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Sunday, 20 October 2013

Nobel Prize winners say markets are irrational, yet efficient

S A Aiyar in The Times of India
Are stock markets irrational, driven by greed and fear, subject to euphoria and panic? Or are they highly efficient indicators of intrinsic value? Both, says the Nobel Prize Comittee for Economics, with no sense of contradiction.
It has just awarded the prize jointly to economists with opposing views. Robert Shiller is famous for two versions of his book 'Irrational Exuberance'. The first version appeared in 2000 at the height of the dotcom boom, and correctly predicted that this was a bubble about to burst. The second version came in 2005 just as the housing market was skyrocketing, and predicted (again correctly) that this too was a bubble likely to burst resoundingly.
This confirmed Shiller's status as a behavioural economist. Such economists laugh at the notion that human beings are rational economic actors, as portrayed in textbooks. No, say behaviourists, humans are driven by fads, prejudices, manias, and irrational bouts of optimism and pessimism. Yet Shiller is going to share the Nobel Prize with Eugene Fama, famous for his "efficient markets hypothesis." This states that markets are like computers processing information from millions of sources on millions of economic actors, and hence produce more efficient long-run valuations than the most talented genius.
Fama's market behaviour is fundamentally random, so future trends cannot be predicted by even the cleverest investors. He implies that choosing stocks by throwing darts at a stock market chart can beat the recommendations of top experts. This has been verified by some, though not all, dartthrowing contests.
Corollary: ordinary investors must not pay high fees to experts to pick winners. Instead they should invest passively in a group of shares (like the 30 shares constituting the Bombay Sensex or Dow Jones Industrial Average), and ride these bandwagons without paying any fees. This has led to the spectacularly successful emergence of Index-traded funds (like those run by Vanguard in the US). Such funds are indexed to share groups like the Sensex or the Banks Nifty. Rather than try to pick individual winners in say the auto, pharma or realty sectors, index funds invest passively in a group of auto, pharma or realty companies. This has proved successful and popular.
Two groups criticize the efficient markets hypothesis: big investment gurus and, paradoxically, leftists viewing financial markets as instruments of the devil. Investment gurus like Warren Buffett in the US or Rakesh Jhunjhunwala in India claim to have beaten the market average handsomely, thus disproving the efficient markets hypothesis. Not so says Fama: in any large collection of investors there will always be some who perform above average and some below average - this is a matter of statistical chance, not skill. Moreover, investment gurus have so many contacts that they may have insider information enabling them to beat the market by unfair means.
As for Shiller's successful predictions, Fama says capitalism is driven by booms and busts. To predict at the height of a boom (like Shiller) that a bust will follow is banality, not genius. It is as unremarkable to predict during every bust that a boom will follow.
After the 2008 global financial crisis, the new conventional wisdom is that governments need macro prudential policies to check future financial crises, and that finance should be more strictly regulated than ever before. However, the counter is that the financial crisis occurred even though the financial sector was already the most regulated (with 12,000 regulators in the US alone). Governments had encouraged reckless lending by guaranteeing large banks and investment banks against failure, and by creating governmentbacked underwriters like Fannie Mae who shouldered any burdens caused by mass default.
Perhaps the Nobel Prize Committee is right in implying that markets can be both irrational and efficient at the same time. Since humans are irrational, they will always create markets that have booms and busts, marked by irrational optimism and pessimism. An efficient markets defined by Fama and his followers is not one that produces steady growth without booms, busts or crises. It is efficient only in the limited sense that, whether the markets are calm or irrational, they represent the processed information of millions of actions of millions of actors, and this is inherently more efficient than the efforts of any individual investor.
The argument is analogous to the one against communism or dictatorship. Communists believed that the great and good politburo, motivated entirely by the public interest and not profit, would run the economy better than the chaos, irrationality and imperfections of the capitalist market. Yet the market, with all its flaws and irrationality, proved infinitely more efficient.
Fama holds that this is true of financial markets too. This is compatible with Shiller's analysis. Markets can be both irrational and efficient.

