Rubbish IT systems cost the US at least $40bn during Covid: study

TITLE: Legacy IT Infrastructure Failures Cost U.S. Economy Billions During Pandemic Crisis

The Hidden Cost of Outdated Government Systems

A groundbreaking study from the Atlanta Federal Reserve reveals that antiquated IT systems, particularly those running on COBOL, cost the United States economy at least $40 billion in lost GDP during the initial COVID-19 pandemic response. The research highlights how decades of underinvestment in modernizing critical infrastructure created a domino effect that hampered economic recovery when it was needed most.

COBOL: The 60-Year-Old Programming Language Still Running America

Much of America’s critical financial and government infrastructure continues to operate on COBOL, a programming language developed in 1959 that predates the moon landing. This legacy technology processes everything from banking transactions to unemployment claims, despite an acute shortage of programmers who can maintain these systems. The Atlanta Fed working paper identifies COBOL systems as a proxy for outdated, inefficient IT infrastructure that struggled under pandemic-induced stress.

Unemployment Systems Collapse Under Pressure

When COVID-19 triggered massive job losses, unemployment insurance systems in 28 states still relying on COBOL technology failed spectacularly. Researcher Michael Navarrete found that states using antiquated benefit systems experienced a 2.8 percentage point decline in total credit and debit card consumption compared to states with modern systems. The unprecedented volume of claims, combined with the difficulty of updating eligibility rules on decades-old systems, created perfect storm conditions.

The human impact was severe: In Wisconsin, processing delays stretched to at least two months for claims filed in March 2020. The technical challenges forced states to resort to emergency measures, including recalling retired programmers at consultant rates and relying on volunteer groups like the “COBOL Cowboys” – veteran coders who bill themselves as IT first responders., according to further reading

Economic Consequences of Delayed Payments

The study reveals a crucial economic mechanism behind the $40 billion loss: the later claimants received payments, the more likely they were to save rather than spend the money. This behavioral pattern meant that even when delayed payments eventually arrived, their economic stimulus effect was significantly diminished. Each dollar circulated less effectively through local economies in states with outdated systems, creating a measurable drag on recovery.

System Limitations Shape Policy Decisions

Legacy system constraints directly influenced the design of federal relief programs. The technical complexity of implementing means-tested benefits across outdated state systems led policymakers to opt for a simple flat-rate $600 weekly supplement across all states. This approach, while administratively feasible, resulted in what Navarrete describes as “the median UI recipient receiving more from UI benefits than from their previous employer.”, as our earlier report, according to further reading

Political Patterns in Modernization Efforts

An intriguing finding emerged when examining which states had modernized their systems: Republican-controlled states were more likely to have replaced old IT infrastructure, despite typically offering lower standard unemployment insurance payments. This pattern suggests that technology modernization decisions don’t always follow predictable political or economic lines, though the study doesn’t definitively explain this phenomenon.

Broader Implications for Critical Infrastructure

While government systems faced the most visible failures during the pandemic, the study raises concerns about other critical infrastructure. Financial system mainframes have undergone repeated stress testing through multiple crises, but new vulnerabilities are emerging as banks migrate critical operations to cloud platforms. This shift creates dependence on a handful of suppliers and blurs jurisdictional boundaries, potentially creating new systemic risks.

The Path Forward: Prevention Over Reaction

The research makes a compelling case for proactive modernization of public systems before they fail. The $40 billion economic cost represents just one measurable consequence of deferred maintenance on digital infrastructure. As organizations like Morgan Stanley experiment with AI to decipher legacy COBOL code, the broader challenge of modernizing critical systems without disrupting essential services remains unresolved.

The pandemic exposed how technological debt accumulated over decades can translate into immediate economic damage during crises. As the study concludes, the case for upgrading public systems before they break has never been more compelling – or more economically justified.

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

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