NCPA - National Center for Policy Analysis

Benefits Of The Y2K Computer Problem

January 12, 2000

For much of the last year, various doomsayers predicted the so-called Y2K computer glitch would produce widespread chaos. We are safely past the danger point and some people are now complaining that the whole Y2K thing was nothing but a paper tiger.

If the Y2K problem appears in retrospect to have been blown out of proportion, why did this happen? The main answer lies in motivating capital investment that might not have otherwise taken place. Technology managers used Y2K to justify upgrades for computer systems that had nothing to do with Y2K. And many companies completely replaced old computer systems rather than simply debug them.

But Y2K was just the impetus for taking action now; the new systems were fully justified by economics without any Y2K considerations. Much of what was called Y2K-related spending was really just a convenient excuse for replacing old equipment with new.

Many companies have discovered Y2K dividends in the form of higher efficiency and productivity from their new computer systems.

  • For example, commenting on Mexico's $6.5 billion Y2K outlay, Victor Guerrero of its Y2K commission says, "The quality of equipment and infrastructure has improved, and more companies are now using computers as a result of this experience."
  • Similarly, Erich Winkler of Philip Morris says his company's $550 million Y2K outlay produced "significant benefits" beyond Y2K compliance.

Analysts looking only at gross Y2K expenditures incorrectly assumed that the large estimates indicated an equally large Y2K problem. But the true Y2K problem was actually much smaller.

In the end, the Y2K bug was a blessing in disguise. The U.S. and world economies will reap benefits for years to come from the new computers and software that it stimulated businesses and individuals to buy.

Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, January 12, 2000.


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