Saturday, 19 October 2013

The Tea Party have successfully undermined everything Obama has attempted

Mark Steel in The Independent

Now the American government is open again, I wonder what tactic the Tea Party will try next to get their way. One favourite must be chilli powder down Barack Obama’s underpants. One of their senators will explain in a live interview from Washington, “We have no choice but to do this until the President shows he is willing to negotiate”, while in the background we can hear, “Yeaaagh they’re on fire”, and Michelle saying: “Don’t put your fingers in your eyes love or they’ll start stinging as well.”
Or they’ll set a leopard loose in the House of Representatives, as a legitimate means of expressing the will of the common man from Utah. Whatever they do, to them it seems utterly reasonable, so they make statements such as, “It’s the President who is causing this conflict, by insisting on implementing the policies he was elected on. So what choice did we have but to urinate over the Democrat senators in alphabetical order? It’s only what Abraham Lincoln would have done?”
The issue that’s angered them this time is Obama’s healthcare plan, designed to address the problem of millions of Americans having no access to healthcare. The Tea Party has a carefully considered objection to this policy, which is on the home page of its website. It’s worth repeating in full to do justice to the prose. It goes “Destroy Obamacare. This abomination from hell must be eradicated.”
As with all the best political writing, it’s the delicate details that make it so engaging. To start with, this displays an impressive knowledge of The Bible, as few people are aware of the section that goes, “And God saw that Satan had spread his wickedness among the people. And he did say unto Abraham ‘Eradicateth this abomination for they will burn in hellfire who are carried upon a stretcher with no charge’”.
John Culberson, a Tea Party spokesman from Texas, was slightly less subtle, declaring his support for the strategy of shutting down the country by saying, “Like on 9/11, let’s roll”, a reference to the passengers who said “Let’s roll” before confronting terrorists on their plane. This could be worrying if he visits an NHS surgery in Britain. He’ll stab all the doctors, and explain: “I could see one of them diagnosing gastro-enteritis without charging a fee and knew I had to act straight away.”
To be fair, the Tea Party takes up other issues as well as healthcare, employing the same subtle arguments. Their supporter Stephen Schwarzmann, a hedge-fund billionaire, contributed to the tax debate by saying: “Tax rises on equity firms is a signal for war, like when Hitler invaded Poland.” It could be argued it’s even worse, because at least when Hitler invaded Poland the casualties couldn’t run crying to the Third Reich for free medical care.
Maybe the reason they come up with minor exaggerations is they struggle without them. Tea Party senator Louis Gohmert was interviewed about whether the deal they've agreed to was a success. In his exact words, this is how he answered: “The fact is all those children gathered round by Nancy Pelosi and they weren’t of legal consent age and we’ve stolen $12bn dollars from those children and the least we can do and all we’re asking if we had leaders who do the right thing they look listen it’s illegal.”
I wonder how many people saw that and thought, “At last, someone who’s saying exactly what I’m thinking”. It appears they’re reasoning is the Republican Party lost the election because in crucial swing states such as Ohio, voters thought “the trouble with Mitt Romney and his supporters is they’re not do-lally enough”. In which case none of this matters, as it only ensures they’ll lose by even more next time.
But maybe there is logic to their strategy. Because since Obama became President, the Tea Party Republicans have been able to undermine everything he’s attempted. Even the budget following this agreement is seven per cent less than the amount Obama originally proposed. The healthcare plan will still leave around one fifth of the population with no care, and many of the promises, such as closing Guantanamo Bay or on gun control, have been abandoned altogether. Partly this has been a result of backing down to the constant niggling of the Tea Party.
Obama even had to spend much of his first year in office proving he was the President as they insisted he wasn’t born in America. So they can do that again. For example if Hillary Clinton wins they’ll say they’ve got evidence she’s Russian and fought at the Alamo on the side of the Mexicans, and her real name’s Hillary Mohammed Trotsky Lucifer Compulsory Free Liver Transplants For Everyone Even If You’re Completely Healthy Jihad Abortion Clinton.
They’ll say she was born under the sea, and they’ve got evidence she eats live squirrels, and it’s their constitutional duty to flood the Senate with mercury until she agrees to abolish tax for oil companies. Because for many of the rich and powerful, why bother going through all the hassle of winning an election to get your way, when it’s much easier and more fun to let the other side win, then refuse to accept the result and bring everything to a halt until they do as you want anyway.

Cricket - Let's tonk for all our worth

Matt Cleary in Cricinfo
(The Editor wonders if such an article would have been written if cricket's ancien regime had scored similar runs in 43 overs! It's a bit like the MCC limiting the number of bouncers per over after the West Indies pace attack. Yet, Matt has a point.)


Video games can't match the action we saw in Jaipur  © BCCI
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And so to the slaughter at Sawai Mansingh Stadium the other night, in which both sets of batsmen flogged the bowlers as if they were unrepentant 18th-century horse thieves. In 93.3 overs of crazy-mad bludgeon, Australia scored 359 and India chased it down for the loss of one wicket. Entertaining? No doubt. A contest? It was not.
For while all this heavy-batted bashing was sort of interesting, and you can admire the timing and skill required to achieve such high-octane hammer, the game itself was not a contest in terms of bat against ball. It was an arms race in which batsmen bullied bowlers and bowlers were powerless to fight back. And one team of bullies were just better bullies than the other. It was a lot of things. But cricket it was not. 
Not cricket?
Not cricket. Cricket is mean to be a contest. A contest has two parts. In cricket's case it's a battle between batsman and bowler. And the other night all the various weapons and devices available to bowlers - line, length, seam, swing, pace, spin, bounce, sweat, spit, minty sweets - were rendered redundant because of a pitch friendlier to batsmen than girls were friendly to Elvis.
What could bowlers achieve on that deck? What could they do? Everything from toe-crushing heat to half-tracking "spin" was dispatched by batsmen confident the pill would do nothing untoward. Like, at all. There was nothing doing. The cricket ball was nude. It was an ex-parrot. You'd have more chance against Viv Richards with a tennis ball on a beach.
I mean, had India been allowed to keep batting and had scored at a not-implausible 20 runs per over, they would have got close to 500. That's all well and good. People could have gone home and said, "I was there the night India scored close to 500." That's great. But it's not cricket. And it worries me how little people care that it's not.
Look at the rapture in the stands in Jaipur. Look at the worldwide love of T20. People love big hitting over everything else. Tonking trumps fast bowling, spin bowling, acrobatic fielding, a run-out, a stumping, a tail digging in to save a match. Everything is second to bat smashing ball. People enjoy it more than even winning. They would rather see their team smash 400 and lose than win chasing down 230 on a green top.
So let's not fight it. If the People's lust for the tonk is so prevalent, let's flat out change the rules of cricket. For instance, why not have let India keep going the other night after they had passed Australia's total? Give the people Full Value. Instead of ending the innings once a team has "won", continue as an exhibition of tonking, and so excite the people.
If the Jaipur pitch is the new paradigm, why grow grass on cricket wickets at all? Why call them "turf" wickets? Get the boffins to create a scientific blend of synthetic space-mat to give a perfectly uniform bounce every time, allowing batsmen to confidently tee off unfettered by doubt the ball will do anything "bad".
Why should teams be able to select bowlers who are any good? They may as well save their best bowlers for Test cricket anyway, and throw out any combination of grade hacks and kids and backpacking Fanatics. If Mitchell Johnson, Clint McKay, Shane Watson and James Faulkner can be flogged for 239 runs in 28 overs, it doesn't matter who you throw at them. You may as well pick a pace pack of piss-pots from the press gallery.
Does cricket need bowlers at all? Why not have a bowling machine at each end that shoots out a mixture of slow-medium full tosses, half-volleys and long hops, all relayed to the batsman before the ball is fed in. Or have the type of delivery required designated by the batsman. Instead of Aaron Finch asking for guard from the umpire, he could instruct the ball-feeder guy, "Half-tracker outside leg stump please", and so blaze away.
Why have fielders? Such is the public's ravenous appetite for boundaries, aren't these speed bumps just getting in the way of the fun? And on these wickets are they not largely superfluous anyway? They are there to chase balls thudding into the boundary and going over their heads. People in the crowd have more chance of catching Virat Kohli when he's batting on 192.
Maybe we make cricket like those home-run exhibition things they have in baseball. And have guys like Dave Warner and Chrissy Gayle - who under the new rules of cricket can play for whichever country/franchise they wish - toss balls in the air and flog them high into the crowd for people to catch and then wave like crazy people on big screen.
No bowlers, no fielders, no winners, no losers. Just big tonks soaring over the fence and into the crowd.
Sure, it won't be cricket. But it's not now either.

