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My Y2K Outlook: A Year of Disruptions, a Decade of Depression

Most of us who work in the Y2K field have an instinctive answer when asked, "How bad do you think it will be?" For various reasons, we almost always say, "I don't know." That's been my answer for nearly four years, and even today, as we move further into 1999, I have to repeat: I don't know. For a more elaborate version of this answer, you might want to take a look at another of my essays, entitled The Y2K Crystal Ball: What's Going to Happen on 1 Jan 2000?

But sooner or later, we all have to "bite the bullet" and make some firm decisions about Y2K, based on our best guess and whatever information we've been able to collect. I'm sure there will be some people who abdicate such a firm decision, because it can be pretty scary: if you really think Y2K is going to cause major disruptions, it requires some expensive, unpleasant, unpopular, and potentially risky actions on your part. Thus, many people will continue singing the Y2K folk song, "I don't know," right up to the stroke of midnight on December 31, 1999. Some are convinced that they can wait until the summer or fall, by which time they hope to have a more definitive picture of the Y2K situation, before committing themselves to a course of action.

For some of us, though, the moment of truth has already arrived. For some of us, there is an epiphany, a light bulb that goes off in our mind, in which we say, "Even if I don't know how bad Y2K is going to be, I have to make some plans." Almost all of us have family members we love; many of us have both young children and older parents, for whom we feel responsible. Most of us have assets to protect, though young people just entering the work force may be less concerned about this issue. But those of us in our 30s, 40s, 50s, and 60s may have a house that represents the majority of our net worth; we may have retirement funds, a stock-market account, or perhaps just a couple thousand dollars in a savings account. Not making a decision about all of this is, in itself, a decision: it means that we've decided to subject ourselves to the fickle finger of Fate. If we're lucky, Y2K will turn out to be only a minor bump in the road, and we'll sigh a huge breath of relief. If we're not lucky ... well, those who abdicate making a decision would rather not think about it, or would prefer to amass as many arguments as possible to "prove" that Y2K won't cause major disruptions.

I've been pretty careful to avoid making any specific predictions about Y2K, because I, too, don't know. And I'm concerned about the people who send me e-mail, or who read our Time Bomb 2000 book, who often seem intellectually lazy: rather than doing the homework to make an informed decision, they want someone else to tell them. In a world of information overload, this is understandable: we depend on restaurant critics to tell us whether that new French restaurant is any good, we depend on movie critics to tell us whether that latest action thriller is too bloody, and we even seem to depend on the "talking heads" on television talk-shows to make up our minds for us about the outcome of the President's impeachment hearings. Analysts and commentators serve a useful role for such purposes, but when it comes to really serious issues, it seems to me that every responsible adult should do enough homework to make up his or her mind; thus, I wanted to avoid creating a situation where someone might complain, somewhere down the road, "Well, I made all of my decisions based on Ed Yourdon's recommendations, and he turned out to be totally wrong -- and as far as I'm concerned, all the problems I'm having now are entirely his fault!"

Nevertheless, it turns out that people have been making Y2K decisions based on my comments, books, articles, speeches, and essays. A friend with 30+ years of experience in the computer field recently wrote to me to say that our Time Bomb 2000 book had been the catalyst in his family's decision to retire from the computer field and move to Belize. Others have made somewhat less radical decisions, but it's clear that at least a small percentage of thoughtful people across the country (if not around the world) are changing jobs, re-distributing their assets, stockpiling necessities, and occasionally moving from what they perceive to be a high-risk geographical location to someplace they hope will be safer. Meanwhile, a much larger majority has internalized all of the information they've seen and heard about Y2K, and have decided to either (a) ignore it, or (b) postpone their decision until sometime in the summer or fall of 1999. For those in category (a), I wish you well and hope that you turn out to be right; for those in category (b), I fear that your options may have vanished by the time you decide to take action, in which case my opinions on Y2K won't matter very much to you.

