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The ATM Myth

Brad DeLong cited this passage from Ron Suskind’s latest book on Monday:

Both [Christina Romer and Larry Summers], in fact, were concerned by something the president had said in a morning briefing: that he thought that high unemployment was due to productivity gains in the economy.

The same meme spread across the economics spectrum: Scott Sumner was horrified. Mike Konczal’s reaction (on Twitter) was restrained (“This is…depressing”) by comparison.

In the context of Suskind’s book, we might just assume that Obama was, as usual, being gulled by his handler Rahm and his Svengali, Timmeh Geithner. However, via Karl Smith, we can set to rest any doubt that Barack Obama is just being misled. Matt Yglesias catches a lazy piece of  “thinking” from the President—who has had Austan Goolsbee, Larry Summers, Peter Orszag, Alan Kreuger, Jason Furman, Jason Bernstein, and several others (even dissing Christina Romer, as the Now-Sainted-by-the-Press-for-his-Fairness-to-Women Obama explicitly did) to correct him:

In a June interview with Fox News, President Obama appeared to argue that the country is suffering from high unemployment because productivity enhancing technologies such at ATMs have reduced the need for work.  It wasn’t clear to me at the time if the president really meant that or if it was just a bad moment in an interview,  . . .

Team Obama has, I think, landed on a more sophisticated version of this theory, and that explains some of the reason why Romer & Summers aren’t in the administration anymore and haven’t been replaced by like-minded people. [link in original]

Now, Barack Obama “might not be particularly well-informed about economics” (Sumner), but I never would have thought he was that obtuse.

Let me talk for a moment about our shared experience. Obama was a year behind me in college. As a transfer student, he didn’t start with on-campus housing; he got a room in a flat in the mid-100s.  So he walked to school—past several banks, one of which was undoubtedly more than happy to open an account for a never-attended-public-school Ivy Leaguer who, even then, knew how to manage up. (Heck, they opened one for me, and I fail miserably at most of that description.)

And the one thing you got—whether it was Chase (back before Manny Hanny acquired it) or Citibank (before it became The Big C)—as a student, no minimum balance required, was an ATM card, usable (in the case of Chase) virtually any time in one of the three (3) enclosed ATMs.  They dispensed $5 and $10 bills.

(The “enclosed” is essential, not just for nighttime safety, but also for days of rain and snowses. Years later, in MBA school, we attended the presentation of a guest speaker, a prominent Georgian who had founded an “Internet bank.” He freely stated that he didn’t understand why some companies enclosed their ATMs; I put the now-bankrupt company on my “short” list immediately.)

That was thirty (30) years ago. Putting this as politely as possible, that’s a heckuva long time for “structural change” in employment to take effect.  To put it in context, I know hot type setters who have been out of that business for less time.

It would take someone who was completely unaware of the world around him to point to the ATM as a ca.-2007 cause of structural unemployment in the United States.

Now, you may, correctly, note that there are Many More ATMs in 2011 than there were when Barack H. Obama moved to Morningside Heights in 1981.  And I will certainly agree with you: after all, if you spend 25 years privileging capital investment over labor—not to mention thirty attacking labor—you should expect capital growth.

But that doesn’t mean that capital growth is welfare-enhancing, or even necessarily has a positive ROI.

At Bear Stearns’s main building, 383 Madison, there were two Chase ATMs on the second floor. Those who know NYC will note that there are not one but two Chase branches across the street, but traders and senior executives require convenience, not crossing a NYC street (which they only did to cash/deposit their bonus checks) or, especially, standing in a queue behind people whose time is much less valuable.

(Tone notwithstanding, the last part of that is rather serious: if being away means you or your firm might take a loss in the mid-five or low-six figure range, your work time is more valuable than that of a Claire’s Stores saleswoman. Much better when the worst-case scenario is to be stuck behind one or two of your fellow traders, who wouldn’t waste their time not knowing exactly what they intend to do before getting to the machine.)

And, since the traders and executives weren’t willing to be personally ripped off, the ATMs were no-fee, even for non-Chase cards.

And here is where an alert economist will say cui bono? The answer is: the firm paid $1.2MM ($1,200,000; $600,000 per machine) for those two machines to be there, be maintained, and be fee-free.