Wednesday, 16 October 2013

Oprah is wrong. Atheists can experience wonder and awe

Those who believe in God do not have a monopoly over possession of that magnificent sense of the sublime

Frank Furedi in The Independent

In one sense Oprah Winfrey was absolutely right when she lectured the humanist swimmer Diana Nyad about the inconsistency of the outlook of atheism with a sense of awe. For Oprah, a woman of faith, the sense of wonder and awe are inextricably intertwined with religion and God.
Indeed since the emergence of the Judeo-Christian tradition, awe is the mandatory reaction that the true believer is required to have towards God. From this perspective the sense awe and wonder is bounded and regulated through the medium of religious doctrine. In contrast, those of us who believe that it was not God but humans who are the real creators are unlikely to stand in awe of this allegedly omnipotent figure.
Although in the 21st century the term awe and awesome are used colloquially to connote amazement and admiration historically these words communicated feelings of powerlessness, fear and dread. The Oxford English Dictionary tells us, that awe means ‘immediate and active fear; terror, dread’. The OED explains that from its original reference to the Divine Being it has acquired a variety of different meanings, such as ‘dread mingled with veneration’ and ‘reverential or respectful fear’. All these meanings signal one important idea which that ‘fearing’ and ‘dreading’ are inherently positive attributes to be encouraged.
The religious affirmation of fear and dread of a higher being is indeed alien to the humanist view of the world. But does that mean that Oprah is right and that atheists cannot wonder and awe? Not at all. Those who believe in God do not have a monopoly over possession of that magnificent sense of the sublime that catches us unaware in the face of the truly mysterious. Atheists and humanist experience wonder and awe in ways that sometimes resembles but often differs from the way that the religious people respond to the unknown.
We all have the capacity and the spiritual resources to experience the mysteries of life and the unexpected events that excite our imagination through a sense of wonder. Those who stand in awe of God internalise their sense of wonder through the medium of their religious doctrine. Their response can possess powerful and intense emotions. But the way they wonder is bounded by their religious beliefs and their conception of God.  In a sense this experience of spiritual sensibility is both guided and ultimately dictated by doctrine and belief. Historically those religious people who dared to go beyond these limits risked being denounced as heretical mystics.
In contrast to the way that religion does wonder, atheists and humanists possess a potential for experiencing in a way that is totally unbounded. Humanists do not stand in awe of the mysteries of God but truly wonder at the unknown. Through the resources of the human imagination (humanities) and of the sciences the thinking atheist realises that every solution creates a demand for new answers.  That’s what makes our wonder so special. Instead of dreading and fearing, it empowers us to set out on the quest to discover and understand.
Experience shows that the capacity to wonder is a truly human one. Toddlers and young children do not need God to wonder at the mysterious world that surrounds them. At a very early stage in their life they express their sense of astonishment and wonder without effort or a hint of embarrassment. Thankfully most of us continue to be motivated and inspired by the mysteries of life.
One final point. There are of course some new atheists who insist on living in a spiritual-free world. From their deterministic perspective everything is explained by neuro-science or our genes. But what drives them away from wonder is not their atheism but their inability to engage with uncertainty. In that respect they are surprisingly similar to those who embrace religious dogma to spare themselves the responsibility of engaging with the mysteries that confront us in everyday life.

