The view from out there

Gary Becker is a professor of economics at the University of Chicago and a Nobel-prize-winning economist. We asked him how the rise of E-commerce influences the economy.

The Internet and electronic commerce will lead to more uniform pricing of all products. From an economic standpoint, that improves welfare. We'll no longer have as many situations in which Person A pays a much cheaper price than Person B. Instead, they'll pay competitive prices. There will be a lot of sellers and a lot of buyers. That will greatly improve the economy's efficiency. In other words, E-commerce can lead to a more perfect market. Economists like to think of a market where goods with a given quality have the same price. It's a market where buyers and sellers are well tuned to each other.

We have some things that approach that today, such as stock markets. But most of the goods we buy are bought in local markets. Prices vary from supermarket to supermarket in your area, let alone from automobile dealer to automobile dealer. For products with different quality designations that are offered over the Internet, you may have hundreds of thousands of people in the same market, so you get a more uniform price for a given quality. It's a great advantage, particularly for people who aren't in a big city where there are lots of alternatives. It's also good for older people who can't get out so easily, and for those whose time is so valuable that they don't get out much.

We are also discovering that the variety of goods that can be sold by E-commerce is far greater than was first thought. Look at the joint venture involving GM, Ford, and DaimlerChrysler to create an automobile-parts exchange. We are going to see things that I at least can't envision at this point.

It is a bit more difficult to know whether this could better help control inflation. That depends on the government's policy toward money creation. It also depends on how easily people can shift their commerce around from country to country. To the extent that E-commerce goes both national and global, then it will put pressure on countries not to inflate their economies. If a country does inflate, that might shift business away from companies based there to companies that are based abroad.

Which brings me to the concept of the new economy. Is this concept for real? It depends on what you mean. If you mean we have permanently eliminated the business cycle or somehow permanently eliminated inflation, I think no. We will always have a business cycle, although it may well be milder than it was in the early part of this century. It has been milder. And it is possible to keep it milder on the whole. It's also possible to control inflation, assuming the government follows the right policy. And it is possible to have an even higher rate of economic growth.

So you can have an economy that is "new" in those dimensions: milder inflation, a milder business cycle, and a higher growth rate. We have a good chance of achieving that. But, as always, shocks to the world and bad public-policy responses can mess things up.

We have not eliminated events that are beyond our control, and we have not eliminated bad responses to such events by policymakers and others. Some of that went on in the Asian crisis. Governmental reactions to those events caused the situation to worsen in some countries. So an important area of human error, and especially of governmental error, has not been eliminated. --From an interview with Roger Fillion


For more insight on the current state of small business, see The View From Out There.


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