Thus, I don't think I'll be exerting an inappropriate influence on most of the population if I publish my opinion on the likely consequences of Y2K. After all, I'm just one of many voices in the Y2K field: Peter de Jager has published his opinion in Scientific American, the Gartner Group has published its opinion in a number of recent press reports, the President's Y2K Conversion Council has offered its assessment that the consequences of Y2K will probably be no worse than a winter snowstorm. My opinion, as you'll see below, is substantially different.

How Bad Will Y2K Be?

As the title of this essay has already informed you, my opinion is that we're going to suffer a year of technological disruptions, followed by a decade of depression. It may turn out to be less severe, it may turn out to be more severe; it may turn out that I'm totally wrong in my conclusions. But this is my assessment, and it forms the basis of my own plans for coping with Y2K; if it turns out that I'm wrong, I'll be spending a lot more time apologizing to my family members than to everyone else who should have been evaluating the same data that I've been evaluating, in order to reach their own opinions.

What Do I Mean By A Year of Disruptions And A Decade of Depression?

Words like "disruption" and "depression" are rather fuzzy, and they mean different things to different people. What I mean by "disruption" is a problem that's large enough and serious enough that it forces me to change my plans and behavior, if not my overall lifestyle; most of all, it means that the impact will be noticeable. Let me illustrate with an example: driving from my home in northern New Mexico to the airport in Albuquerque takes approximately 2.5 hours under normal conditions, but I generally add an extra half-hour for minor delays and traffic jams. That's my "normal" plan, and I would never bother complaining that it took an extra ten minutes to navigate through the traffic in Espanola, or that there was a minor traffic accident in Santa Fe. On the other hand, if the highway was washed out by a flash flood, and if that unanticipated problem added an extra two hours to my trip, there's a good chance that I would miss my flight -- which would probably have consequences ranging from minor to moderate to potentially serious. That is a disruption.

The reason I mention this is that recent surveys conducted by Professor Howard Rubin for the Cap Gemini consulting firm indicate that nearly 50% of U.S. companies have already experienced some Y2K problems through the end of 1998; even more interesting, nearly 98% expect to experience problems during 1999. But that doesn't necessarily mean that consumers and citizens will be aware of the problems, or that it will cause a noticeable disruption in their day-to-day lives. Chances are that the average consumer experienced dozens, if not hundreds, of minor annoyances and problems in his or her day-to-day life last year -- and while some of those problems might have been caused by Y2K computer glitches, they weren't recognized as such. The classic example is the credit card renewal problem that existed throughout 1996, 1997, and even part of 1998: it didn't occur to us that the credit-card companies were issuing renewal cards with a 1999 expiration date because merchants weren't able to process a Y2K expiration date. It's a minor inconvenience, in the sense that we have to be prepared to deal with the next renewal card earlier than would otherwise have been the case -- but it's hardly a major disruption in our lives.

But I believe that we will begin seeing Y2K problems that do cause noticeable disruptions in our day to day lives; I believe we'll start seeing them by this summer, and I believe they'll continue for at least a year. As many people are now aware, 46 states (along with Australia and New Zealand) will begin their 1999-2000 fiscal year on July 1, 1999; New York (and Canada) will already have gone through their Y2K fiscal rollover on April 1, and the remaining three states begin their new fiscal year on August 1, September 1, and October 1. We also have the GPS rollover problem to look forward to on August 22nd, as well as the Federal government's new fiscal year on October 1st. There is, of course, some finite probability that all of these rollover events will occur without any problems; but there's also a finite probability that pigs will learn to fly.