Tendulkar: not a players' player

OCTOBER 16, 2013


Samir Chopra in Cricinfo 

Did Tendulkar make most use of his "soft" power?  © Mumbai Indians
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Our evaluations of our favourite cricket players do not stop with a cold statistical assessment of their playing records, or a passionate recounting of the aesthetic pleasures afforded us by their efforts on the playing field. We often hope, sometimes unreasonably, that they will not disappoint us in other dimensions. Perhaps they will also be great captains; perhaps they will not embarrass themselves during their retirement phase; perhaps they will not turn into one-dimensional blowhards on television.
For a very long time now, I have entertained an abiding hope that an Indian cricket player of sufficient sporting stature would become, by dint of action and deed during his career, an advocate for Indian players. Someone who would - to borrow the language of labour relations and industrial action - organise the workers in his workplace and campaign for better treatment by their management. 
Perhaps he would lead the initiative to form a players' union - an effort that has been tried in the past and has failed, or rather, has not been allowed to succeed; perhaps he would take up cudgels on behalf of other players treated unfairly by the national board; perhaps he would, by singular acts of defiance, engender relationship-transforming showdowns with "The Man". He would speak up boldly and act accordingly. He would thus bell the BCCI cat and introduce some much-needed professionalism into a relationship - the BCCI-player one - that still bears depressing traces of the feudal.
The BCCI-player relationship is an unequal one in many ways. We do not know the terms of the contracts the players sign with the BCCI; we do not whether they accord with the legal standards that professional sportsmen in other domains are used to; we do not know whether they would pass muster with employment and labour legal regimes. Indian players, as they found out during the ICL saga, do not enjoy something approximating "free agency".
Cricket boards worldwide collude with the BCCI, of course; they run cricket like a cartel and make sure that a player affiliated with one national board cannot ply his trade elsewhere without the right sorts of permissions (like the no-objection certificates needed to play in county cricket and in the IPL.)
The BCCI has often had cause to crack down on the players it controls: whether it has been Lala Amarnath sent home from England in 1936, Vinoo Mankad facing difficulties in playing for Haslingden in the Lancashire Leagues in 1952, the banning of several Test cricketers for playing "unauthorised" cricket in the US in 1989, placing restrictions on Indian players' presence in county sides or in the Sri Lankan Premier League, and lastly and most infamously perhaps, the brutal crackdown on the ICL. When the BCCI takes on the players, there is only one winner; more often than not, it is a no-contest.
Perhaps fighting the BCCI, as this history indicates, is a losing battle, one not to be engaged in by any sane man. But if it was ever going to be taken on, it would have to be a player whose fame would be such that his battles with the BCCI would be backed by the passion of his extensive fan following, someone on whom the BCCI could not crack down on without enraging millions across the land who could take up cudgels on his behalf. I would thus allow myself to dream about a player who would recognise the rhetorical advantage that the passion of his fans afforded, who would ably manipulate the gigantic megaphone his cricketing feats had afforded him, and sally forth to do battle with the BCCI.
This absence of a confrontational streak, this refusal to engage in reform, this unwillingness to be drawn into battles off the pitch, do not sully Tendulkar as a cricket player
Sunil Gavaskar had fired a few shots across the BCCI's bows in his playing career, some of which can be found in his intemperate autobiographySunny Days, but he did not take those battles to their logical conclusion. And since his retirement, he has drawn ever closer to the BCCI. Perhaps someone even bigger than Sunny was required. After his retirement, only one Indian player has met that requirement: Sachin Tendulkar.
Tendulkar has been one of Test cricket's greatest batsmen. His strokeplay brought us many, many hours of pleasure; statistically, some of his records will, in all probability, never be broken; his discipline and dedication and the spirit in which he played the game have been an inspiration for other players and spectators alike. But, as has been evident through his playing career, he was never going to be such an aggressive advocate for Indian cricket players. Indeed, if anything, by virtue of his famed reticence and refusal to be drawn into controversy, he has, perhaps wittingly, perhaps not, become an establishment man. It was only appropriate then, that this retirement announcement would be issued as a statement by the BCCI.
This absence of a confrontational streak, this refusal to engage in reform, this unwillingness to be drawn into battles off the pitch, do not sully Tendulkar as a cricket player; these lacunae do not diminish his records or lead us to think less of him as a human being. He has borne the burden of unreasonable adulation for very long and still managed to perform at a very high level. And all too many of us would not seek out battle with our bosses.
But the lack of a Tendulkar-led or -inspired player action against the BCCI is still cause for regret, for the sense of a missed opportunity is, for me at least, palpable. During Tendulkar's tenure the BCCI became ever more powerful and wealthy; it became ever more entrenched as the absolute controller of Indian cricket (a fact it asserted with a brutal display of heavy-handedness during the ICL saga). In this same period, Tendulkar, by dint of his extended career, became a kind of Grand Old Man of Indian cricket, moving from fresh-faced teenager to wizened veteran. His voice had acquired considerable sagacity. If any sand could have been thrown in the wheels of the BCCI juggernaut, it would have best originated from Tendulkar.
That moment has now passed. It is unclear whether any Indian player in the future will ever command such "soft" power as Tendulkar did. MS Dhoni, for all his fame, does not meet the bill. (And indeed, as is already evident, he can be just as tight-lipped as Tendulkar.)
So as I prepare to bid farewell to this great batsman, my wistfulness will be coloured by a sense of another kind of loss, of a seemingly singular moment in time - with respect to player-BCCI relations - having come and gone.

