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Summary and Comments

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Category: 

Stock_Market

Date: 

1998-02-20 09:07:04

Subject: 

Mild Economic Problem Possible, Says BUSINESS WEEK

  Link:

http://www.businessweek.com/premium/09/b3567001.htm

Comment: 

In its cover story, BUSINESS WEEK (March 2) speculates that the Year 2000 Problem might shave a half a point off growth in 2000. Wow! Imagine that. A whole half a point.

Oh, yes, the story admits: there is one possible additional problem. Electrical power may fail. The experts aren't sure. (See POWER GRID.) So, let's worry about a half a percent less growth than otherwise.

I wonder what they would estimate the economic effects of the failure of the power grid to be. Two points?

I can see their nuclear war analysis: "The 2,732 incoming nuclear warheads presently visible on military radar screens could slow the economy by as much as 5% in the next two hours. But some experts say this economic threat may be overblown . . . uh . . . exaggerated."

The fact that y2k is being covered at all by BUSINESS WEEK is a major breakthrough. A year ago, an editorial dismissed y2k as a marginal issue. This report is probably the most comprehensive one to hit a mainstream magazine since the NEWSWEEK article of June 2, 1997. It covers many topics, and none of the news is good.

It repeats the standard Party Line: big banks will make it; small banks may not. But it offers no proof for the first half of the statement (see BANKING).

This link may not be live for long. If it dies, you can get the entire issue at a local library.

* * * * * *

Growth could take a half-point hit in 2000 as inflation rises . . .

. . . Up to now, skeptics have been able to pooh-pooh Year 2000 as a relatively easy-to-fix bug, an example of overheated hype by consultants looking for a quick buck. But there's growing alarm in Washington and elsewhere. The Securities & Exchange Commission has recently been strongly urging companies to start reporting the effect of Year 2000 on their earnings. ''Many people think it is vastly exaggerated,'' says Percy Barnevik, chairman of Swiss-Swedish industrial giant ABB Asea Brown Boveri Ltd., one of the world's largest companies. ''But it is a really big challenge.''

ARMIES OF PROGRAMMERS. Indeed, the Y2K bug is shaping up to have a profoundly negative impact on the U.S. economy--starting almost immediately. According to a new analysis prepared for BUSINESS WEEK by Standard & Poor's DRI, the growth rate in 1999 will be 0.3 percentage points lower as companies divert resources to fix the problem. Then Y2K could cut half a percentage point off growth in 2000 and early 2001. That would be the same size as the expected economic damage from the turmoil in East Asia. . . .

And the amount of skilled labor needed is enormous. Finding, fixing, and testing all Y2K-affected software would require over 700,000 person-years, calculates Capers Jones, head of Software Productivity Research, a firm that tracks programmer productivity. ''People are spending huge sums of money fixing problems that are 35 or 40 years old, just to stay in business,'' says John Bace, research director at Gartner Group Inc. . . .

Then, at the beginning of 2000, the economy is almost certain to be hit by some computer failures, since it's becoming clear that many companies have gotten a late start attacking their Y2K problems. The BUSINESS WEEK/DRI estimate assumes that 85% of software programs will be fixed or replaced, which may be optimistic: A December, 1997, survey by Howard Rubin, a computer-science professor at Hunter College in New York, indicated that two out of three large companies did not yet have detailed plans in place to address Year 2000. Small companies and government agencies are even further behind. . . .

The Internal Revenue Service is struggling to meet the deadline, as is the Health Care Financing Administration (HCFA), which handles the enormous flow of Medicare and Medicaid funds. In the worst case, the tax system and the Medicare payment system will experience severe disruptions in 2000, halting the delivery of refund and reimbursement checks. ''What is going to happen is the government is going to say, 'It's O.K., trust us,''' says Richard M. Kovacevich, CEO of Minneapolis-based Norwest Corp. ''It could get scary.''

NOT LOSING SLEEP. To be sure, there are some, especially in Silicon Valley, who aren't concerned. ''Frankly, I don't lose any sleep on worrying about being Year 2000-ready,'' says Eric Benhamou, CEO of 3Com Corp., the large network-equipment maker. Adds Tony Hampel, group manager for Year 2000 Marketing at Sun Microsystems Inc.: ''Year 2000 is an annoyance, a speed bump. We're overassessing the end-of-the-world aspect of the Year 2000 problem.''

Perhaps. But other knowledgeable people are more worried about the widespread economic impact of the Y2K bug, including the Federal Reserve. ''The failure to get it right will affect the integrity of the payment system, financial markets, and the performance of the domestic and the global economies,'' said William McDonough, president of the Federal Reserve Bank of New York, in a recent speech.

Link: 

http://www.businessweek.com/premium/09/b3567001.htm

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