It's more likely, in my opinion, that problems will emerge in tax systems, welfare systems, pension systems, unemployment systems, food-stamp systems, and various other financial systems operated by the state authorities; and it's also quite possible that these problems will "trickle down" to the county and city level. None of these problems will cause civilization to come to a screeching halt, but they will certainly be regarded as a disruption by those who are expecting pensions checks, food stamps, welfare checks, or other financial interactions with the state government. Of course, the average citizen might say, "Who cares? I'm not unemployed, and I don't get food stamps. I'm not retired, so it doesn't matter to me if the pension checks are delayed." But a disruption doesn't have to be something that affects you directly; if it has a significant impact on your children, or your retired parents, or a sibling, or a close friend, then it's still a disruption. If your brother-in-law calls you up to borrow the money to pay the rent, because his pension check didn't arrive on time, you will definitely feel that you've been affected by the Y2K bug.

Notice that these examples don't involve embedded systems -- and because of that, they probably won't involve life-and-death situations. The embedded system failures are likely to begin surfacing, in a fashion noticeable to the average consumer, about a month before January 1, 2000 (because some of these embedded systems have a "look-ahead" calculation that involves dates a month into the future); they'll probably peak on or about January 1st; and then they'll gradually subside over the next few months. And lots of other business applications and financial systems can also be expected to encounter a larger number of problems on or about January 1st; for reasons that I'll describe in more detail below, I believe they'll continue for at least six months into calendar year 2000.

None of this necessarily means that the electricity will be out for six months, let alone a full year; none of it means that we should necessarily expect to lose nationwide telephone service for a full year; none of this means necessarily that we should expect our bank to be closed for six months. But it does mean that we're likely to be living in an environment much like the Third World countries some of us have visited, where nothing works particularly well. One day the phones will be out; the next day, the phones will work but the air-conditioning in our office building will be down; that will be fixed a couple days later, but then the banks will decide to close for a day because of some unexplained problem. North American and European business executives who try to open a regional office in this kind of environment can often be heard to mutter, "It's just one damn thing after another. You never know, from one day to the next, what's going to work and what's not." And in that kind of environment, it will be difficult (if not impossible) to maintain the level of productivity and efficiency that many of us are accustomed to; we may be forced to adjust to this by accepting the manana attitude that citizens in many developing nations take for granted. If we don't get it done today (because of Y2K disruptions), we'll get it done tomorrow .... or next week ... or next month ... or maybe we'll decide that it wasn't so important after all, and we simply won't do it.

Let me put this into somewhat more personal terms. My personal expectation is that my day-to-day work will suffer an increasing number of interruptions, glitches, delays, inconveniences, and disruptions during the second half of 1999; and I'm expecting that they'll be sufficiently pervasive after January 1, 2000 that my income will drop to zero during the first six months of the new year. I work as a computer consultant, which requires that the infrastructure (phones, electricity, etc.) be reasonably dependable; it also means that I have to get on an airplane to fly to my clients' offices, since none of my work is based in the town where I live. If the phone lines are down intermittently throughout the day, it will be much more difficult to get any work done on the Internet. If commercial air traffic is disrupted, I'm grounded without income. If my clients are disrupted by their own problems, chances are they'll cancel the kind of advanced consulting services that I provide.

If I'm the only person on earth to suffer such problems, it obviously won't have a noticeable impact on the global economy. But I believe that lots of companies, as well as individuals, are going to be coping with similar problems. Contrary to what many economists are still predicting, I don't think Y2K will be a one-time "bump in the road" that shaves 0.3% off the GNP during the first quarter of 2000, to be followed by a resumption of a booming economy. I believe that Y2K will be equivalent to throwing a million monkey wrenches into the "engine" of the global economy, and that it will lead to a depression similar in severity and duration to the Great Depression. Obviously, it can be rather discouraging to have such a picture of the future in your mind; but it's not the end of the world. By analogy, if someone had been firmly convinced in the spring of 1929 that a crash was inevitable, and that it would be followed by a decade of economic depression, he/she could have made appropriate plans to minimize the personal impact on his/her life. I plan to do the same with Y2K.

What's The Basis For My Opinion?

