Outdated Government IT Infrastructure Cost US Economy $40 Billion During Pandemic, Research Reveals

Legacy Systems Struggle Under Pandemic Pressure

Outdated government IT infrastructure, particularly systems relying on the 60-year-old COBOL programming language, contributed to at least $40 billion in economic losses during the COVID-19 pandemic, according to a working paper from the Atlanta Federal Reserve. The research indicates that states using antiquated unemployment insurance systems experienced significant processing delays that reduced consumer spending and economic activity.

Economic Impact of System Failures

The report states that states utilizing COBOL-based unemployment benefit systems saw a 2.8 percentage point decline in total credit and debit card consumption compared to states with modernized systems. Analysis suggests this reduction translated to approximately $40 billion in lost real GDP during the period from March 13 to December 31, 2020, measured in 2019 dollars.

Researchers found that the 28 states still using COBOL systems in 2020 faced unprecedented challenges processing unemployment claims. Sources indicate that both the volume of claims and the difficulty updating systems with new eligibility rules contributed to extensive delays. In Wisconsin, for example, reports showed the state required at least two months to process unemployment claims filed in March 2020.

The COBOL Maintenance Crisis

The aging programming language presents unique challenges, analysts suggest. With few COBOL-literate programmers available, states often had to bring retirees back at consultant rates or rely on volunteer efforts. The “COBOL Cowboys” – a group of veteran coders billing themselves as IT first responders – became crucial during the crisis.

According to reports, these legacy systems typically lack automation capabilities, meaning processing times lengthen significantly when caseloads increase. The working paper author Michael Navarrete notes that COBOL serves as a proxy for old and inefficient IT infrastructure rather than being the direct cause of failure.

Behavioral Economic Consequences

The timing of unemployment payments had significant economic implications, the research indicates. Analysis suggests that the later claimants received payments, the more likely they were to save the money rather than spend it immediately. This meant that even when delayed payments eventually arrived, their economic impact remained relatively weaker in states relying on COBOL systems.

Policy Implications and System Limitations

The technological limitations influenced federal policy decisions, according to the report. The presence of legacy systems reportedly encouraged the government to implement a flat-rate $600 weekly supplement across all states rather than means-testing or using percentage-based calculations. Researchers note this approach resulted in “the median UI recipient receiving more from UI benefits than from their previous employer.”

Political Patterns in System Modernization

An unexpected finding from the data reveals that Republican-controlled states were more likely to have replaced old IT systems, despite typically offering lower standard unemployment insurance payments. The report doesn’t provide definitive explanations for this pattern but presents the correlation as noteworthy for further investigation.

Broader Implications for Critical Infrastructure

The study makes a compelling case for upgrading public systems proactively rather than reactively. Analysts suggest that financial system mainframes should theoretically be in better condition than government systems, having undergone stress testing during multiple previous crises.

However, sources indicate new concerns are emerging as critical bank infrastructure migrates to cloud platforms, where jurisdictional boundaries are less defined and organizations become dependent on a limited number of service providers. In a related development, reports suggest that Morgan Stanley has been experimenting with artificial intelligence to decipher its legacy COBOL codebase.

The research underscores the hidden costs of maintaining outdated technological infrastructure and the economic consequences when these systems fail during crises. According to analysts, the pandemic experience provides clear evidence for prioritizing IT modernization in critical government functions.

References & Further Reading

This article draws from multiple authoritative sources. For more information, please consult:

• https://www.efinancialcareers.co.uk/news/cobol-jobs-banking
• https://www.wealthsimple.com/en-ca/magazine/cobol-controls-your-money
• https://lists.openmainframeproject.org/g/wg-cobol/attachment/113/1/systemsjournalcobolsept172020.pdf
• https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5621276
• https://www.npr.org/2020/04/22/841682627/cobol-cowboys-aim-to-rescue-sluggish-state-unemployment-systems
• https://www.wpr.org/lives-hold-pandemic-exposes-failures-wisconsin-unemployment-insurance-system
• https://www.nber.org/papers/w30315
• https://www.sciencedirect.com/science/article/pii/S0047272720301377
• http://en.wikipedia.org/wiki/COBOL
• http://en.wikipedia.org/wiki/Coronavirus
• http://en.wikipedia.org/wiki/Mainframe_computer
• http://en.wikipedia.org/wiki/Percentage_point
• http://en.wikipedia.org/wiki/User_interface

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