Commerce Department Reports that Y2K Will Not Harm Economy

(November 17, 1999) The Department of Commerce released a report on Wednesday, November 17, that predicts that Year 2000 technology problem will have almost no net effect on the U.S. economy.

Secretary of Commerce William Daley summed up the report. "What we found was this: The greatest cost to our economy is behind us, with billions of dollars diverted from other uses to fix the problem. Any glitches that pop up next year should not hurt our economic growth. So, I am not going to lose any sleep worrying about January 1st because I think the USA is ready for Y2K."

The report, titled "The Economics of Y2K and the Impact on the United States", was prepared by the Economics and Statistics Administration, which is part of the Department of Commerce.

The report was prepared under the direction of Robert Shapiro, Under Secretary of Economic Affairs, Economics and Statistics Administration, and Lee Price, Chief Economist. William Brown and Laurence Campbell were the primary authors.

	Wm. Daley

Secretary Daley appeared at a press conference on Wednesday morning at the Department of Commerce headquarters in Washington DC, along with John Koskinen of the President's Y2K Council, and authors of the report. "Overall what these numbers tell us is we can start looking for a kind of Y2K dividend. Companies can once again put capital and thousands of information technology specialists to work creating new products and solving new problems -- not dealing with old ones."

Daley continued: "Less well prepared seem to be the education and health care sectors, smaller businesses and agencies, or non-critical systems. It would be surprising if Y2K problems in these areas do not make news in early January."

"But their problems are likely to be limited to specific sites or local areas. And they can probably be fixed easily and quickly once identified," said Daley.

"The truth is, no one knows with certainty what the precise economic consequences will be," wrote Robert Shapiro in a forward to the report. "It is our best judgment that Y2K problems will not be of sufficient size or scope to have more than a transient effect on U.S. economic growth." (See, report, Forward by Robert Shapiro, at page iii.)

Shipiro, who heads the Economics and Statistics Administration, elaborated:

"The greatest costs to the American economy from the Y2K problem have probably happened already. To find and fix their Y2K problems, businesses and government agencies have diverted in the neighborhood of $100 billion from other purposes in recent years. This substantial commitment reflects millions of business judgments, in which firms recognized that failing to protect their critical systems would, in our highly-competitive and transparent market economy, expose them to significant costs. The available evidence suggests the sectors that have invested the most and are now best prepared are those that provide the critical goods and services on which the rest of the economy depends—energy, finance, telecommunications, and transportation. The least prepared seem to be the education and health care sectors, smaller businesses and agencies, or non-critical systems. In these cases, the glitches that will show up are likely to have limited effects beyond the specific businesses, and are likely to be fixed reasonably easily and quickly once they are identified." (page iii)

"It appears that Y2K problems will not be of sufficient size or scope to have more than a transient effect on overall U.S. economic growth. With no shortage of information about the problem, firms are correcting what is clearly a messy but not intractable situation. Y2K readiness and assessment reports by government agencies, the private sector, and private consultants are, for the most part, optimistic. (Executive Summary, at page v.)

The report was also optimistic about Y2K remediation worldwide. "While international organizations have reported a lower level of Y2K preparedness in many foreign countries, the countries that are highly dependent on information technology, and thus exposed to substantial risks, are reported to be well along with their fixes. There appears to be little chance that Y2K disruptions abroad will be transmitted to the United States to a degree that could substantially damage the economy." (page 5)

The report concluded that Y2K remediation is basically a microeconomic issue. "Most firms and individuals have enough at stake in correcting their own Y2K problems that their individual responses, taken together, will avert an economy-wide impact, at least in the United States. This is the nature of our economic system, of strong competition coupled with regulation. Moreover, the theory that firms have ample incentive to solve their own Y2K problems is supported by the evidence of what they have actually been doing." (page 5)

The report also concluded that there will be no net effect on the Gross Domestic Product. "On average, these forecasters expect a slight Y2K-related boost to GDP in the second half of 1999, followed by a comparable Y2K-related subtraction from GDP in the first quarter of 2000. For most, the net result over the course of a year is virtually nil." (page 25).