Tuesday, August 27, 2019

"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....