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Fresian Market Economics, or the Rise of The Sacred Cow

Nick Elsom

Hindu scripts present Kamadhenu as the cow of plenty, whose generous nature provides her owner with whatever they desire. And, as with many deeply-held beliefs, this deeply held belief has been distilled into a lazy descriptor: ‘the sacred cow’. In our increasingly secular world, the sacred cow is become an idea, a custom or institution held to be above criticism. Something that causes believers to gasp if the cow is questioned. A bit like ‘women shouldn’t vote because their brains are too small’, or ‘the earth is flat’, or even ‘this data tells us all we need to know about our customers’.

Context is obviously important. We now know that two of these beliefs are ludicrous. And most of us believe that the earth is round too. But the data fallacy is worth further exploration, and never more so in an age when over 2.5 quintillion bytes of data are created each day. Over the last two years alone, it’s estimated that we’ve generated over 90 percent of the data in the world, ever. By the way, I looked it up so you don’t need to…a quintillion is a million raised to the power of five, or 10^30. I can’t even imagine that number.

And this swelling ocean of data is the power behind pretty much everything. It’s more accessible, more freely given, and more regulated than ever. We have more tools to manipulate data; interrogate it and ultimately to make more and more decisions based on it. Movies demonise invisible corporations and foreign powers’ ability to harvest data. And those who paid attention in maths, and even found an affinity with numbers find themselves in positions of power - and rightly so. We should none of us be data-Luddites. 

But (there’s always a but) the wholesale adoption of data has led to a dominance in data-first strategies. This isn’t so bad, per se. Listening, learning and adapting is essential to today’s connected world. When data-first becomes that all-consuming sacred cow however, we enter interesting territory.

It is a huge topic, done a disservice here by a gobby traveller on the LinkedIn express. But in the interests of simplicity, I’ll condense it to a simple challenge to the hegemony of data - the sacred cow herd mentality if you will.

 

There’s a simple yet devastating example of what happens when data is used selectively and complacently, and preserving a sacred cow. Maybe it’s simple laziness; (“this is how we do things” or more recently “this is how the machine learns to do things”). Or it’s something more complicit, more manipulating.

Either way, an example of this practice is the decision making during the descent into the housing bubble-driven crash of 2008. The signs were there, as Paul Krugman noted in a 2005 article called ‘That Hissing Sound’. To paraphrase; in the US, there is Zoned housing and there is Flatland housing. Zoned is in high demand areas, usually coastal and often metropolitan. Flatland is mostly middle-America, both rural and metropolitan. Zoned areas experience fast, at times unfeasible property price rises, while Flatlands are sluggish at best. So when economists flagged the appearance of a housing bubble (in hindsight, how much more right could they have been), the reaction was mixed. And it was mixed because everyone knows that the US economy - much like our own in the UK - is powered by property. Idle talk could risk much. So, between 2000 and 2005, US property prices rose by 50%. In Krugman’s words; “worrisome but not totally crazy”. However, these were a blend of Flatland averages (around 26-29%) and Zoned locations like New York, Miami and San Diego, where a range of 77% to a whopping 118% was recorded. We know what happened next, and if you want to enjoy it all over again, then ‘The Big Short’ is highly recommended.

 

So you pick a side, you choose your data. Unfortunately the wrong side prevailed - maybe inevitably - and we went into a hefty depression. Simplistic as an argument? Yes, of course it is. But the point remains:, if we fail to use curiosity, common sense and imagination to be the boss of data, we will miss opportunities at best, and we will make really bad decisions at worst. Put another way; the more you feed a sacred cow, the more bullshit you’ll receive.