Why our future depends on libraries, reading and daydreaming

 

A lecture explaining why using our imaginations, and providing for others to use theirs, is an obligation for all citizens
Neil Gaiman
'We have an obligation to imagine' … Neil Gaiman gives The Reading Agency annual lecture on the future of reading and libraries. Photograph: Robin Mayes
It's important for people to tell you what side they are on and why, and whether they might be biased. A declaration of members' interests, of a sort. So, I am going to be talking to you about reading. I'm going to tell you that libraries are important. I'm going to suggest that reading fiction, that reading for pleasure, is one of the most important things one can do. I'm going to make an impassioned plea for people to understand what libraries and librarians are, and to preserve both of these things.
And I am biased, obviously and enormously: I'm an author, often an author of fiction. I write for children and for adults. For about 30 years I have been earning my living though my words, mostly by making things up and writing them down. It is obviously in my interest for people to read, for them to read fiction, for libraries and librarians to exist and help foster a love of reading and places in which reading can occur.
So I'm biased as a writer. But I am much, much more biased as a reader. And I am even more biased as a British citizen.
And I'm here giving this talk tonight, under the auspices of the Reading Agency: a charity whose mission is to give everyone an equal chance in life by helping people become confident and enthusiastic readers. Which supports literacy programs, and libraries and individuals and nakedly and wantonly encourages the act of reading. Because, they tell us, everything changes when we read.
And it's that change, and that act of reading that I'm here to talk about tonight. I want to talk about what reading does. What it's good for.
I was once in New York, and I listened to a talk about the building of private prisons – a huge growth industry in America. The prison industry needs to plan its future growth – how many cells are they going to need? How many prisoners are there going to be, 15 years from now? And they found they could predict it very easily, using a pretty simple algorithm, based on asking what percentage of 10 and 11-year-olds couldn't read. And certainly couldn't read for pleasure.
It's not one to one: you can't say that a literate society has no criminality. But there are very real correlations.
And I think some of those correlations, the simplest, come from something very simple. Literate people read fiction.
Fiction has two uses. Firstly, it's a gateway drug to reading. The drive to know what happens next, to want to turn the page, the need to keep going, even if it's hard, because someone's in trouble and you have to know how it's all going to end … that's a very real drive. And it forces you to learn new words, to think new thoughts, to keep going. To discover that reading per se is pleasurable. Once you learn that, you're on the road to reading everything. And reading is key. There were noises made briefly, a few years ago, about the idea that we were living in a post-literate world, in which the ability to make sense out of written words was somehow redundant, but those days are gone: words are more important than they ever were: we navigate the world with words, and as the world slips onto the web, we need to follow, to communicate and to comprehend what we are reading. People who cannot understand each other cannot exchange ideas, cannot communicate, and translation programs only go so far.
The simplest way to make sure that we raise literate children is to teach them to read, and to show them that reading is a pleasurable activity. And that means, at its simplest, finding books that they enjoy, giving them access to those books, and letting them read them.
I don't think there is such a thing as a bad book for children. Every now and again it becomes fashionable among some adults to point at a subset of children's books, a genre, perhaps, or an author, and to declare them bad books, books that children should be stopped from reading. I've seen it happen over and over; Enid Blyton was declared a bad author, so was RL Stine, so were dozens of others. Comics have been decried as fostering illiteracy.
Enid Blyton's Famous Five book Five Get Into a Fix No such thing as a bad writer... Enid Blyton's Famous Five. Photograph: Greg Balfour Evans/Alamy

It's tosh. It's snobbery and it's foolishness. There are no bad authors for children, that children like and want to read and seek out, because every child is different. They can find the stories they need to, and they bring themselves to stories. A hackneyed, worn-out idea isn't hackneyed and worn out to them. This is the first time the child has encountered it. Do not discourage children from reading because you feel they are reading the wrong thing. Fiction you do not like is a route to other books you may prefer. And not everyone has the same taste as you.
Well-meaning adults can easily destroy a child's love of reading: stop them reading what they enjoy, or give them worthy-but-dull books that you like, the 21st-century equivalents of Victorian "improving" literature. You'll wind up with a generation convinced that reading is uncool and worse, unpleasant.
We need our children to get onto the reading ladder: anything that they enjoy reading will move them up, rung by rung, into literacy. (Also, do not do what this author did when his 11-year-old daughter was into RL Stine, which is to go and get a copy of Stephen King's Carrie, saying if you liked those you'll love this! Holly read nothing but safe stories of settlers on prairies for the rest of her teenage years, and still glares at me when Stephen King's name is mentioned.)
And the second thing fiction does is to build empathy. When you watch TV or see a film, you are looking at things happening to other people. Prose fiction is something you build up from 26 letters and a handful of punctuation marks, and you, and you alone, using your imagination, create a world and people it and look out through other eyes. You get to feel things, visit places and worlds you would never otherwise know. You learn that everyone else out there is a me, as well. You're being someone else, and when you return to your own world, you're going to be slightly changed.
Empathy is a tool for building people into groups, for allowing us to function as more than self-obsessed individuals.
You're also finding out something as you read vitally important for making your way in the world. And it's this:
The world doesn't have to be like this. Things can be different.
I was in China in 2007, at the first party-approved science fiction and fantasy convention in Chinese history. And at one point I took a top official aside and asked him Why? SF had been disapproved of for a long time. What had changed?
It's simple, he told me. The Chinese were brilliant at making things if other people brought them the plans. But they did not innovate and they did not invent. They did not imagine. So they sent a delegation to the US, to Apple, to Microsoft, to Google, and they asked the people there who were inventing the future about themselves. And they found that all of them had read science fiction when they were boys or girls.
Fiction can show you a different world. It can take you somewhere you've never been. Once you've visited other worlds, like those who ate fairy fruit, you can never be entirely content with the world that you grew up in. Discontent is a good thing: discontented people can modify and improve their worlds, leave them better, leave them different.
And while we're on the subject, I'd like to say a few words about escapism. I hear the term bandied about as if it's a bad thing. As if "escapist" fiction is a cheap opiate used by the muddled and the foolish and the deluded, and the only fiction that is worthy, for adults or for children, is mimetic fiction, mirroring the worst of the world the reader finds herself in.
If you were trapped in an impossible situation, in an unpleasant place, with people who meant you ill, and someone offered you a temporary escape, why wouldn't you take it? And escapist fiction is just that: fiction that opens a door, shows the sunlight outside, gives you a place to go where you are in control, are with people you want to be with(and books are real places, make no mistake about that); and more importantly, during your escape, books can also give you knowledge about the world and your predicament, give you weapons, give you armour: real things you can take back into your prison. Skills and knowledge and tools you can use to escape for real.
As JRR Tolkien reminded us, the only people who inveigh against escape are jailers.
Tolkien's illustration of Bilbo Baggins's home Tolkien's illustration of Bilbo's home, Bag End. Photograph: HarperCollins