I can't prove that my view of the future is correct. But my predictions of technological disruptions are based on several things:

Large companies won't finish their Y2K projects; even if they manage to finish their mission-critical projects, they'll be spending most of 2000 fixing all of the "non-mission-critical" systems they didn't get around to. Yes, of course, the big companies are working hard on the problem; and yes, they're busily issuing optimistic press releases about their progress. I fully expect that 80% of the large U.S. companies and government agencies will get 80% of their mission-critical systems finished; that degree of success is encouraging, and almost certainly represents an argument against TEOTWAWKI. But what about the other 20%? What happens if 20% of the Fortune 500 companies fail miserably in their Y2K efforts? What happens if 20% of the 24 major Federal agencies don't finish most of their mission-critical systems in time? What happens if 20% of the hospitals, and 20% of the utility companies, and 20% of the water authorities aren't finished with their work? It may not be the end of the world, but I can't see any way of avoiding the conclusion that it will cause a series of unpleasant disruptions in our lives. The optimists will argue, of course, that 99% of the companies will get 99% of their systems fixed; but as I've argued in many different articles and essays (including Y2K Projects: Deja Vu All Over Again), this would defy 30 years of software engineering history.

Even if the large companies finish, the small companies won't. Several surveys in recent months have confirmed that nearly 75% of the small businesses around the world have not yet carried out any Y2K planning or remediation; even more amazing, 40-50% don't plan to do anything until something breaks on January 1, 2000. There are approximately 23.5 million small businesses in the United States; even if we assume that 50% start and finish their Y2K projects successfully, there's another 50% who won't start, and therefore won't finish. That's nearly 12 million businesses; if we optimistically assume that only 10% will be bankrupted by their lack of Y2K compliance, that's still sufficient to cause enormous disruptions in society. Among other things, the small businesses "feed" the big companies by supplying products and services; thus, if the small businesses fail, the big companies will experience a disruption.

The same is true for small towns and municipalities across the country: approximately 50% have not yet done anything, and don't plan to do anything. Thus, even if one assumes that Y2K work is finished successfully in New York, Los Angeles and all the other major cities (which requires an enormous amount of optimism in itself!), there are thousands of small towns and counties across the country who may discover that their fire engines don't work, their 911 emergency communication systems don't work, and their water systems don't work.

The same is true for small countries around the world, especially the developing nations who lack the money and the technical expertise to repair their own systems. One of the more recent examples is Russia, which has suddenly discovered (after denying the problem for months) that it needs $3 billion to fix its Y2K problems.

Even if the big companies finish their Y2K remediation efforts, they're going to experience a rash of glitches and bugs. The emerging data in this area indicates that even fully-remediated and fully-tested software is likely to have an average of 450-900 defects (bugs) for every million lines of code. Some of these glitches will appear during 1999, as the "look-ahead" logic encounters Y2K dates; but most of them will hit on or about January 1, 2000.

Optimists might assume that all of these bugs will be fixed within a matter of hours or days; but if the problems involve non-compliant suppliers, or non-compliant embedded systems, then it could take weeks or months to find a compliant replacement. Whether the organization can continue providing products and services while it's waiting for the replacement will depend on how good a job it has done with its contingency planning.

Not all of the Jan 1, 2000 Y2K bugs will be discovered right away, and not all of them will occur right away. Some bugs will occur on Jan 1, 2000 but they won't have any visible impact; instead, they'll clobber a database record that might not be accessed for another month or two. Some bugs will occur on February 29th, when leap-year processing is invoked. Some will occur on March 31st, when financial systems begin summarizing results for the first quarter of the year; and some might not be visible until December 31, 2000 when companies try to close their books for the year.

