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Thursday, June 16, 2011

The Truth About ATMs

"Government is like a baby. An alimentary canal with a big appetite at one end and no sense of responsibility at the other." — Ronald Reagan

This post is a follow up to my post yesterday regarding Obama’s comments on shovel ready jobs and how ATMs are causing unemployment. After digging around the Internet I found some information regarding the use and number of ATMs in the United States along with the number of bank tellers that have been affected by these machines.

In an interview on NBC News, Barack Obama used the example of ubiquitous automatic teller machines to illustrate how technological progress is allegedly impeding job creation:

“There are some structural issues with our economy where a lot of businesses have learned to become much more efficient with a lot fewer workers. You see it when you go to a bank and you use an ATM, you don’t go to a bank teller, or you go to the airport and you’re using a kiosk instead of checking in at the gate.”

According to Market Place there were an estimated 383,000 ATMs in the 2004. This number had grown from 371,000 in 2003.

An article in The Economist, far from a right-wing publication, the author states:

“This got right-of-center bloggers linking gleefully to Bastiat and Hazlitt's classic debunkings of the hoary fallacy that machines create unemployment, and started a minor Twitter meme mocking the idea that ATMs are taking our jobs. As it happens, theory and reality agree in this case. ATMs have not in fact displaced bank tellers. According to this 2004 Charles Fishman article in Fast Company:

“At the dawn of the self-service banking age in 1985, for example, the United States had 60,000 automated teller machines and 485,000 bank tellers. In 2002, the United States had 352,000 ATMs—and 527,000 bank tellers. ATMs notwithstanding, banks do a lot more than they used to and have a lot more branches than they used to.”

“More recently, the Bureau of Labour Statistics reports there were 600,500 bank tellers in 2008, and the BLS projects this number will grow to 638,000 by 2018. Mr. Obama clearly picked a poor example. It's worth noting that the advent of the ATM also created demand for ATM maintenance workers. According to the BLS, there were 152,900 "computer, automated teller, and office machine repairers" in 2008. I'm not sure how many of these are in the ATM repair biz, but the BLS expects a mild decline in this line of work due to increasingly reliable machines and declining replacement costs. Evidently, the relationship between technological advance and employment is complicated.”

In a recent post, Karl Smith clearly encapsulates the basic economic logic of the relationship between machines and workers: “Typically we think of [capital and labour] as complements.”

Smith Continues:

“Let’s take some obvious examples. Suppose to create welded metal I need both a welder and welding torch. The welding torch goes down in price. That means that its actually cheaper to create each piece of welded metal. This will allow me as a factory owner to either lower my price, [or] sell more welded metal while maintaining my profit margin.

However, to do this I will need more welders. So a fall in the price of welding torches increases the demand for welders.

On the other hand suppose that I am an airline considering whether to have more booking agents or whether to invest in more sophisticated booking software. Specialized software can run well into the multi-millions but if it gets just cheap enough it might actually be a better deal than new agents.

So the falling price of capital alone isn’t enough. It depends on how the capital interacts with the workers. Moreover, it would take some fancy math to show this, but until capital can do everything labor can do – that is until the singularity – some types of jobs must be complements to capital.

Those jobs will always be in more demand as capital get cheaper. The question is how much skill you need to do those jobs. This is the whole issue of skill-biased technological change.”

The Economist article concludes:

“I think it's plausible that as demand began to pick up after the recession hit bottom, many firms chose to invest in updated technology that further increased the productivity of skilled workers they did not dismiss rather than re-hiring workers whose skills are less augmented by better tech. I wouldn't blame ATMs on our jobless recovery, but surely the general skill-bias of technological change is an important part of the issue. I suspect Tyler Cowen may be right that the recession created an occasion for firms to shed "zero-marginal-product workers". In that case, the ranks of the unemployed are filled with wannabe workers whose labour is at present worth less to employers than the cost of employing them. This puts Mr Obama in a politically perilous position. We can expect rising aggregate demand to make it pay for some firms to once again employ some significant number of relatively low-productivity workers, but we probably can't reasonably expect the unemployment rate to return to its pre-recession level, at least not in the absence of politically unlikely employment subsidies or government make-work schemes. Given the current creeping pace of growth, the unemployment rate may not improve very much before next fall, which would bode ill for incumbents. Mr. Obama can blame it on the machines and deny Republican charges that his administration made the recession worse. But jobless voters and the voters that love them tend to blame the guy in office, no matter who's really to blame.”

