Read an Excerpt
Traffic Jam on the
What is Y2K?
Two little digits.
Two little digits that should trigger the turning of 1999 into 2000 on every computer in the world--but won't do so, because of a thirty-year-old miscalculation.
It is difficult to believe that just two little digits could cause the havoc being forecast for the beginning of the year 2000. The problem appears so simple that it seems patently ludicrous that the software can't be fixed quickly and that life won't go on as usual.
But it isn't simple, the software won't be fixed quickly, and your life is going to be impacted--perhaps significantly--by the Y2K problem.
Unless billions of lines of software are fixed so that they can recognize what year it is, computers all over the world will simply stop, or worse, give us wrong information.
Everything that we do is dependent upon computers and computer chips. We have come to depend upon them because our experience tells us that we can. We have come to expect technology to deliver what to our grandparents seems like miracle after miracle.
The information superhighway is more than just the Internet. It is every computer and computer chip, every software program and electronic controller, every ATM and telephone. Today, we expect to get on that highway with no problems and cruise along quickly to our destination. Occasionally, we have a wreck like the 1998 breakdown of thesatellite Galaxy IV, which knocked out 90 percent of the pagers in this country for a day. But for the most part, everything works.
Everyone has experienced the results of a major wreck at rush hour on a main freeway. Traffic slows or comes to a stop until the wreckage is cleared. Schedules are shot to heck, tempers flare, and meetings are missed. If you add up the lost time caused by some major wrecks, I am sure that the dollar cost is significant.
The Y2K problem is going to be the cause of the mother of all traffic jams on the information highway.
Our technological wonders are at risk, all because programmers over thirty years ago decided that it was too expensive to use four digits instead of two when they wanted to know what year it was. So 99 means 1999, but 00 means ... 1900, instead of 2000. In order to save a lot of dollars on disk storage, they decided to leave the problem for a future generation.
We are that future generation. The most respected research firms in the world tell us that decision, made by a few computer designers, is now going to cost the world over $600 billion to fix and, to add insult to injury, another $1 trillion in legal costs, plus hundreds of billions in lost productivity and unemployment, not to mention untold problems and skyrocketing costs as governments, power companies, telephone companies, and a host of businesses around the world cease to operate.
Two little digits.
The Internet is full of stories about the Millennium Bug. Television, magazines, and newspapers are joining the chorus with ever-increasing coverage. Some of the them predict the End of Western civilization. Others assure us that there will be no problems. And both sides seem so sure that they are right.
The question is, "How do you get a true understanding of how the Year 2000 computer problem will affect your family, your job, and your money? Is this a pending disaster, as some suggest? Is it a problem that will have no effect on the economy and your family as others hope?"
Or is the answer somewhere in the middle? But since the opposing sides are so far apart, the middle ground is a huge territory. Exactly where in the middle is the correct position? And what exactly, if anything, should you do?
The latest data from the world's leading research firms now allow us to get a picture of how serious the problem is, not only in the United States, but around the world. What it reveals is a problem that is quite serious. The Y2K problem is going to cause major complications for those who choose to ignore the implications of the research.
Because much of the world has waited until the eleventh hour to address the problem, we will enter the next millennium with much of the repair work left to be finished. The data shows that there simply isn't enough time or aren't enough programmers available to get it all done properly. The result will be that many products or services dependent upon correctly programmed computers will not be available in the early part of 2000. As we will see, this directly translates into higher unemployment, lower profits, and lack of some government services.
The result of this worldwide epidemic of procrastination is in all likelihood going to be the first significant recession in the U.S. economy in over twenty-five years--the Y2K Recession. Within eighteen months I believe we will have double-digit unemployment, a stock market down 50 percent from its highs, and hundred-billion-dollar deficits. Many of the countries around the world will be in far worse shape, facing depression and massive unemployment.
These are not pleasant predictions, but as you study the data presented by governments and the leading research firms in the world, it is difficult to come to any other conclusion.