So when you point to those ATMs in the grocery store, I point to the 99 cent ($0.99) fee for a $40 withdrawal and say glibly, “Yes, usury is alive and well; you don’t even need to be in a counting house.” 

How many jobs does that ATM destroy?

And—again, if you’re able to think about it, the way some economists (mostly health economists and econometricians, it seems) are able to do—you look at the proliferation of ATMs and realize that each of them needed to be stocked with bills (now $20s and $50s), have their network connections maintained, be repaired, have (a portion of) a staff member available to deal with customer complaints and issues, and be installed based on an initial capital outlay/agreement that covers all of those costs.

If we treat the Bear Stearns arrangement—and Bear and Chase were tight even before the latter “paid the two dollars”—as a benchmark, a semi-full service (as with the ATMs in most grocery stores and Duane Reades, they didn’t take deposits) ATM costs a lot more to run than a bank teller does. As a ballpark, it may be an order of magnitude more, and that’s rounding the ATM costs down (ca. $500K) and the teller expenses up ($50K).

All of the above is even ignoring The Baumol Problem.  You can provide most of your services through an ATM, or a group of ATMs, if it/they work(s) perfectly, but you cannot eliminate the “teller” role completely. You can redefine it: a bonded employee to restock the bills being dispensed is needed, so you can take a teller away from a “window” for an hour a day: seven hours as a teller, one in service of the ATM. And you can move new bank branches into slightly smaller spaces (based on not needing so many tellers), but you’re more likely to convert some of that space in old branches to space for HNW banking efforts, concentrating on areas that require greater customer service.

So the specific, limited job of “bank teller” might have been reduced (assuming bank branches remained constant; anecdotally, I would suggest they expanded significantly)—unlike hot type, it didn’t go away. But the skillset required for tellers is mostly transferrable: excepting any specific licensing/bonding requirements, if you can be a teller, you can be a cashier or a customer service representative or a sales assistant or a realtor.  It’s not like hot type in that respect—the initial skillset is transferrable.

Add the jobs that become available—network engineers, security people, drivers, system administrators, and people to build all of that equipment—when an ATM is installed and reduce that by a fraction of the tellers who won’t get hired.  Throw in an adjustment for the deadweight loss that is added to the economy via the ATM fees (which is at least partially balanced by the expansion of the ATMs themselves), and overall you have to conclude that the ATM increased the number of jobs available.

Economists often call it “creative destruction,” and you would think that the Goolsbees and Summerses of the world would have explained it to Obama.  In fact, you would think it would be something about which a community organizer would have heard, since much of the effort required there is making it possible for your clients to find retraining opportunities.

That he would speak so absurdly so recently reflects poorly on the economists who advised him (not to mention those who still believe his explanation),

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What Do We Mean When We Say "Structural Unemployment"? Part 1

This needs to be screamed far and wide from the highest mountain to the deepest sea, at the top of one’s lungs:

There is no reason to think that the bulk of current unemployment is any sense “structural”: if aggregate demand were higher it would melt away just as unemployment in 1982 melted away.

The following paragraph is more problematic, but could become self-fulfilling prophecy:

There is good reason to think that if we do nothing for the next two years and unemployment remains elevated that a good deal of unemployment then will be “structural,” not amenable to being cured by aggregate demand.

There’s a sleight-of-hand implicit in that second graf that I want to talk about, but work is interfering, so please feel free to talk amongst yourselves. Back later.

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After having received e-mails regarding Mark Thoma’s post on types of unemployment about who was included and excluded from the per centages, I thought a note on the relevance of the employment to population ratio to be worth repeating from comments on that post.

Lifted from comments by run 75441 regarding “unemployment”here:

…[D]id everyone finally awaken to the fact we are experiencing a “new and lower” plateau of people in the Civilian Labor Force as a percentage on the Non-Institutional Civilian Population. It is ~1.6% lower than what it was immediately after the 2001 Recession experienced 8 years ago which equates to ~ 4million additional people in the Not In Labor Force.

