Y2K Opportunities Jude Wanniski March 31, 1998

We are all aware, I suppose, of the gigantic problems the world will face when January 1, 2000 arrives. Computers around the world that are not programmed to deal with four digits, only two, will revert to a default year, or jump back to 1900. No matter what is done between now and then, serious problems will occur almost everywhere on earth because so much of the economic universe is automatically programmed to respond to the calendar. Early estimates that it will take$600 billion  to fix the worst of the problem are expanding, $4.7 billion just for the federal government. Early estimates are that there will be at least $1 trillion in lawsuits in the United States alone. The piranha trial lawyers are already filing lawsuits against companies that sold two-digit computers way back when, if they refuse to replace them or fix them. We assume that at the very least there will be no accidental launches of nuclear warheads to celebrate the new millennium with fireworks, but it is hard to assume much else.

Sen. Robert Bennett, the Utah Republican, who chairs the Y2K hearings of the technology subcommittee of Senate Banking, is about to chair a Y2K Select Committee at the behest of Senate Majority Leader Trent Lott. He will have his hands full responding to the myriad appeals from the grass-roots business community that sees itself getting wiped out by that $1 trillion in lawsuits. Here, as just one example, was William Maley, Sr., chairman of the Connecticut Hospital Association, at the subcommittee field hearings February 17 in Wallingford, Connecticut:

First, Congress should assist the FDA, by appropriating necessary resources, in its actions to ensure that manufacturers of medical devices investigate and correct Year 2000 related problems, and disclose Year 2000 compliance information in a timely fashion. Second, Congress should consider enacting some form of legislative immunity from liability for health care providers that have taken reasonable steps to obtain information on the Year 2000 compliance status of medical devices and equipment. Finally, we believe that federal legislation mandating periodic interim payments under the Medicare program (based on past payment levels) should be implemented to ensure adequate cash flow for providers should carrier and fiscal intermediary payment systems fail to adequately function due to the date change.

You can read through prepared testimony from seven different field hearings covering different regions and industries, at <www.senate.gov/~banking/hearings.htm>. My advice is that in addition to focusing attention on the $1 trillion in private lawsuits, Congress also take note of the gigantic problems governments everywhere will have because of Y2K, and the easiest way to alleviate them: A simple flat tax system and a dollar/gold standard.

We already know the Internal Revenue Service is overloaded under the best of conditions. Now Congress is passing legislation requiring IRS agents to be polite. There are 7 million words in the federal tax code and tens of millions of tax returns being assessed electronically. There are individual taxpayers whose returns run into thousands of pages. We know almost surely there will be a breakdown that will throw the government’s finances into chaos and disrupt the household and commercial network that does business with the government. It makes perfect sense for the President and GOP leadership to agree on a simple postcard system of the kind House Majority Leader Dick Armey has proposed, just to get the country past 2000. Once everyone finds out how nice it is, the electorate would have a hard time giving it up. The same is true, by the way, for every system of individual and business taxation in other countries. The arguments about not doing a simplified system would normally prevent one from being drafted, but the sheer horror Y2K presents to government bureaucrats and political intransigents might be sufficient to do the only thing that will stand a chance of working.

The gold standard is another fix that eliminates much of the chaos that would otherwise occur in 2000 when the clock strikes 12 midnight. The only reason the business world can exist in its present form of floating exchange rates are the computers that are capable of juggling myriad rates of exchange and currency contracts. The currency markets seem sufficiently self-contained to be able to manage the chaos, or so I am told. The 150 different currency units in the world have a separate existence in international contracts at the corporate level. Octopus Inc., the giant multinational, does business in all 150 currencies, and while Octopus may have spent $100 million getting ready for 2000, the transactors at the other end have not. If the United States were to fix the dollar to gold, say at the end of this year, by the time the clock strikes a year later, every one of the 150 currencies could be plugged into it.

As we all know, the Europeans are about to give birth to the Euro, at the very worst possible time, because the chaos of the Euro on top of the chaos of Y2K is chaos squared. By fixing the dollar to gold and fixing the Euro to gold, we arrive at exactly the place Robert Mundell suggested in his WSJournal op-ed last week. Not only is chaos averted on major aspects of Y2K, it also solves the Euro problem. This immediately liberates tens of thousands of technicians who are currently part of the limited pool of technicians able to write code for the computers. It is as if the army of experts now divided in order to fight two alien monsters from outer space suddenly find one monster has decided to go back to sleep in cyberspace. The united army can now deal with the remaining monster.

Until now, as far as I can tell, all the thought that has gone into Y2K has been mechanical. If only Bill Gates stayed awake nights, the problem could be solved with some fancy software. Alas, Bill Gates advises that even if he could find the perfect software, he will be unable to provide the requisite hardware and deal with the data variables. If we all put our heads to thinking about changing and simplifying POLICY, at every level of government and private business, the impossible chaos may begin to look manageable. If you are really worried about The End of the World as we know it, you can find the state of doomsday at www.yardeni.com/cyber.html, which is where Ed Yardeni of Morgan Grenfell hangs out his predictions of economic depression. I will say of Yardeni that he is broadcasting for ideas on how to solve the looming problems. The answers will most likely be found in all sorts of  places. One of my favorite sayings from the wildcatters is: Oil is found in abundance when a great many people are looking for it in the most unlikely places. So, too, with Y2K.