It Is Not All Bad News
I don't think that you need to sell your home and move to the country, as some suggest. I don't think that we will see the electrical power grid go down for a significant amount of time, if at all. Most businesses and services in this country will be fine. But there will be enough problems to cause a recession. And if you don't take certain steps to protect your family, your investments, and your money from the effects of the Y2K Recession, you put yourself in a position where you could experience some severe losses and problems.
That is the bad news. The good news is that we can see this recession coming. And frankly, I think that it will be a severe, but short, recession. The bull market that will follow will be exhilarating. If you prepare now, the Y2K Recession doesn't have to threaten your lifestyle or your future. You will be able to go into the new millennium with confidence. In fact, it will be possible to be better off financially in two years than you are today.
What I want to do in this book is give you the information and the tools that you need to prepare yourself and your family. We are going to look in detail at the most important areas of our economy, and see what shape our power, telephone, government, and financial institutions are in. We will examine how the rest of the world is doing.
After we have this foundation, we will move on to look at why there will be a Y2K Recession. We will look at the data compiled by the leading institutions in the world, and analyze the results in terms of our economy.
And then we will look at what we can do to not only protect our investments and families, but learn how to profit from the Y2K Recession.
But first, we need to look at why there is such a wide range of opinions on the Y2K problem. If you can get an understanding of why this exists, it will help you keep your balance as you try to decide for yourself where you come out on the issue.
The Doomsday Versus the Pollyanna Camps
As noted above, there are two widely divided camps when it comes to assessing how bad the Y2K problem will be. Some believe that it will be a mere hiccup that will hardly be felt, while others believe that it will be the end of Western civilization as we know it. For this discussion, I will refer to these groups as the doomsday and the Pollyanna camps. Simply put, the crux of the argument from both camps on the edge of the Y2K debate is that the division of labor is either the problem or the solution. Keep that thought in mind as you read what follows.
(To put it simply, the division of labor allows an individual to cooperate with others in order to survive. In primitive societies, some would hunt and some would farm and others would make pottery, each trading for or sharing in the results of the combined effort. The basic tasks of life were divided up among the tribe members. In advanced societies, the division becomes much more highly specialized. I do not have to grow food or build cars or design airplanes or build roads or perform any of the approximately 1 million other jobs it takes to make our country work, with the exception of my own. I do a few specialized tasks for which I earn dollars that buy the goods or services of other specialized workers.)
Those who foresee a Y2K apocalypse rightly point out that society is so interconnected and that we depend on each other to such an extreme that a major breakdown in the ability of the division of labor to function will either severely impair or collapse society. For example, if the banking system were to collapse or if the utilities do shut down, we would probably drift into a panicked barter period that could take years, if not decades, to recover from.
Their argument is that the systems are so complex and that time is so short and that there is so much more to do than can possibly be done that there is no way that the problem can be fixed in time. Even if most companies and services get their act together, the doomsday camp contends, we are so interdependent that most is not good enough to keep economic civilization--by today's standards--intact. They argue that we depend on each other for food, power, jobs, and basic goods, and that a breakdown in the delivery systems that bring them to our communities and to our doors would be a disaster of biblical proportions, especially in the cities.
The Pollyanna camp replies that it is precisely the division of labor that will save us. Since it is in each person's self-interest to make sure that their jobs and businesses are secure and that their systems work, it seems reasonable to assume that the vast majority of people will do whatever it takes to be ready for January 1, 2000. For systems not ready, there will be work-arounds, contingency plans, or "whatever it takes" in order to assure that customers are serviced and that life goes on. Eventually, the systems will get fixed or replaced, and things will get back to what we think of as normal. (Think about twenty-five years ago versus today--the definition of "normal" has undeniably changed!)
They would further argue that the systems that do break down will cause inconvenience but not disaster. If one company cannot deliver the goods, then we can go to another. Even if random utilities are struck, it will only be for a relatively short time (hours, days, a month in the odd site) that some people will be without electricity. Plane schedules might become inconvenient, but planes will run. Finally, some have pointed out that we are not as dependent upon software as we might think. For most people computers are a convenience, not a necessity.