Eventually people will re-enter the Labor Force??? For 8 years now much of US Labor has been waiting for the tsunami of job creation that was supposed to come, has not come yet, and I doubt will come soon if . . . if at all. They waited too long to be concerned about unemployed Labor. For almost as many years, states have been engaging in training programs for unemployed workers, and it has not had an impact upon Unemployment or those relegated to the Not In Labor Force because the jobs are not there. Unless there is some serious job creation, outstripping increases in population growth; the plateau of 65.1% is here to stay and will probably drop lower.

Spencer’s chart of “Nonfarm Business Labor Share” here: puts much into perspective for Labor its share of profits/wages since 1982 as shown here: “Productivity Growth.” That share has been shrinking with the result of fewer people working the same numbers of hours for lower wages as productivity increases. The paradigm of higher productivity creating higher wages or less time worked as Tom Walker suggests, is at least 8 years dead. The increases in productivity is the result of few workers workering and lower hours while wages are dropping or are stagnant. We also have the issue of greater technological advances incorporating more artificial intelligence which will sideline even more labor.

[Eight] years of [S]tructural Unemployment is not a normal event. There is something radically wrong when Unemployment hovers at higher than normal levels and more people become structurally disenfranchised from the Civilian Labor Force. I might suggest more of the profits is going to Capital rather than Labor and job creation. The infrastructural costs in the US has always been higher than our Asian neighbors and this does include Healthcare Cantab. Hanging overhead is the chance much of the benefits and protective laws making up this infrastural cost may be shuffled into the background for the purpose of creating low wage jobs.

Thoma’s article is a nice review of economic history and I hope a basis for some new ideas breaking down the old pardigms of economics. It is not much more than that for now.

UPDATE: Laurent Guerby, in comments, reminds us of his review of this issue back at the end of January: Original link (French); Babelfish translation to English. Previously discussed in a Guest Post by run74551 at AB here.

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The jobs of tomorrow…?


For the sake of argument, jobs in our future over the next few years or so appear to be in the health care industry and education. Jobs needing less education than a BA are among the fastest growing.

Where are tomorrow’s jobs going to come from? The question is more urgent than ever, with official unemployment hovering around 10 percent and with nearly one in five Americans unemployed, if you count part-time workers who want full-time jobs and people so desperate that they have given up looking for work entirely.

Most popular discussion about jobs focuses on the effects of offshoring of manufacturing jobs to China and other countries, many of which, like China, manipulate exchange rates and use subsidies to promote their industries. Combating predatory trade practices and rebalancing global trade by means of higher U.S. exports is important, in the short and medium term. But in the long run technologically driven productivity growth is the most important factor in shaping employment in the U.S. and every country in the world.

Productivity and innovation are the catch words, and examples demonstrate how this has worked in the last century. But if policy makers need to craft a response to mitigate the changes, and re-training happens, what is it going to be?

The emptying of the cubicles won’t result in permanent mass unemployment, the present prolonged crisis notwithstanding. As it has always done in the past, labor will shift from more mechanized to less mechanized sectors. But what will those jobs be?

The aging of the boomers accounts for only 10 percent of the growth. The rest comes from increasing demand. That’s because productivity growth in agriculture, construction and manufacturing has greatly reduced the cost of food, shelter and appliances. In the U.S. and similar nations, the freed-up income tends to be used on quality-of-life goods, of which healthcare is the most important.

…the economist Robert Fogel, “Just as electricity and manufacturing were the industries that stimulated the growth of the rest of the economy at the beginning of the 20th century, healthcare is the growth industry of the 21st century. It is a leading sector, which means that expenditures on healthcare will pull forward a wide array of other industries, including manufacturing, education, financial services, communications and construction.”

Another widespread myth holds that most Americans need to go to college in the future. In reality, most of the fastest-growing jobs, including those in healthcare, do not require a four-year bachelor’s degree. According to the Council of Economic Advisers: “The categories with some education required beyond high school are growing faster than those not requiring post-secondary schooling.

None of this means that we don’t need world-class scientists and engineers, or that we don’t need to rebuild our manufacturing export industries, or that we don’t need to hire people to design and build up-to-date infrastructure and energy systems. High-tech agriculture, manufacturing and infrastructure and related business and professional services will remain essential to economic dynamism. But thanks to ever smarter machines, fewer and fewer people will work in the primary (field), secondary (factory) and tertiary (office) sectors. Most of the job growth will be in the “quaternary” sector of healthcare and other qualify-of-life services.

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