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Dueling Essays: Year 2000 Computer Bug - Disaster Or Inconvenience?
Aug. 19, 1998
U.S. economy will absorb this man-made earthquake
By ALEX PATELIS
For The Associated Press
The Year 2000 bug will cause disruptions. But that does not mean the bug will push the economy into recession.
Rather than closing up shop, people will respond by redoubling their efforts. The right analogy for the Y2K problem is a natural disaster. Both cause a temporary fall in economic activity, followed rapidly by recovery.
We live in a world awash with natural (and man-made) disasters that grip public imagination and dominate newspaper headlines: the Blizzard of '96, the Los Angeles quake of '94, the government shutdown of late '95. Yet despite their ferocity, none of these events managed to interrupt one of the most remarkable economic expansions in the history of the United States.
Fortunately, economic reality is usually much less exciting than hot media stories. The economy should be able to withstand the next disaster du jour, the Y2K bug.
First of all, the obvious: How much will Y2K conversion cost the United States? Estimates range from Federal Reserve Governor Kelley's $50 billion to the headline-grabbing $200 billion for the information technology consultant the Gartner Group.
Let's put this into perspective. Total economic output during the same period should be around $34 trillion. So Y2K conversion works out at less than half a cent for each dollar of income, a sizable but not dramatic amount.
How will this affect the economy? An intuitive way to think about the economic effects of the Y2K problem is to compare it to a natural disaster. Though there is nothing natural about it, the Y2K bug disrupts the economy in a way similar to, say, the earthquake that hit Los Angeles in 1994 (which, by the way, cost a total of $60 billion).
Earthquakes destroy bridges. Y2K destroys computer systems and, therefore, hurts productivity, with all the expenses being incurred to maintain current productive capacity rather than augment it. Earthquakes also boost economic activity since all those destroyed bridges need to be rebuilt - same with Y2K. Y2K has also uncovered a lack of programers who know the COBOL language used by older mainframe computers, so wage pressures go up as a result.
Also at the end of the day, somebody has to foot the United States' $50 billion to $200 billion Y2K bill. Some corporations will try to pass the conversion costs to consumers, in the form of higher prices. Those who lack pricing power will see their profits decline as a result. The overall effect will be inflationary, as were, for example, the oil shocks of the '70s, not deflationary. After all, the bug is likely to spawn, not destroy, employment.
But economies recover from earthquakes. Why? Because societies channel all their resources to make sure this happens. Emergency programs rebuild bridges. Affected commuters find alternate routes to work. Economies are resilient and can adjust quickly to temporary shocks, especially when such shocks are anticipated as is the case with Y2K.
All in all, it will look as if a "tremor" hit the economy at the beginning of the new millennium, with the initial disruption being followed by a burst of economic activity. But the ride, albeit bumpy, is ultimately going to be safe.
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Year 2000 Problem: We need answers
By EDWARD YARDENI
For The Associated Press
There is much that we don't know about the Year 2000 problem. However, we do know that most computer systems must be fixed to recognize that in the widely used two-digit year field, the 00 means 2000, not 1900. We know that if they are not fixed in time, computer malfunctions would greatly disrupt our businesses, governments, and our daily lives.
So there is a great deal at risk.
We also know that we are running out of time. As of Wednesday, Global Y2K Action Day, only 500 days remain until the millennium. Many of us around the world are marking the day with events to promote action.
With so little time left, it is unlikely that all critical systems will be fixed in time. Only naive optimists can assume there won't be any malfunctions significant enough to disrupt our global economy.
I estimate a 70 percent chance of a global recession in 2000 that could be at least as severe as the global economic downturn in 1973 and 1974. In the same way that a disruption of the oil supply caused a global recession back then, a disruption in the flow of information could cause one in 2000. Stock prices could fall 30 percent starting later this year or early next year, since the market typically anticipates the economic outlook by six to 12 months.
We know that whatever systems are doomed to fail will all do so about the same time, at the start of the new millennium. This will make it difficult to get help, delaying the recovery effort and deepening the recession.
I am amazed by the lack of alarm about Y2K, especially among our global policy makers. The only organization in the world providing regular public progress reports about efforts to fix the Y2K problem is the U.S. government. The latest one is not encouraging, though the administration is pressuring federal agencies to fix their systems and be ready for testing by the end of next March.
No one knows how much progress is being made among state and local governments, private business firms, foreign businesses and foreign governments. No one can say with any certainty that the following systems won't malfunction during 2000: nuclear missile systems, electric power grids, oil and gas distribution, telecommunications, air traffic control, transportation, shipping, manufacturing, banking, finance, and government services.
We need more answers from our business and government leaders about Y2K so we can assess the risks and prepare contingency and disaster recovery plans. The Clinton administration kicked off a "National Campaign for Year 2000 Solutions" at the end of July. I hope that the aim is to keep the public informed about the potential for trouble.
An informed public may be alarmed by the problem, but with 500 days remaining we can take measures to minimize counterproductive panic reactions. I am not advocating survivalist behavior, but rather community action to minimize the impact of Y2K on all of us.
I am not predicting doomsday. There will be a recovery from the Year 2000 recession and a rebound in stock prices. A new round of prosperity will start sooner if we enter the coming millennium with our eyes open.