The Cost and Consequences of Y2K Panic

How Much Did Y2K Cost?

Computer experts feared that when the two-digit programming “bug” turned from 1999 to 2000, it could bring down systems from airline reservations to financial databases. Companies and government agencies formed teams to fix Y2K.

The effort required cataloging every system, analyzing its software and hardware, replacing or rewriting code, and testing hardware. Thousands of man-years were spent. But when January 1 arrived without disaster, the fears were proved groundless.

The United States

The Y2K scare turned out to be a dud. There were a few credit card mistakes, some satellite outages and one power plant meltdown but no real economic chaos. The US economy actually grew by 4.1% last year.

Experts had sounded early warnings and, in a remarkable show of cooperation and common sense, government and business got the message. Thousands of people worked hard, often under tight deadlines, to fix the software that would be unable to read the date beyond 1999.

It was no small feat, says John Koskinen, President Clinton’s Y2K czar and chairman of the president’s Council on Year 2000 Conversion. He credits the efforts made to fix Y2K for the fact that the stock markets were able to open on Monday January 3 without any major glitches. And he says the $100 billion-plus that companies and governments spent to make their systems Y2K compliant will have little lasting effect on the economy.


A view has emerged that the Y2K crisis was blown out of proportion by software companies and consultants that made millions from the panic. An article in CNET, ‘Profiting from the millennium bug’, claimed that there were companies set up solely to do Y2K work and then disappeared as soon as the date passed.

In the end, when New Year’s Day dawned and computer dates changed from 99 to 00 with no apparent problems, people began to wonder if Y2K had been hyped up by the media in order to guarantee a big pay day for programmers.

The IMF staff study notes that a great deal of money was spent on Y2K fixes and preparation. It says that this has increased measured GDP because businesses built up inventories to guard against Y2K-related disruptions in the supply of goods and services. It also notes that the repairs to information technology systems have probably boosted productivity because they have enabled firms to upgrade their equipment without cutting other expenditures.


For most of the world, the Y2K computer bug—which misreads the year as 2000 instead of 1999—did little harm at the turn of the century. But experts worry that the damage will linger.

In Asia, a region that was late in taking up the bug fix challenge, progress has been fast. But the problem remained a concern, particularly for small and medium-size companies and for developing nations and transition economies.

In Taiwan, for example, a country that makes many of the computer chips that go into personal computers, most people still don’t know what the Y2K problem is or haven’t taken it seriously enough to take steps to address it. And the same is true in China, where a growing number of Western entrepreneurs are trying to help bring the communist nation into Y2K compliance. They are frustrated, however, by the lack of urgency among Chinese companies and government offices. Many have resigned themselves to hoping for the best.


As the clock ticked down to midnight on New Years Eve 2000, many people were toasting with champagne at Y2K parties across the country. The co-founders of Atlassian were still 20 and yet to start their multibillion-dollar company, Internet Explorer was the most popular browser, and Microsoft was the world’s most valuable publicly-traded company.

Thousands of computer technicians’ worldwide had been working for months (if not years) preparing computers for Y2K. The fear was that because computer programs were originally written with two digits for dates, when the year 2000 arrived they would treat it as 1900 instead of 2000. This could cause all sorts of problems, from scheduling issues to data loss.

According to newly declassified files, the Howard Government took Y2K seriously – and prepared for the worst. Foreign Affairs Minister Alexander Downer and Trade Minister Tim Fischer outlined to cabinet in March 1999 that Australia was at high risk of Y2K disruptions in banking, finance, energy, transport, communications, water services, health facilities, manufacturing, food supply and emergency management systems.

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