The New Paradigm - Federal Reserve Bank of Dallas

16
Forty-two percent of severely to profoundly hearing-impaired Americans
ages 18 to 44 are not in the labor force, compared with just 18 percent
of the general population. The hybrid microchip in Advanced Bionics’
cochlear implant can help deaf adults understand more than 90 percent
of words without lip-reading. Otic implants, bionic limbs, insulin pumps,
pacemakers and other smart medical devices contribute not only to
quality of life but also to our labor force and productivity at work.
Although still in its infancy, computational biology promises to be one
of the grandest spillovers from the microprocessor. Ever-faster computers
have accelerated the process of gene sequencing, helping us with
everything from making safer burgers to decoding human DNA.
The canals and railroads of the 18th century and the air
transport and interstate highways of the 20th century
expanded customer bases and decreased the cost of bringing
goods and services to market.
The ease of shopping nationally—or even globally—
online frees consumers from dependence on local merchants.
We can buy wherever products are cheapest, then
get delivery overnight. Low-cost outlets win additional
business and thrive. High-cost sellers shrink and eventually
go out of business. At the same time, electronic commerce
reduces or even eliminates layers of retail and wholesale,
cutting the cost of marketing and distribution.
Today, e-commerce is a worldwide virtual marketplace,
open for business 24 hours, seven days a week. (See Exhibit
11.) Internet sites proliferated in the past decade as consumers
discovered the convenience of shopping online. At a
click of the mouse, they can visit the sites of established
retailers—jcpenney.com, walmart.com and homedepot.com.
And they have access to hundreds of newcomers, including
bookseller amazon.com, lens merchant cheapcontacts.com
and sporting goods dealer fogdog.com.
Cyberspace business is a free-for-all, with entrepreneurs
striving to meet consumers’ needs by devising seemingly
endless schemes. Dell Computer lets buyers customize
computers online. Internet companies conduct traditional
auctions, such as the ones at ebay.com, and so-called
reverse auctions, where sellers bid for buyers.
Priceline.com and others play a version of “Let’s Make a
Deal,” with customers naming a price for airline tickets,
hotel rooms and other items. Sellers then decide whether
to accept. Mercata.com brings bulk discounts to the Internet
by assembling groups of buyers who want the same
products. Ubarter.com matches companies’ surplus goods
and services in noncash transactions. New applications are
making shopping online even easier. Programs scour
cyberspace for the best prices—sometimes doing the comparison
shopping while the buyer sleeps.
Declining long-run average costs. The economics of
the Industrial Age centered on the cost structure of yesterday’s
major industries—manufacturing, mining, agriculture
and construction. Their costs may fall as output
increases, but not for long. Well before demand is satisfied,
enterprises exhaust economies of scale and start bidding
1999 ANNUAL REPORT Federal Reserve Bank of Dallas