NCPA - National Center for Policy Analysis

What Will The Y2K Fix Cost?

July 15, 1998

Experts are divided over the question of how much disruption and cost will be involved in fixing computers to properly reflect year 2000 dates. They generally agree, however, that companies are already spending considerable sums to avert computer system shutdowns less than 18 months from now -- and will be spending even more next year.

This diversion of resources from truly productive pursuits will doubtless trim economic growth.

  • Edward Yardeni, chief economist at Deutsche Bank Securities, believes the chances of a global recession due to the year 2000 bug to be 70 percent -- with utilities, telecommunications and transportation the key sectors to watch.
  • The Gartner Group consulting firm places the total U.S. repair cost as high as $200 billion from 1998 through the year 2000.
  • On the other hand, analysts at Merrill Lynch & Co. think that large U.S. companies will be ready for the year 2000 and repairs won't have a large effect on earnings.
  • Federal Reserve Board member Edward Kelley estimates the private sector has sunk some $50 billion into Y2K fixes.

Standard & Poor's economist Cynthia Latta raises the point that people who are worried their credit cards won't work might take money out of their banks -- leaving them short of required reserves. The Federal Reserve, however, has said it is prepared to supply plenty of credit to banks to help them bridge the period.

Worried about timely deliveries, companies might start building inventories toward the end of next year. That factor, along with a slowdown in spending on Y2K fixes, could cause growth to slip to an annual rate of 2 percent by the second half of 2000, from an annual 3 percent in the second half of 1999, Latta suggests.

Source: Anna Bray Duff, "Will The Millennium Bug You?" Investor's Business Daily, July 15, 1998.


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