this is a huge milestone. I have turned an idea—an inkling of the character’s desires, the world they inhabit, the circumstances of the plot—into reality. Indeed, I thought it would never happen.

You see, when I began Fallen Love, I had written over 50,000 words on the Ark. It seemed insane to start a new novel, and abandon the old one, even though—deep down—I knew it was the right thing to do. Luckily, I persevered; and now here I stand, my hands holding a much more valuable object than the Ark could ever have been.

It is often said by writers that the second novel is easier than the first one. For me, this was not true. Oh sure: writing the Necromancer was insanely hard, and took two years to get published. Yet I completed the first draft in barely six months, two weeks; whereas Fallen Love took me 10 months, and it’s shorter too. The Necromancer stands at 108,000 words, while Fallen Love is 79,000.

If you consider the Ark to be more than just a false start—since I spent over a year working on it, and created three of the main characters that would later find themselves in Fallen Love—then you really start to comprehend the Goliath endeavour this was.

I only hope that publishing it will be easier. I daresay I am a much better writer now.

In any case, that’s enough for today. I have sent the completed draft to my beta readers; it is time for me to rest, letting my readers digest, and allowing me to charge my batteries for what comes next. University has also not let me off too easily, and I will have work to do in the coming weeks.

But since I know you must be excited, I have made good on a promise: you can now read the first chapter on this page.

Good bye for now, or as the Dutch say: tot ziens!

1 Sep 2017

A New Year (Of Work)

Good day readers, and hallo from Amsterdam!

This summer, I have been away both in Romania, where I visited Vatra Dornei, and Scotland (where I saw many places): if you are interested, you can check out my photos here and here.

Now, I am back in Amsterdam to begin my second year of university. It has, as I have said before, been a long year; yet I have done much, not least quitting the Ark, and beginning Fallen Love. Speaking of which: that is the topic of today’s little update.

I am now on 71,000 words—a significant feat on top of all my visiting, and of course all my university work. I daresay I am quite pleased, especially since I am close to finishing! A couple of thousand words is all that separates me from completion.

And what will I do once I finish it, you ask? Well, at first, not much. I intend to let it sit for a few weeks. Then I will go back; I will read through the novel in its entirety, resolving unfinished business, perhaps adding or subtracting some scenes, and generally getting a feel for my new creation.

In the meanwhile, I will be doing a few other things. Of course there is my university work; that will take up a significant amount of my time, but not all of it by any means. No: I will also be spending some time on Tapas, a fantasy- and comic-book themed platform that can help me gain new readers. I’m not entirely sure what I will put up (it may be new content; it may be some existing unpublished material) but I hope it will be interesting.

Now, onto writing and the new academic year. Wish me luck!