Fairfield University Economics Professor testifies before U.S. Senate committee about computer glitch

Prof. Edward Deak, chairman of the Economics Department at Fairfield University, recently testified before the U.S. Senate Committee on Banking, Housing and Urban Affairs Subcommittee on Financial Services and Technology, and warned about the potential devastation the Year 2000 Computer Glitch can cause in the economy around the world.

Dr. Deak's explained the year 2000 problem in personal terms:

"If I enter my birth date in the computer as 3/17/43 and the date of 2/17/98, the computer will subtract the former from the latter and tell me I am 54 years old with a birthday due in one month on S.t Patrick's Day 3/17/98. But if I ask the computer to tell me how old I will be on 2/17 in the year 2000, it can't supply the right answer. It subtracts 3/17/43 from 2/17/00 and tell me I am 43 years of age. Worse still, if this data is used in another file, the result will be corrupted data or the shutdown of the computer because of a logical inconsistency.

"In the early days of mechanical and later electronic tabulation, shortcuts were taken to economize on space including the truncation of annual dates to the last two digits. Even if anyone thought of truncated dates as a potential problem, who would expect that programs written for computer systems in the 1970s and 80s would still be in use today. Well, they are!"

Some of the key points in his testimony:

  • No one knows the true economic cost of correcting the glitch.

  • All computer systems including mainframes, minicomputers, desktops and laptops face the problem, except for the most recent programs and computer systems.

  • Conservative estimates say the cost of correcting the Y2K problem will run from $200 billion to $600 billion. One software company claims it will be $1.635 trillion.

  • In Connecticut, the cost is estimated at $1.09 billion, based on the need for 126,000 programmer months at $8,500 per programmer. The State government alone in Connecticut is expected to spend upwards of $135 million.

  • Because of the cost of corrections, corporations may delay or cancel the purchase of new software resulting in the slowing of business for new applications.

  • Only 25 percent of state and local governments will be ready by 2000. Social Security Administration, Government Accounting Office and Federal Aviation Administration will miss the year 2000 deadline.

This is a global problem and other countries are moving more slowly. According to Dr. Deak, Unilever in England estimated that a fifth of its small suppliers may not meet compliance requirements and will lose their business with Unilever.

As a result of a worldwide slowdown in economic growth, some economists say there is a 40 percent chance of a recession in 2000, similar to 1973-75. Connecticut may not be as hard hit since financial service and insurance firms are among the leaders in the Y2K renovation efforts. Potentially, Connecticut unemployment could rise from 4.4% to 7.81%.

Dr. Deak said he is not predicting a Y2K-based recession because he hopes steps are taken in time to correct the situation. But a recession could come if:

1) IRS has difficulty collecting tax revenues; Social Security is unable to deliver checks and the FAA has safety problems.

2) There are major problems in the infrastructure such as power outages, the flow of gas, oil, etc.

3) Failures in the economic food chain especially affecting mid-sized firms with a 1,000 to 10,000 employees that rely a great deal on software.

More than 2,000 firms might file for bankruptcy because of the year 2000 problem.

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Media Contact: Nancy Habetz, (203) 254-4000, ext. 2647, nhabetz@fairfield.edu

Posted on March 1, 1998

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