The Middle Ground: The Y2K Recession
The reality is, as usual, somewhere in the middle. And if it is anywhere actually close to the middle, the consequences of the Y2K problem will have a serious impact on our economy and on our investments. I am in this middle camp: I don't expect a breakdown of society, but neither do I think that this is a trivial exercise.
The Pollyanna Perspective
Let's look at four of the ways that Pollyannas approach this problem, the reasons that they give to support their rose-colored view of Y2K, and why you should reject these positions.
THE DENIAL APPROACH:
This is a problem dreamed up by consultants to make lots of money.
I had heard this excuse bantered about, but never really believed that anyone seemingly credible would use it, until I opened my Wall Street Journal one morning, and there, on the op-ed page, was a piece by a professor from a recognized university telling us that the Y2K problem was a hoax perpetrated by consultants and Year 2000 "fix-it" companies to soak money from naive, unsuspecting companies. (I won't embarrass him by printing his name.)
As I travel and speak at conferences, I hear this article cited as "proof" of this position by those who share it. When I get the opportunity, I always ask the following questions. (I never get answers.)
If it is not a problem, why would Citicorp spend $300 million, General Motors $500 million, and the world a collective $600 billion to solve it? What naive manager authorized those expenditures? (To top it off, the companies get absolutely no increase in productivity or any technological benefit--they only get to survive into the next millennium!)
Exactly how do these consultants get tens of thousands of companies to spend collectively $600 billion on a nonexistent problem?
If it is not a problem, why does Lloyd's of London estimate that the legal bill will be over $1 trillion? (If you see the lawyers circling, you can guarantee that it is going to be a big problem!)
If it is just a problem created by consultants to milk naive companies, which powerful consultant got the North American Electric Reliability Council to say that if the problem is not fixed, the power grid will fail?
Why do so many government figures, industry leaders, and major research houses assert that this is one of the most serious problems to confront our culture?
Where is the first report from a credible research firm or government agency that says the Year 2000 problem is not serious?
Those who believe in this assertion must believe that there is some vast worldwide computer conspiracy among technology managers, software programmers, information specialists, and computer companies to scare us into spending hundreds of billions of dollars.
The answer is that no one could make Citicorp or General Motors spend hundreds of millions of dollars on a nonexistent problem, let alone tens of thousands of other companies. These companies realize that their computers will not work if their software is not fixed.
As we will see in the next chapter, the problem is serious. Those who think that it is a problem created by consultants and software companies have simply not done their homework. They give a whole new meaning to the concept of wishful thinking.
THE FAITH APPROACH:
Bill Gates (or somebody) will fix it.
I have actually had people on several occasions tell me that Bill Gates will fix the Millennium Bug. Others state that some genius somewhere will figure out how to solve it.
Peter de Jager, one of the earliest computer professionals to warn of the Y2K problem, tells us of a recent press conference in Washington, D.C. Attorney General Janet Reno was being questioned about the government's lawsuit against Microsoft and Bill Gates. One reporter seriously asked her whether she would back off if Bill Gates fixed the Y2K problem.
Such faith in technology and genius is going to be sorely tested in the next few years. The fact is that no "silver bullet" is possible. The problem is far too complex and widespread to be solved by one "superprogram."
There are lots of software tools that have been developed by clever programmers to help the process. But the Millennium Bug has infected hundreds of computer languages on hundreds of computer platforms running millions of software programs. Unique solutions must be developed for every "platform" (the term for the computers and the languages that run them).
Much of the code that runs our largest and most complex programs was written over twenty years ago, and in some cases over thirty years ago! In many cases, the original documentation of what the code actually does no longer exists. Evidently, some early programmers were an eccentric lot, using cryptic names to describe certain sections or modules of code that they understood but that have no meaning to anyone today.
Today's programmers, when trying to decipher what is happening inside a program that may have been written before they were born, have to have the skills of an archeologist, looking for clues as they dig deeper and deeper into the jungle of code, trying not to disturb the main process even as they change bits and bytes to fix the problems.
