To: Senator Bob Bennett [R-UT]
Y2K Senate Select Committee Chairman
From: Jude Wanniski
Re: Wrong About Y2K
I know you are as happy as I am that the Y2K computer bug didn't really bite. Your estimate about how bad things would get was just about as wrong as ours, but then we all were working on the same assumptions. We both were expecting enough trouble with myriad, scattered infrastructure meltdowns in the developing world to expect a slowdown in our economy too. You reckoned a zero GDP in the U.S. economy due to Y2K. Our last client assessment estimated chances of a recession at 20%, considerably below Ed Yardeni's final figure of 65%, but still way off. It might be interesting to have your committee staff do a round-up report on what really happened, how they and you were misled. My own guess is that we all were using the wrong numbers on embedded chips. We went with the assessment of your staff of 50 billion embedded chips and that was obviously wrong.
As soon as I saw that the lights remained on in Moscow at rollover, I knew either that number was radically wrong, or the assumption of 0.2% failure of the 50 billion really was more like 0.02%. The real doomsayers like Gary North also were using 50 billion and a 5% failure rate, and I think if that had been the case we would have had a world meltdown. This is the most critical variable in all calculations and we never saw a report from anyone that suggested a lower number or failure rate lower than 0.1%. This is the only logical reason that can explain why so many countries and so many companies that ignored the problem have come through as easily as they have. I'm not sure you saw the last report we put out, a few days before Y2K. It was more bearish than most of the reports showing up in December, but our reasoning all tracked back to the feedback effects of all those chip failures. I send it along, for the record. If you and your committee team come up with any better ideas, it would be of some usefulness to know how to deal with future adventures into the unknowns.