(Date: 9/1999 By: Ian Runge) The Y2K Bug Revisited
I’m already sick of hearing about this bug …. All the argument is for the plaintiff and none for the defendant! People who would never be sucked into the environmental catastrophe movement have somehow forgotten their rational side when it comes to the Y2K catastrophe movement. Consider these points:
1: A friend of mine running a large local utility had a proposal for $6 million for Y2K compliance updates to his software. Instead he bought and implemented a completely new corporate database for $2 million—an expenditure long overdue that he could never have got approved otherwise. Is he happy to go along with the Y2K issue? You bet. Can you infer from his actions any support for the seriousness of Y2K. No. He expensed the $2 million too (using the special Y2K write-off rules) whereas otherwise he would have had to capitalize the software upgrade.
2: Depressions, recessions and the like come about through unanticipated causes, and are sustained because no one wants to invest due to uncertainty. Let’s say lots of things crash due to Y2K bugs. Where are the unknown causes? Where is the uncertainty? You might have lost some wealth, but, once lost, there is no uncertainty about how to proceed. The world will not stop.
3: Our GDP/GNP indicators will go UP even if Y2K causes serious problems. [see below]
4: No one wants to say “it won’t be a problem.” The bet is a hiding to nothing. Everyone says “we’re OK” but “we can’t rely on our suppliers!” Well if you’ve got a good excuse in place, don’t overdo the preventative expenditures. The 80/20 rule distinctly applies to this job. Check out the Learned Hand rule as a negligence standard (Never heard of it? E-mail me). Remedial works might be much cheaper!
Update 2002/2004: I know it was a few years ago, but in the #99/1 issue I said the so-called millennium bug (remember that?) was a lot of humbug. Thanks to everyone who e-mailed me saying what a good call I had made and how much money you had saved following my advice (there weren’t any!). At least my family had faith in my predictions … at midnight on 31st December 1999 we were all aboard a 747 on our way back from Japan, along with about 25 other passengers. A comfortable flight. Not too crowded. ICR
The lesson: Economies (in general) and capital investment decisions (in particular) tick over OK not on whether the future looks good or bad, but on how confident people’s view of the future is! Facing a bright future? Expand. Invest. Facing a bleak future (and confident in this prediction)? Contract. Retreat to your core business. Bright futures bias the economy towards the capital goods sector. Bleak futures change the bias towards consumption goods. Uncertainty stops all sectors. See also my article on Interest Rates.
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