At the end of the day, this is a job that requires brute strength. It takes time and people to check every infected line of code. Admittedly, it is not difficult to fix any one line. But the problem becomes vastly more complex when there are 1 million or 100 million lines to check and fix. And experience is showing us that when a program is "fixed," it will have errors caused by the fixes that have to be fixed all over again. And again. And again.
Those who believe that Bill Gates or his counterparts will fix this problem do so because of a simple, but misplaced, faith in technology. In their lives, technology has worked because some brilliant person somewhere else made it work. They now expect that this chain of events will continue.
Those who expect some miracle cure are living in a technological fantasy world. They simply have not studied the issue. They can cite no credible source to support their position.
A long, detailed description of why a silver-bullet, one-size-fits-all approach will not work is beyond the scope of this book. But for those who are interested, I have listed a number of books that can offer detailed explanations of the problem in appendix A. These books are written by nationally recognized software experts with many years of experience. Many of them offer relatively dire predictions along with their solutions.
Unfortunately, I can find no books that tell us how and why the problem is easy to fix, or that offer a single, simple solution. The book does not exist, and there will not be one written.
Reality, like software, is sometimes quite hard.
THE OPTIMISM APPROACH:
There is still plenty of time to get the computers fixed.
In the first week of November 1998 two notices were sent to me. China had awakened to the Year 2000 Crisis. Its leaders, duly alarmed, issued decrees that all software be fixed by November of 1999. Failure to comply would result in criminal prosecution.
Kenya was even more ambitious. Its leaders decided to have their projects finished by April of 1999.
People who research such things tell us that less than 50 percent of software projects are finished on time and within budget.
The reality is that the code is flawed, and we have an immovable deadline and an industry populated with optimists who have a history of missing deadlines.
Recently, I was speaking at a Y2K conference for programmers. (I was talking about the economic consequences of Y2K, not the programming questions!) I slipped into a session conducted by Peter de Jager. He asked a room of several hundred programmers and information managers how many of them worked in companies where even 50 percent of projects were completed on time.
There was not one hand raised! He later told me that this was typical. I thought that it was one of the scariest things that I had ever witnessed.
The Kenya Factor
What happens in the typical software project is somewhat like the process for fixing the code in Kenya. Management decides how much time is available to do the job and then tells the programmers to develop a schedule and make sure they get the job done on time. Damn the torpedoes and full speed ahead!
One nationally known Y2K expert, Bill Ulrich, has stated that one of his major concerns is the lack of resources available to finish the job in time. When companies begin to panic, they are going to go to outside consulting services for the code changes. Many of these services have set up shop, hiring programmers and waiting for a crush of Y2K-related business. These "factories" (although they do not like to be called that, I am told) are operating at about 50 percent of capacity, on average. Ulrich notes that if you add up all the spare capacity and then look at the amount of work to be done, there is only enough capacity to handle about 20 to 25 percent of the problem.
I checked this with a senior manager at one of the largest Y2K-software consulting firms in the world, with over twenty different software factories around the world doing Y2K conversion. They are indeed operating well below capacity. When asked if he agreed with Ulrich, he said that he thought the situation was not as bad as Ulrich claimed, but that if there is not a rush within the next few months, it could get that bad quickly.
Those who say that there is plenty of time may be right about any one particular company. Given enough resources, most companies could finish on time. But there are not enough programmers for every company to institute a last-minute effort. It is like the child's game of musical chairs, in which there are not enough chairs for everyone to sit down. There are not enough programmers for everything to get fixed.
The United States is short over 300,000 software professionals today. Because of this, companies are aggressively recruiting programmers, offering bonuses and ever-higher salaries and perks. Programmers are leaving government jobs for more lucrative consulting offers. Employee turnover is becoming a serious problem. The work loads are causing an epidemic of burnout.
