"How the Invention of Spreadsheet Software Unleashed Wall Street on the World"
From Gizmodo, August 14:
In 2010, a pair of researchers published a controversial economics
paper. It was cited by UK politicians to justify austerity measures that
sparked economic and employment crises, and anti-austerity
protests—measures that the UN later called “punitive, mean-spirited, and often callous” inflicting “great misery.” In 2013, however, this widely influential paper
was found to have been substantially off in its estimates, thanks in
part to a simple spreadsheet error: specifically, “a few rows left out
of an equation to average the values in a column,” the Guardian wrote at the time.
This
famous foul-up is just one of many instances when digital predictions
have let us down, creating a sharp contrast between the reality of
things and what the numbers foretold.
For nearly 40 years, people
who finance and shape world markets have relied on these kinds of
predictions, using digital tools to calculate the potential risks,
benefits, and long-term scenarios of each product or investment. Folks
who have studied finance’s transition into technology, or who saw it
first-hand, say these innovations can all be traced back to one
game-changing kind of software: the spreadsheet.
With the rise of spreadsheets and personal computers, the ages-old trading industry and “stock market”—which had previously relied on clay tablets, telescopes, or telegraphs for a competitive edge—has also built brand-new realms of monetary activity, often seeking to tie tomorrow’s revenues into today’s bottom line.
According
to some experts, the notoriously imperfect spreadsheet could also be
responsible for a certain fallibility that seems endemic to modern
markets—in other words, creating vulnerabilities in our financial system
and ways of using data that only hindsight can predict.
Number-crunching and risk: a (very) brief history
According
to tech historian Martin Campbell-Kelly, the above-mentioned 2010
spreadsheet error became “an absolute calamity” for policymakers who had
hailed the paper in the UK and the US. But it wasn’t exactly
surprising.
Campbell-Kelly, professor emeritus at the University
of Warwick and a well-known expert in computer history, said in a phone
interview that relying on intel from electronic spreadsheets has always
involved a certain amount risk.
“I liken spreadsheets to a
computer game for executives,” he said. “They simulate real-world
situations, and you can change the parameters to see how different
financial scenarios play out.”
Like the large paper worksheets
that earlier generations of accountants and financiers spread across
tables to fill in at length (hence the new term “spreadsheet”),
electronic versions have a fairly simple layout: large grids, arranged
into columns and rows, allow users to log and compare their data
side-by-side as numerical values, such as the cost of this or that
product over time.
Unlike traditional worksheets, which required
tens or hundreds of hours of doing complicated math by hand, electronic
spreadsheets have offered to do much of the work for users, using
built-in formulas to calculate hundreds of values according to numerous
variables.
When spreadsheet software became widely known in the
1980s, finance workers could suddenly spend less of their days using
pen, paper, and the still-in-use HP-12C calculator to run figures, though the earliest programs could still take a couple of hours to complete calculations....
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