WASHINGTON, DC, January 25 -- As we all found out on January 1st, the Year 2000 Problem turned out to be no problem at all. We all held our breath, waiting to see whether the lights would go out, nuclear missiles would head West -- or at least whether bank ATMs would go on the blink for a few days. (I include myself in "we all," because although I wasn't expecting any major Y2K problems, who could be sure? I went so far as to take some extra cash out of the ATM -- it's still in my wallet.)
The witching hour arrived, one time zone at a time, and all over the world, computers ticked over from 12/31/99 to 01/01/00 without batting an eye.
This has led to a lot of second-guessing in the news media, especially the trade press. People are asking whether all the money spent on Y2K fixes was necessary.
Far from being a disastrous "loss," Y2K spending was a net gain for the economy and for the bull market we've been seeing over the past eight years.
A recent Computerworld column by Paul Strassmann entitled, "The Y2K ransom," says, "I consider the Y2K tab a monumental failure."
Strassmann seems to think the money spent on Y2K software fixes went into a black hole, never to be seen again. His viewpoint holds that the money it cost to get software ready for the year 2000 was "thrown at a problem under the hysterical conditions that one usually finds when paying ransom to rescue a kidnap victim." This money -- he estimates the cost of Y2K fixes at $300 billion -- was a loss, he says. (In fairness, Strassmann's column is supposed to reflect the views of the corporate sector. He writes under the heading "Business Opinion"; so why should I be surprised that he's pro-business?)
Problem is, he's wrong. Y2K wasn't a monumental failure; it was a monumental success. It freed up $300 billion and transferred it from the bank accounts of big corporations to those of individuals, mostly consultants and contract technology workers.
Far from being a disastrous "loss," Y2K spending was a gain for the economy and for the raging-bull stock market we've been seeing over the past eight years. That's because that $300 billion, in the hands of individual consumers, went right back into the economy. Consultants who got paid big bucks to fix non-compliant code turned around and started spending the money -- on all kinds of things that consumers buy every day.
The Y2K effect works just like Keynesian government spending -- only better, because the stimulus is being created with corporate, not tax, dollars.
That ain't no bull!
When they weren't spending the money, they were investing it; numbers are hard to come by, but it's a safe bet that technology workers buy a lot more shares of technology stocks than the average person does. Companies (Internet and otherwise) that have gone public within the past year or so have reaped tremendous benefits from the cash pumped into them by technology investors. And everyone else who owns stocks has also benefited from the upward impact of Y2K spending on overall stock price levels. Where's the "monumental failure" in that?
We haven't seen the last of it; much of the Y2K money has already been spent, but some of it undoubtedly hasn't yet. So we'll continue to see the economic benefits of the Y2K funds-transfer for months, if not years. The much-feared Y2K recession hasn't happened, and it's not likely to happen, partly because of the economic stimulation brought about by all these consultants and their extra spending money. The Y2K effect works on the same principle as Keynesian government spending -- only better, because the economic stimulus is being created with corporate, not tax, dollars.
As in a lot of things, where you stand depends on where you sit. If you sit on the board of directors of a big company that spent a few million dollars on code fixes, you probably weren't happy shelling out a lot of dough to get 2-digit dates changed to 4-digit dates. But if you're a technology worker -- or if you sell stuff to technology workers -- you're probably happy that corporate America was forced to put a bunch of money in your pocket.
Copyright © 2000 John J. Kafalas
[Postscript to my previous column, "Musical immortality -- why not?" A couple of weeks after I wrote that column, I ran across a Web site called CustomDisc.com, which does exactly what I suggest -- they'll make a disc to order, with any songs you want, from the material they have available. I'm going to try ordering a custom disc from them, and I'll let you know how it comes out.]