in short, information technology raises output per hour in the total economy principally by reducing hours worked on activities needed to guard productive processes against the unknown and the unanticipated. narrowing the uncertainties reduces the number of hours required to maintain any given level of production readiness. because knowledge is essentially irreversible, much, if not most, of the recent gains in productivity appear permanent. expanding e - commerce is expected to significantly augment this trend. already major efforts have been announced in the auto industry to move purchasing operations to the internet. similar developments are planned or are in operation in many other industries as well. it appears to be only a matter of time before the internet becomes a prime venue for the trillions of dollars of business - to - business commerce conducted every year. not all technologies, information or otherwise, however, increase productivity - that is, output per hour - by reducing the inputs necessary to produce existing or related products. some new technologies bring about new goods and services with above - average value added per workhour. the dramatic advances in biotechnology, for example, are significantly increasing a broad range of productivity - expanding efforts in areas from agriculture to medicine. indeed, in our dynamic labor markets, the resources made redundant by better information are being drawn to the newer activities and newer products, many never before contemplated. the recent biotech innovations are most especially of this type, particularly the remarkable breadth of medical and pharmacological product development. one less welcome by - product of rapid economic and technological change that needs to be addressed is the insecurity felt by many workers. this stems, i suspect, from fear of job skill obsolescence. despite the tightest labor markets in a generation, for example, more workers currently report in a prominent survey that they are fearful of losing their jobs than was reported in 1991, at the bottom of the last recession. the marked movement of capital from failing technologies to those at the cutting edge has quickened the pace at which job skills become obsolete. the completion of high school used to equip the average worker with sufficient knowledge and skills to last a lifetime. that is no longer true, as evidenced by community colleges being inundated with workers returning to school to acquire new skills and by on - the - job training being expanded and upgraded by a large proportion of american business. it is not enough to create a job market that has enabled those with few skills to finally be able to grasp the first rung of the

financial instability from time to time, and policymakers will be forced to make judgments about the costs and benefits of alternative responses with very incomplete information. in a financial crisis, the potential cost of inaction or inadequate action is possible disruption to the real economy, which would damp activity and put undesirable downward pressure on prices. such disruptions can come about because crises heighten uncertainty about the financial status of counterparties and about the eventual prices of assets. in an especially uncertain environment, lenders may become so cautious that credit supplies are cut back more than would be justified by an objective assessment of borrowers ’ prospects ; concerns about counterparty risk can impair the smooth functioning of payment and settlement systems, interfering with a wide variety of markets ; asset prices can be driven well away from equilibrium values ; and confidence can be undermined. these types of tail events could depress economic activity for a time and, if prolonged, could also adversely affect efficiency and productivity by impairing the ability of financial markets to channel savings into the most productive investments. although policy action may be able to reduce the odds of adverse effects or alleviate their impact, some policy responses to a crisis can themselves have important costs that need to be balanced alan greenspan ( 2004 ), “ risk and uncertainty in monetary policy, ” american economic review, vol. 94 ( may ), pp. 33 - 40. edward c. ettin, myron l. kwast, and patrick m. parkinson, of the board ’ s staff, provided valuable ideas and comments. against their possible benefits. in short, intervening in the market process can create moral hazard and weaken market discipline. if private parties come to believe in the possibility of policy actions that will relieve them of some of the costs of poor decisions or even just bad luck, their incentives to appropriately weigh risks in the future will be reduced and discipline on managers watered down. weaker market discipline distorts resource allocation and can sow the seeds of a future crisis. the possible real costs of policy actions implies that they should be taken only after the determination that, in their absence, the risk is too high that the crisis will disrupt the real economy. once that judgment is reached, the central bank and other authorities have a variety of instruments to use, and the degree of potential moral hazard created will depend on the instrument chosen. approaches that work through the entire market rather than through individual firms run a lower probability of distorting risk - taking. thus, a