By the time you read this message, the Year 2000 will be less than six months away. During these months, the amount of time, attention and money spent addressing the century rollover problem will undoubtedly reach feverish proportions.
While estimates vary widely—I've heard anywhere from $700 billion to $1.3 trillion quoted recently—the one thing we know for certain is that the private and public sectors are spending a lot to make our computers Y2K-compliant.
Is this money down the drain, or will we get something in return from our investment? Many believe that we'll only break even—that the huge financial investment required to update our nation's computer systems will enable us only to keep doing what we were doing before Y2K darkened our doorsteps. I disagree. In fact, Y2K has forced a global investment in the future that could boost productivity standards to new levels.
The fear of falling behind the competition is a serious threat to the private sector, and Y2K has struck this fear in the hearts of companies everywhere. In many cases, firms are taking the opportunity to examine their business operations broadly—in some cases, for the first time—and revamp antiquated production, delivery and information systems. Like a good housecleaning, the Y2K work was dreaded, necessary and likely to leave things in far better shape than before it was undertaken.
Of course, there are some trade-offs to all of this additional-digits activity. Research and development efforts, for example, may have been delayed or dropped altogether while companies tried to figure out how to chase the Y2K bugs from their buildings. Fortunately, a strong economy and relative price stability have provided the backdrop for our nation's Y2K conversion effort, enabling us to engage in a tremendous diversion of resources without impairing the nation's steady economic performance.
And, of course, once the clock strikes midnight on December 31, 1999, all of these diverted resources can then be redirected to their original purpose. This means rejuvenated R&D and retooled technology, which will further buoy the economy.
Certainly, I'm not suggesting that the century change will come off without a hitch—no one can claim that. What I am saying, though, is that our nation's economy is sturdy enough to absorb any minor shocks stemming from Y2K. And that alone is worth a champagne toast.
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Fed in Print: An index of the economic research conducted by the Fed.