But throwing more bodies at the problem is not necessarily the answer. Computer programming expert Ed Yourdon tells us:
When software project schedule delays first began to be noticed over thirty years ago, there was a common tendency to add more programmers to a project, in the optimistic hope that the additional personnel could help speed things up. But in a classic software-engineering book, first published in 1975, Dr. Fred Brooks articulated what has come to be known as "Brooks' law": Adding more people to a late software project just makes it later. [Emphasis added.]
He notes that you can produce software more quickly by adding people, doubling overtime, and other measures, but that the law of diminishing returns sets in much more quickly than lay people would think. This won't keep senior management from attempting to refute Brooks' Law by throwing large numbers of programmers at the project as the December 31, 1999 deadline looms nearer and nearer.
We are already seeing salaries for qualified programmers reach levels not dreamed of a few years ago. They will go much higher as 2000 approaches and panic sets in. Small companies on limited budgets will simply not be able to compete with large corporations. Corporations with lots of cash get programmers and compliant systems. Cash-strapped companies won't get either.
THE OSTRICH APPROACH:
It doesn't affect me. I don't use computers.
"There are two types of people, those who aren't working on it and aren't worried, and those who are working on it [Y2K] and are terrified."
It is very difficult to find someone not affected by computers. We use ATMs and telephones and shop at grocery stores. We stop at red lights, switch on lights, and shop at Wal-Mart. All of these are controlled by computers.
We pay rent or mortgages, buy gas, and send packages, all with the aid of computers. Many of those who receive government aid might not think that they depend upon computers, but without computers it would be impossible to administer the government programs that serve them.
In 1973, OPEC decided to reduce the world's supply of oil. This shock to the world's economy produced a major recession. Our country's economy shrank by almost 4 percent, unemployment jumped dramatically, and it took years before the market recovered and went on to new highs. Most economists view the 1973 to 1974 recession as caused by a disruption in the oil supply.
The Y2K Recession will be caused by a disruption in the information supply. As computers break down or refuse to give us useful information, crippling our industry and causing numerous hassles, we will see a loss of productivity, businesses failing, and a host of other problems.
Let's go back to the image of the traffic jam on the information superhighway. It won't be just one wreck. The freeways will be littered with wrecks. The off-ramps will be blocked. The side streets will be backed up for miles, and even the alleys will be closed off. And in a few cases, the bridges and overpasses will collapse, forcing people to go miles out of their way just to get across the river.
People are going to miss meetings, not get products delivered on time, lose clients, and worse. It will take days and months to completely clear the wrecks and rebuild the information paths. We will cope by getting up two hours earlier, figuring out alternate routes to get to work, and getting used to taking three hours to get home when it used to take thirty minutes. (This was the case in some parts of California after the last major earthquake.)
The costs of all this information wreckage will be enormous. One estimate, which we will examine in detail in later chapters, is that the Y2K problem will directly result in the loss of 3 million jobs. When you add the indirect losses, the number could easily double that, pushing us to double-digit unemployment.
This recession is going to affect everyone. There will be less money spent on goods and services, because an extra 5 percent of our country will be unemployed. Jobs will be lost, and companies will go bankrupt, not because their computers failed, but from the ripple effects of the failures of computers that these companies were never aware of. When Wall Street crashed in 1987, New York limousine drivers were put out of work as their former high-flying clients went back to the subways.
The Doomsday Perspective
The next time you read one of these gloom and doom Y2K scenarios, think of it this way. I tell you that the next airliner you get on is going to crash and all aboard will be killed. No question about it. The problem is that you cannot prove me wrong until you take the flight, land safely at your destination and call me to announce that I was an idiot, and that I unnecessarily worried you half to death.
The doomsday perspective is in many ways the mirror opposite of the Pollyanna perspective. And just as no one in the Pollyanna crowd holds all the viewpoints that I mentioned above, so no one in the doomsday camp holds all the positions mentioned below.
Frankly, while I don't agree with the conclusions that either camp has come to, I can more easily understand the doomsday perspective. Instead of burying their heads in the sand, many doomsdayers have shown remarkable zeal in analyzing and studying this problem. To a significant extent, their activities have brought about an increased awareness of the Y2K crisis, which is very important. It is far easier to become pessimistic about Y2K after you have looked at it than to maintain a Pollyanna perspective.
