I’ve long been fascinated by the ways in which humans routinely confuse models and projections for reality and certainty itself. Part of this arises from the fact that the narratives and stories we tell ourselves, the ones we believe, tend to act as filters for the facts we find worthy of our attention. But some of our difficulties arise because we simply prefer models that give us a false sense of confidence. For example, we like the certainty that numbers provide us, and - when presented as authoritative - we tend to trust them even if we have absolutely no personal understanding of their reliability.
Follow me below the fold for a quick discussion of a thirty-year old article I recently came across that provides an intriguing example of this phenomenon, and might also point to at least a partial explanation as to why so much of our political discussion today tends to describe actual people in very little other than economic terms.
The article, A Spreadsheet Way of Knowledge, was first published in Harper’s back in 1984, and read today it seems almost quaint. At the time, electronic spreadsheets like Lotus’s 1-2-3 or Microsoft’s Excel (in the article, the not yet ubiquitous software behemoth is still referred to as “The Microsoft Company”) were almost brand-new, and the article discusses the marvelous ways these new software programs and a $3,000 “microcomputer” could make business planning more responsive to changing needs.
I was an undergraduate majoring in business administration at UNC-Chapel Hill just a few years after the article was published, and I remember being exposed to this new tool. I remember being very impressed and excited about the possibilities electronic spreadsheets offered, and the article itself does an admirable job of capturing the same kind of excitement with which the business community greeted this then-new and now-common software.
But what is really intriguing about the article is the prescience of its author, Steven Levy, about how easily this tool could be misused with potentially disastrous results.
Most obviously, Levy makes the point that the final product of any financial modeling software is only as good as the assumptions that go into the model and the formulas used to produce the final results. As we recently saw to our great regret, unwarranted assumptions about diversification helped prepare the way for the global financial meltdown suffered back in 2008. Afterward, an Excel coding error produced unjustified conclusions in what Paul Krugman calls “the most important economic analysis of recent years,” and that error was then used to justify devastating economic austerity measures.
(Of course, deliberate perfidy is also possible. Levy briefly recounts how David Stockman, when Director of the OMB, deliberately intervened to sell Ronald Reagan’s plan to slash income taxes and hugely increase defense spending. The mainframe computer that was used to model the nation’s economy predicted huge deficits would result, so Stockman changed the modeling formula to predict a surge in productivity that would offset any deficit increase. Of course, no such surge resulted – although ever since then supply-siders have continued to claim this is what happens whenever taxes get cut – but we did get those record deficits.)
But what most intrigued me was Levy’s warning that the ease of working with and the imagined certainty provided by electronic spreadsheets might cause decision makers to unconsciously limit the concerns they bring to the decision making process:
Because spreadsheets can do so many important things, those who use them tend to lose sight of the crucial fact that the imaginary business that they create on their computers are just that-imaginary. You can’t really duplicate a business inside a computer, just aspects of a business. And since numbers are the strength of spreadsheets[, t]he aspects that get emphasized are the ones easily embodied by numbers. Intangible factors aren’t so easily quantified.
[snip]
And so it is that spreadsheets help in the drive for paper profits, and are a prime tool of takeover architects. An executive in a[n] acquisition-hungry company might spend his time spreadsheeting in order to find a company ripe for takeover. If his spreadsheet projections were to produce a likely candidate - if the numbers looked good - he would naturally recommend making a takeover bid. Even a hostile takeover seems cut and dried, perfectly logical, in the world of spreadsheets. The spreadsheet user has no way of quantifying a corporate tradition or the misery of stockholders or whether the headaches of a drawn out takeover bid will ultimately harm the corporate climates of the firms involved.
The flexibility of spreadsheets can encourage other heartless moves from headquarters. It is no great drain on an executive’s time to experiment with all sorts of odd, even insidious [ideas]. He might ask “What if we dropped our pension plan?” Then he might run his idea through a spreadsheet and find a huge gain in capital - and there would be an unthinkable, in hard figures.
