Sustainable - Sustainability: Energy, Environment, Economy

The Economics Of Y2K

The following thesis was started in 1998. As a group heavily involved in IT (information technologies), we were curious as to the implications of the Y2K (year 2000) computer “bug”. At that time, most computers had been built with the ability to handle dates using two digits for the year. When the clocks in computers rolled over from December 31, 99 to January 1, 00, it was feared there would be massive disruptions.

Though the public did not feel much of an impact the day of the new millennium, in fact, the Y2K problem was real. In hindsight, the reason the public did not notice was because the problem had been fixed prior to the rollover date. Governments and businesses spent more time and money correcting the problem than any other instance in history. It was the U.S. governments biggest financial outlay since the Vietnam War.

Our interest was not so much about the technical problem being corrected, rather, how the problem was being corrected. How would spending all the money correcting the problem impact society? How could we forecast the economy?

The conclusion we came to:
though spending all the money would help solve the short term problem, it would cause larger longer term problems.

In large part, we had observed that massive amount of funds were either being misallocated or being allocated toward inferior substitutes. Often, consultants were being paid for inaccurate information which is not a productive allocation of resources. Often, computers with reliable operating systems were being replaced with computers running on less reliable operating systems. (i.e. DOS being replaced with Microsoft) This type of “throwing good money at bad” inevitably caused an exponential “snowball” effect. Thus, our economic forecast was for deteriorating conditions.

One of the main reasons we conducted this study was to apply the results to what we considered a larger problem — forecasting the economics of global warming. As it turned out, the forecast was/is deadly accurate.

The Economics Of Y2K
(a cost and benefits study of the year 2000 computer problem)

Pursuant to the work of Wonnacott and Wonnacott (An Introduction To Microeconomics, McGraw-Hill) in the area of technology, growth and employment, how does economic theory explain Y2K?

Once an economy puts it’s unemployed back to work, there is a limit to what growth can occur without severe consequences. One of the only known methods to grow an economy past this limit, is to improve technology. When technology is improved, workers may be able to become more productive.

However, improvements in technology may result in a lower demand for workers. “For example, when new weaving machinery was introduced during the industrial revolution, some textile workers lost their jobs.”

The Costs and Benefits of Y2k

* Benefits
Some older computer systems and networks have been replaced with more productive technologies.

* Costs
1. Multi-billions of U.S. Dollars have been spent on fixing the Y2K problems.
2. There has been a huge opportunity cost in human resources (that were focused on Y2K issues instead of productivity.)
3. Security and computer security are an on-going concerns. (Too many companies are increasing the cost of security by being reactive instead of proactive. Many new computer installations are not secure and offer easy exploits that are more disruptive than their predecessors.)
4. The convergence of the Y2K computer problem with other high impact events, such as acts of terrorism, will cause a chaotic chain of events with long lasting affects on society.
5. Tough some older systems are being improved, many older systems are being replaced with inferior goods (such as, proprietary software that requires frequent and expensive updates.

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