Similarly, I can't prove that my economic forecasts are correct. Indeed, I'll be the first to point out that I'm not an economist; aside from a few semesters of college-level economics that I took in the 1960s, I have no training or experience with which to make expert predictions that anyone else should necessarily depend on. But I have to depend on my own common sense, judgment, and forecasts as I plan my family's economic future; and my "gut sense" of the situation suggests to me that there are several reasons to anticipate a major economic decline:

Even without Y2K, the global economy is on shaky grounds; the recent financial turmoil in Brazil, Russia, Korea, Indonesia, and other parts of the world suggest that it may only be a matter of time before our own stock market and economy are badly affected. Stock market prices -- especially for the high-tech companies like Yahoo and Amazon -- seem to have no relationship to revenues, profits, or other fundamental economic values; even without the international turmoil, I think it's only a matter of time before the bull market runs out of steam and retreats sharply. To whatever extent these scenarios are possible, I see Y2K as a "catalyst", or as the straw that breaks the camel's back. Thus far, Wall Street has blissfully ignored the potential threat of Y2K to the global economy; if and when the financial wizards do pay attention to the problem, I think they (and the small investor) are likely to react even more abruptly than if they had steadily factored Y2K into their plans throughout 1997 and 1998.

The word "depression" is almost a four-letter word today; it's one of those words we're not supposed to use in polite society. If "recession" is equivalent to "darn," then "depression" is a hundred times worse than "damn." But if we look at the state of Japan's economy for the past eight years, it's hard to imagine a term more accurate than depression. It's not a "mild" economic downturn, and it's not a short-term phenomenon. It has lasted nearly as long as the Great Depression lasted, and in many ways (e.g., stock market averages), it's almost as severe. If it can happen in Japan, I believe it can happen in the U.S. and Europe as well.

If the technological disruptions discussed above do occur, I believe it will wipe out a great deal of wealth in the stock market, in small businesses, in the real-estate market, and in the banks (because of the bad loans they'll have to write off). Much of the "wealth" in this country exists only on paper (or electronic "blips"), and we've grown accustomed to seeing it rise and fall somewhat sharply every time the Dow Jones average rises or falls a few hundred points. But if real wealth disappears through bankruptcies, foreclosures, and bad debt, I believe that it will lead to an overall decline in the economy.

Those who have warned about Y2K alarmists causing bank runs will usually admit that the entire fractional reserve banking system relies on the confidence of depositors: if all of us lose confidence in the banks, and if we all demand to withdraw our money, then the banks collapse. But on a broader scale, the entire economy relies on confidence; that alone is a major reason why Japan is in a state of depression, and we're in an economic boom. We feel good about the economy, so we spend our money to buy products and services; this creates jobs, which creates income, which leads to even more good feelings. But Y2K could change that, especially if it challenges two basic assumptions that citizens in all advanced countries have depended on: first, things work; and second, providers of products and services are presumed innocent until proven guilty. Think about it: we assume that the lights will work when we throw the switch, and that drinkable water will come out of the spout when we turn the faucet. And think about this: when was the last time you asked an airline to "prove" its safety before you put your life at risk by climbing into a hollow aluminum tube and allowed yourself to be shot through the sky at 600 mph? If Y2K provides tangible evidence that (a) things don't always work, and (b) companies can't always be trusted to tell us the truth about the safety of their products and services, then our consumer confidence disappears. If we believe that our personal economic future is imperiled, then we'll save our money (and not necessarily in a bank!) rather than spending it.

Conclusion

Might I be wrong about all of this? Absolutely! Should you feel obliged to agree with my assessment? Absolutely not!! You're more than welcome to imagine whatever Y2K future makes sense to you. My only recommendation is that you do it now, and that you do it explicitly. You don't have to post your opinions on the Web, but you should be able to jot down some coherent notes that say, "Here's what I believe about Y2K, and here's why I believe it." If you honestly believe that Y2K isn't a problem, and if you can articulate your reasons in a way that makes sense to (and to your family members, too, hopefully!), then you can carry on with your current life-style, and ignore all of the rhetoric that you'll be seeing in the media for the remainder of 1999. But if your own assessment convinces you that Y2K could cause moderate or serious problems, now is the time to acknowledge it, so that you can begin making appropriate plans before it's too late.

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