by Jeff Scott

The National Center For Policy Analysis goofed in their Daily Policy Digest (of Wednesday, January 12, 2000). Bruce Bartlett wrote that Y2K expenditures, justified or not, were really a blessing in disguise. Nice try Bruce. That is the “broken window” fallacy that we all learned (some of us more than others) in Henry Hazlitt’s Economics in One Lesson. What next? Destructive computer viruses are really blessings too? Try this on for size:

Many Melissa-Virus Expenditures Would Have Been Made Anyway, says Bruce Bartlett [with help from the irreverent Jeff Scott], as firms upgraded hardware and software….

Benefits of the Melissa-Virus Computer Problem

For much of the last year, various doomsayers predicted the so-called Melissa-Virus computer glitch would produce widespread chaos. We are safely past the danger point and some people are now complaining that the whole Melissa-Virus thing was nothing but a paper tiger.

If the Melissa-Virus problem appears in retrospect to have been blown out of proportion, why did this happen? The main answer lies in motivating capital investment that might not have otherwise taken place. Technology managers used the Melissa-Virus to justify upgrades for computer systems that had nothing to do with Viruses. And many companies completely replaced old computer systems rather than simply debug them.

But the Melissa-Virus was just the impetus for taking action now; the new systems were fully justified by economics without any Melissa-Virus considerations. Much of what was called Melissa-Virus-related spending was really just a convenient excuse for replacing old equipment with new.

Many companies have discovered Melissa-Virus dividends in the form of higher efficiency and productivity from their new computer systems.

• For example, commenting on Mexico’s $6.5 billion Melissa-Virus outlay, Victor Guerrero of its Melissa-Virus commission says, “The quality of equipment and infrastructure has improved, and more companies are now using computers as a result of this experience.”

• Similarly, Erich Winkler of Philip Morris says his company’s $550 million Melissa-Virus outlay produced “significant benefits” beyond Melissa-Virus compliance.

Analysts looking only at gross Melissa-Virus expenditures incorrectly assumed that the large estimates indicated an equally large Melissa-Virus problem. But the true Melissa-Virus problem was actually much smaller.

In the end, the Melissa-Virus bug was a blessing in disguise. The U.S. and world economies will reap benefits for years to come from the new computers and software that it stimulated businesses and individuals to buy.

January 14, 2000

Jeff Scott is a banker in the San Francisco Bay Area.