Another way to destroy a child's love of reading, of course, is to make sure there are no books of any kind around. And to give them nowhere to read those books. I was lucky. I had an excellent local library growing up. I had the kind of parents who could be persuaded to drop me off in the library on their way to work in summer holidays, and the kind of librarians who did not mind a small, unaccompanied boy heading back into the children's library every morning and working his way through the card catalogue, looking for books with ghosts or magic or rockets in them, looking for vampires or detectives or witches or wonders. And when I had finished reading the children's' library I began on the adult books.
They were good librarians. They liked books and they liked the books being read. They taught me how to order books from other libraries on inter-library loans. They had no snobbery about anything I read. They just seemed to like that there was this wide-eyed little boy who loved to read, and would talk to me about the books I was reading, they would find me other books in a series, they would help. They treated me as another reader – nothing less or more – which meant they treated me with respect. I was not used to being treated with respect as an eight-year-old.
But libraries are about freedom. Freedom to read, freedom of ideas, freedom of communication. They are about education (which is not a process that finishes the day we leave school or university), about entertainment, about making safe spaces, and about access to information.
I worry that here in the 21st century people misunderstand what libraries are and the purpose of them. If you perceive a library as a shelf of books, it may seem antiquated or outdated in a world in which most, but not all, books in print exist digitally. But that is to miss the point fundamentally.
I think it has to do with nature of information. Information has value, and the right information has enormous value. For all of human history, we have lived in a time of information scarcity, and having the needed information was always important, and always worth something: when to plant crops, where to find things, maps and histories and stories – they were always good for a meal and company. Information was a valuable thing, and those who had it or could obtain it could charge for that service.
In the last few years, we've moved from an information-scarce economy to one driven by an information glut. According to Eric Schmidt of Google, every two days now the human race creates as much information as we did from the dawn of civilisation until 2003. That's about five exobytes of data a day, for those of you keeping score. The challenge becomes, not finding that scarce plant growing in the desert, but finding a specific plant growing in a jungle. We are going to need help navigating that information to find the thing we actually need.
A boy reading in his school library Photograph: Alamy