But I don't think that the facts warrant extreme pessimism.
The old line goes that some people say that the glass of water is half-full and others say that it is half-empty. Then there are some who say that the glass is half-empty, that the water is evaporating rapidly, that it contains fluorides and is full of bacteria, and that the government is going to tax the use of the glass.
Many of those in the doomsday camp take the statistics we have, extrapolate them to the worst-possible scenario, and then assume that will be the case. And I agree that if everyone stands by and does nothing, it will be The End.
The reality is that at some point every business is going to realize that there is a problem. I expect that 1999 will see a mad scramble as companies start looking to see what their problems are and try to correct them. For some, it will be too late. They will die.
But most businesses in the U.S. will figure out something or some way to keep delivering their products or services. It may not be pretty or elegant. The businesses may not be as profitable, or they might even be unprofitable in the short run, but most of them will find some way to keep things going.
American entrepreneurs have never been content to just sit around and wait for someone else to bring them a solution. And not all entrepreneurial activity is done at the small-company level. There are a lot of entrepreneurial employees at large firms. Americans in general are very creative and industrious, and we seem to do well in crisis mode.
As I said at the beginning, the division of labor is either the problem or the solution, depending upon your view of the world. It is true that we are all interdependent and that to the extent that some companies are not capable of providing services, there will be inconveniences and/ or disruptions. But the reality is that, at some point, every business is going to realize that there is a difficulty.
A large part of my quarrel with the gloom-and-doom proponents is that they assume the worst. And this means that they also assume the worst about the American worker, manager, and entrepreneur. We can all gripe and complain about various aspects of our society, but no country or system has ever produced more for its people. On an individual basis, we have all dealt with personal or business challenges just as difficult as Y2K. Admittedly, we have not all dealt with as large a problem all at the same time, but I see no reason why we will not rise to meet the challenge. There is nothing about this problem that will cause everyone to get overwhelmed and sit back and give up.
Because they assume the worst, many doomsday proponents are preparing for the worst-case outcome instead of the likely outcome.
I agree that if the electric grid, telephones, and financial system were all to go down for months or years, it would mean chaos. The current thinking of the most-respected independent analysts is that we won't lose these services for months. In most cases we are talking hours or days, if any time at all. If some of us lose our power or phones for small lengths of time, it will be much less of a problem, but a problem nonetheless. It will be inconvenient, cost us time and money, and, in a few rare cases, could contribute to serious injury or loss of life.
I think that the first few weeks of January 2000 are going to be chaotic. The way that I am going to deal with the potential chaos is to plan to go through it in a place where I want to live, rather than try to become self-sufficient in an isolated location. If I truly thought that the loss of power, telephones, and services would last for months or even years, I would move my family.
The worst effects of the Millennium Bug are going to be economic. It will cause the Y2K Recession. If the best place for you to be during a recession is in the country, then by all means move. But most of us will want to be where we can find jobs and provide for our families.
The doomsday approach takes our eye off the real problems. "The end of civilization as we know it" is not where we should be looking. The challenges that we need to focus on are the loss of millions of jobs in the U.S., the postponement of savings and retirement plans as the stock market crashes, a global recession, the crippling of government services, and the collapse of government budgets.
It is certain that the Y2K Crisis is going to disrupt our lives. The two questions that we have to deal with are:
1. To what extent will Y2K cause problems?
2. What actions should I take to minimize the effect of those problems?
The first parts of this book are designed to help you understand what difficulties we will probably be facing. As you will see, they are serious. You cannot ignore them and expect life to continue as always. There will be unpleasant consequences for those who do.
The second part of the book deals with what actions you can take to minimize the impact of those difficulties, especially on your business, investments, and money, because ultimately that is where the most serious economic impacts will fall.
If you prepare, I think that it will be possible for you to survive and prosper during the Y2K Recession.