(emphasis added). And now, of course, we are back in the realm of quaintness. Back in 1984, a writer could suggest with a straight face that there might be something unsavory about a hostile takeover. And really, does anyone think these days that management is concerned at all with "corporate traditions" or "corporate climates"? Or that the idea of dropping a pension plan is "an unthinkable”? Just to name an industry offhand, it sure seems like every five years or so one of the major airline companies files for bankruptcy and, as part of their plan to get out of bankruptcy, they end up
slashing their pension commitments to employees.
(Also, see here.)
Hell, just recently Detroit – you know, a major American city – came out of bankruptcy having cut its pension payouts and yet leaving pensioners in danger of even further cuts down the road. If you think other municipal leaders around the country haven’t looked to Detroit as precedent for doing the same thing to their retired workers, well, you know . . . something, something . . . a bridge to sell.
After reading Levy’s article, I began to wonder if perhaps the increased access and ability to manipulate quantifiable data that the software revolution ushered in hasn’t been at least partly responsible for what seems to be a vastly different way in which policy leaders make decisions. When I was getting my undergraduate degree, for example, our instructors tried to pound into us – ostensibly, the next generation of executives and management – that a company’s obligations ran not only to its bondholders and shareholders, but to all “stakeholders,” including its employees, its suppliers, its customers, and its community.
But certainly I see no evidence – no evidence anywhere – that this is now the case, if indeed it ever was. So far as I can tell, employees are considered to be nothing but a regrettable cost of doing business; I see very little evidence that corporate management thinks they provide any benefit to a company itself. (This can result in truly unfortunate, but bitterly ironic situations, as when retail giant Circuit City went bankrupt as a result of firing its most experienced employees - you know, the ones that used to persuade customers to shell out for top-end electronic equipment during the holiday rush - in an effort to "cut costs.")
These days, a corporation's ideal relation with its customers seems predicated on establishing protectable monopolies, and then using that position to gouge as much excess profit as possible out of those customers. The same is true with respect to companies’ ideal position with their suppliers, although for them companies want to achieve a protectable monopsony so that they can force their suppliers into a competitive race to the bottom.
And as for any alleged sense of community . . . well, I look to the insane degree of tax breaks companies have gotten into the habit of extorting from their communities in exchange for providing a few hundred (and often low-paying – looking at you, Wal-Mart) jobs.
What I most certainly do not see is any understanding that when everybody in the system does well, we all tend to do well. Modern thinking about the economy seems predicated on extracting as much from the system as possible, while putting as very little as possible back into that system.
Now, I’m not suggesting that all such attitude is purely the result of an increased focus on only the quantifiable aspects of business. This excellent recent report outlines how over the course of the last 50 years a battle has been waged between management and stockholders, and argues that management has surrendered to the idea that their stewardship should be devoted only and always to maximizing corporate payouts to stockholders. All other concerns, even those related to the financial health of the company as a going concern, are to be subsumed to that of shareholder payouts.
But certainly it does seem to me that some kind of cultural rot has crept into much of our society’s thinking today. When we talk about individuals politically, we almost overwhelmingly discuss them solely in economic terms -- they are “consumers,” or “human capital.”
Levy ended his article stating
There is no doubt that the electronic spreadsheet saves time and provides insight; there is no doubt that even greater benefits will one day be derived from these grids. Yet all these benefits will be meaningless if the spreadsheet metaphor is taken too much to heart. After all, it is only a metaphor. Fortunately, few would argue that all relations between people can be quantified and manipulated by formulas.
(emphasis added)
But I don’t know . . . it certainly doesn’t feel to me, 30 years after Levy wrote those words, that this is any longer the case. In fact, the sense I have these days is that very few of those who are in a position to set policy for this country think of people and their relationships in any terms but the economically quantifiable. And it doesn’t feel to me that enough of us worry about what it does to us as people to think of ourselves solely as numbers on a spreadsheet.