Libraries are places that people go to for information. Books are only the tip of the information iceberg: they are there, and libraries can provide you freely and legally with books. More children are borrowing books from libraries than ever before – books of all kinds: paper and digital and audio. But libraries are also, for example, places that people, who may not have computers, who may not have internet connections, can go online without paying anything: hugely important when the way you find out about jobs, apply for jobs or apply for benefits is increasingly migrating exclusively online. Librarians can help these people navigate that world.
I do not believe that all books will or should migrate onto screens: as Douglas Adams once pointed out to me, more than 20 years before the Kindle turned up, a physical book is like a shark. Sharks are old: there were sharks in the ocean before the dinosaurs. And the reason there are still sharks around is that sharks are better at being sharks than anything else is. Physical books are tough, hard to destroy, bath-resistant, solar-operated, feel good in your hand: they are good at being books, and there will always be a place for them. They belong in libraries, just as libraries have already become places you can go to get access toebooks, and audiobooks and DVDs and web content.
A library is a place that is a repository of information and gives every citizen equal access to it. That includes health information. And mental health information. It's a community space. It's a place of safety, a haven from the world. It's a place with librarians in it. What the libraries of the future will be like is something we should be imagining now.
Literacy is more important than ever it was, in this world of text and email, a world of written information. We need to read and write, we need global citizens who can read comfortably, comprehend what they are reading, understand nuance, and make themselves understood.
Libraries really are the gates to the future. So it is unfortunate that, round the world, we observe local authorities seizing the opportunity to close libraries as an easy way to save money, without realising that they are stealing from the future to pay for today. They are closing the gates that should be open.
According to a recent study by the Organisation for Economic Cooperation and Development, England is the "only country where the oldest age group has higher proficiency in both literacy and numeracy than the youngest group, after other factors, such as gender, socio-economic backgrounds and type of occupations are taken into account".
Or to put it another way, our children and our grandchildren are less literate and less numerate than we are. They are less able to navigate the world, to understand it to solve problems. They can be more easily lied to and misled, will be less able to change the world in which they find themselves, be less employable. All of these things. And as a country, England will fall behind other developed nations because it will lack a skilled workforce.
Books are the way that we communicate with the dead. The way that we learn lessons from those who are no longer with us, that humanity has built on itself, progressed, made knowledge incremental rather than something that has to be relearned, over and over. There are tales that are older than most countries, tales that have long outlasted the cultures and the buildings in which they were first told.
I think we have responsibilities to the future. Responsibilities and obligations to children, to the adults those children will become, to the world they will find themselves inhabiting. All of us – as readers, as writers, as citizens – have obligations. I thought I'd try and spell out some of these obligations here.
I believe we have an obligation to read for pleasure, in private and in public places. If we read for pleasure, if others see us reading, then we learn, we exercise our imaginations. We show others that reading is a good thing.
We have an obligation to support libraries. To use libraries, to encourage others to use libraries, to protest the closure of libraries. If you do not value libraries then you do not value information or culture or wisdom. You are silencing the voices of the past and you are damaging the future.
We have an obligation to read aloud to our children. To read them things they enjoy. To read to them stories we are already tired of. To do the voices, to make it interesting, and not to stop reading to them just because they learn to read to themselves. Use reading-aloud time as bonding time, as time when no phones are being checked, when the distractions of the world are put aside.
We have an obligation to use the language. To push ourselves: to find out what words mean and how to deploy them, to communicate clearly, to say what we mean. We must not to attempt to freeze language, or to pretend it is a dead thing that must be revered, but we should use it as a living thing, that flows, that borrows words, that allows meanings and pronunciations to change with time.
We writers – and especially writers for children, but all writers – have an obligation to our readers: it's the obligation to write true things, especially important when we are creating tales of people who do not exist in places that never were – to understand that truth is not in what happens but what it tells us about who we are. Fiction is the lie that tells the truth, after all. We have an obligation not to bore our readers, but to make them need to turn the pages. One of the best cures for a reluctant reader, after all, is a tale they cannot stop themselves from reading. And while we must tell our readers true things and give them weapons and give them armour and pass on whatever wisdom we have gleaned from our short stay on this green world, we have an obligation not to preach, not to lecture, not to force predigested morals and messages down our readers' throats like adult birds feeding their babies pre-masticated maggots; and we have an obligation never, ever, under any circumstances, to write anything for children that we would not want to read ourselves.
We have an obligation to understand and to acknowledge that as writers for children we are doing important work, because if we mess it up and write dull books that turn children away from reading and from books, we 've lessened our own future and diminished theirs.
We all – adults and children, writers and readers – have an obligation to daydream. We have an obligation to imagine. It is easy to pretend that nobody can change anything, that we are in a world in which society is huge and the individual is less than nothing: an atom in a wall, a grain of rice in a rice field. But the truth is, individuals change their world over and over, individuals make the future, and they do it by imagining that things can be different.
Look around you: I mean it. Pause, for a moment and look around the room that you are in. I'm going to point out something so obvious that it tends to be forgotten. It's this: that everything you can see, including the walls, was, at some point, imagined. Someone decided it was easier to sit on a chair than on the ground and imagined the chair. Someone had to imagine a way that I could talk to you in London right now without us all getting rained on.This room and the things in it, and all the other things in this building, this city, exist because, over and over and over, people imagined things.
We have an obligation to make things beautiful. Not to leave the world uglier than we found it, not to empty the oceans, not to leave our problems for the next generation. We have an obligation to clean up after ourselves, and not leave our children with a world we've shortsightedly messed up, shortchanged, and crippled.
We have an obligation to tell our politicians what we want, to vote against politicians of whatever party who do not understand the value of reading in creating worthwhile citizens, who do not want to act to preserve and protect knowledge and encourage literacy. This is not a matter of party politics. This is a matter of common humanity.
Albert Einstein was asked once how we could make our children intelligent. His reply was both simple and wise. "If you want your children to be intelligent," he said, "read them fairy tales. If you want them to be more intelligent, read them more fairy tales." He understood the value of reading, and of imagining. I hope we can give our children a world in which they will read, and be read to, and imagine, and understand.
• This is an edited version of Neil Gaiman's lecture for the Reading Agency, delivered on Monday October 14 at the Barbican in London. The Reading Agency's annual lecture series was initiated in 2012 as a platform for leading writers and thinkers to share original, challenging ideas about reading and libraries.

Is cheekiness a truly British concept?

Cheekiness is a defining British characteristic and a valuable check on power, says Farrah Jarral.

Picture the scene. I am a doctor in a clinic, seeing an elderly patient whose last urine sample sent to the lab to check for infection has come back contaminated. We need to repeat the test - but this time with a proper mid-stream sample. He has white hair, leathery skin, twinkly eyes. He is a little hard of hearing, and English is not his first language.
So, slowly and clearly I explain how to perform this task, simple and yet easy to get wrong. I ask him to repeat the instructions back to me just to make sure he understands - a consultation tool I've been trained to use.
He says: "OK, so, first I start peeing." Yes, that's right. "And then halfway through I open the pot?"
Mm hmm, mm hmm.
"I pee into the pot." He pauses for effect. I nod earnestly and vigorously.
"And then... I drink it?"
In these three words, this gentleman had burst the bubble of order in that consultation. My seasoned, medical poker face didn't manage to get through that one. His urine-quaffing suggestion dispensed with decorum and smashed the usual doctor-patient power gradient, and I surrendered willingly.
Although I quite rightly don't often have the chance to be cheeky myself in my rather serious day job, I am a great lover of cheekiness and my experiences of such behaviour, particularly in my patients, have convinced me that there is far greater depth to this arguably very British concept than meets the eye.
So what is it exactly? Well, maybe it's easier to define what it's not. It's not quite the same as audacity - it takes itself less seriously than that. And it's not as rude as impudence because cheekiness never sets out to truly offend. Cheekiness, then, is neither high-minded nor aggressive. Its hallmark is good-hearted humour, a certain cheeriness of spirit.
Often it is loud - think of the effectiveness of the whoopee cushion left on the unsuspecting teacher's chair. But it can be just as deadly when silent, or even sartorial.
Cheekiness isn't just funny, though. It has the power to deflate pomposity faster than any whoopee cushion.
And no cultural form exemplifies this irreverence quite like British political satire. In what other country would Guardian cartoonist Steve Bell get away with casually encasing our prime minister's head in a condom in all his drawings? These moments of absolute bare-faced cheek could quite literally get you killed in many parts of the world, and yet they form a robust part of our political self-expression.
Translating cheekiness to someone unfamiliar with the concept in Britain can be tricky. Could it be that cheekiness as a concept is untranslatable, unique to the UK?
I looked at two of the cheekiest languages on earth - Yiddish and Punjabi - to see if they had any equivalents. In Yiddish, chutzpah does embody perhaps 90% of what it means to be cheeky. But the flexibility of cheekiness somehow outdoes the necessary boldness of chutzpah. Cheeky can be subtle.
Punjabi, too, is also a highly cheeky language, which is full of words to call people who are a bit forward. Paada is someone precocious, a chatty kind of character, jigr aala literally means she or he who has liver, the organ of courage, and maacha describes a blagger, a chancer. But none of them quite captures the essence of cheekiness correctly.
Even across nations that speak the same language, it's unclear. I asked several American friends if the term had a US equivalent, but some told me that the concept doesn't even exist in the same way. Meanwhile the internet turned up the frankly inexcusable translation of "cheeky monkey" as "zesty little chipmunk".
I can't comment on the cultural nuances of zesty chipmunks, but science has suggested that cheeky monkeys really do exist. The primatologist Franz de Waal famously showed the world a piece of footage of an outraged Capuchin monkey reacting to inequality. When its monkey friend received better food - a delicious succulent, sweet grape rather than the pedestrian cucumber they had both been enjoying previously - the cheeky monkey threw the piece of cucumber back into the face of the researcher who fed him.
Monkeys are cheeky because they are intelligent enough to be aware not only of complex social rules and expectations of behaviour, but also of the ways in which they can deliberately break these rules and thus express their refusal to accept the way things are.
So cheekiness can be a serious matter - and not just for monkeys. Despite the chances of social humiliation, it is a low-risk way of breaking the rules and protesting. It says, in a gentle way, that you do not consent to something - some dynamic, some power structure, some constraint imposed on you by a bigger force.
Cheekiness is a way of creatively, often playfully, injecting resistance into the quotidian. It creates a space in which to push back against inequality, against commoditisation, colonisation, against the rules that say who you can talk to, what you are allowed to talk about, and how you talk, what your aspirations can be, what constitutes success or beauty, or how you are supposed to wear your masculinity or femininity. Scratch the surface, and you will find that beneath the silliest acts of cheekiness, there is often a deeply important matter that is being negotiated.
Some people may argue that cheekiness, in its very smallness and apparent harmlessness, is an ineffective form of resistance that simply serves to reinforce the very power structures that it wants to challenge.
But even the anarchist James C Scott, champion of "non-revolutionary resistance", suggested breaking the odd trivial law here and there as a form of "anarchist calisthenics" to prepare for a broader struggle. And the people that threaten, imprison or kill Iranian cartoonists, naked Egyptian bloggers or Burmese stand-up comedians certainly don't think that cheekiness is a trifling matter.
Is it too much to imagine that cheekiness as part of the national character is one of the reasons the UK has largely avoided a bloody revolution like so many other democracies?
Could it be that expressing bubbling dissent and resistance through humour has been like letting off steam through a pressure valve, thus avoiding a full-blown explosion?
Cheekiness is the checking of power - and power needs checking. It is the individual or group giving the machine a bit of backchat. It's a reclaiming of dignity, a playful subversion of the status quo, however briefly, a challenge to authority.
The fact that no glamorous, perfect Hollywood star is ever safe from having a ridiculous moustache drawn on their face on London Underground posters is resistance. And when my twinkly-eyed joker wryly suggested a sip of his own frothy amber nectar, poking fun at my unwittingly disempowering manner, he demonstrated with elegance and panache how cheekiness can rebalance an ancient power asymmetry - in a way that all my earnest medical-school attempts could not.
Our lives are monitored, constrained and pressured both explicitly and implicitly in almost every waking minute of our existence. Open protest, staring down tanks, self-immolation, is hard, but if we can't bring ourselves to mount a full-scale rebellion, we can still exercise our right to cheekiness in little everyday ways - loudly, quietly, in song, art, or style, jokes or poems, to push back for the things that deep down, do mean something to us.
So if we aren't going to break out and take over, the very least we can do is practice our anarchist calisthenics and fling back those cucumber chunks from inside the cage.
This is an edited version of Farrah Jarral's Four Thought, which will be broadcast on BBC Radio 4 at 20:45 BST on 16 October 2013.