Yesterday, Barack Obama gave away the game. Without actually using the words, Barack Obama admitted he is completely and utterly ignorant about job creation and economics. In his interview with the Today Show, Barack Obama declared that the unemployment rate remains so high because of ATMs.

Sadly, many people will agree with him because they lack the vision to see the whole picture. They see a perception of less bank tellers and more ATMs — much as Barack Obama does — and presume this must mean higher unemployment. This myth, and it is a myth, is older than even the great lament that cars put blacksmiths on the unemployment line by getting rid of the need for horse shoes.

This left-wing populist thinking does not create jobs and often leads to dangerous policies that stifle the innovation that create the jobs that spring forth from the ATM’s replacing the bank tellers. Barack Obama sees less tellers at the banks because of ATM’s. But he does not see new IT workers at the bank to manage the ATM — higher paid than the tellers. He does not see the computer programmers. He does not see the manufacturers of the machines and their component parts.

Barack Obama should read Henry Hazlitt’s Economics in One Lesson. The book was written in 1945 and debunks Obama’s myth succinctly. K. E. Campbell links to the relevant portion:

“Among the most viable of all economic delusions is the belief that machines on net balance create unemployment. Destroyed a thousand times, it has risen a thousand times out of its own ashes as hardy and vigorous as ever. Whenever there is a long-continued mass unemployment, machines get the blame anew. This fallacy is still the basis of many labor union practices.

The belief that machines cause unemployment…leads to preposterous conclusions. Not only must we be causing unemployment with every technological improvement we make today, but primitive man must have started causing it with the first efforts he made to save himself from needless toil and sweat.”

For starters, this Obama comment really is odd when he wants the government to subsidize the production of electric cars, which would destroy whole sectors of the economy centered around gas fueled cars. If he believes ATM’s destroy jobs, why does he want to subsidize government innovation in green jobs, which would destroy other jobs? Of course, the answer to that is that he wants to destroy the other sectors.

There, in fact, is the most important and revelatory bit of this whole statement. Barack Obama premises his world view that innovation kills jobs. But, Barack Obama wants to innovate and advance technology in certain areas of the economy, e.g. government and green jobs. Therefore, we can conclude based on his own presuppositions about innovation that Barack Obama is intending to kill off sectors of the economy by forcing government to fund innovation in other areas of the economy.

It all makes sense now, even though it is an ignorant and wrong presupposition.

Machines do not cause unemployment. They just move employment elsewhere — from the bank teller line to the IT line to the manufacturing line, etc.

In reality, such machines are among the tools that help us realize a level ofATM_750x1300 wealth beyond the dreams of our forefathers. Enhanced productivity does not destroy jobs. It creates them, as new markets are opened, new occupations appear, and society gains more wealth to spend. Someone must build, program, install, and maintain the ATMs. People find better things to do with the time they used to spend standing in line at banks.

Prosperity is not simply a matter of full employment, or the basic needs of all citizens being met. Full employment can be accomplished through slavery. To work backward from Obama’s economic superstitions, there is a very high rate of employment in primitive societies that lack machinery, and must rely entirely on human and animal muscle. There is little surplus in such a system, so those who don’t work tend to die fairly quickly.

As for meeting basic needs, authoritarian power can distribute them in the short term, as in the case of people organized to survive a disaster. Over the long term, when the State allocates resources to the people, the result is poverty, not prosperity. No one thinks of the ugly purgatory of Soviet communes when they envision a “prosperous” nation.

Is prosperity a matter of luxury, then? Technology has given us fabulous wealth over the last century. The wealthiest man alive in 1911 did not have access to many of the luxuries that surround a poor American today. No amount of money could have provided Andrew Carnegie or J.P. Morgan with anything comparable to Internet access, a cellular phone, or global jet travel. A king of old would view the average modern apartment as a chamber of Heaven.

However, wealth is not only for the rich, and it’s not just measured in luxuries. Average people now have incredibly easy access to high-quality food and medicine, at very modest cost. Think of it this way: how many hours per day does the average American have to work, in order to afford the basic necessities of food and shelter? Our forefathers, in the very recent past, had to put in long and grueling hours of back-breaking labor just to stay alive. They could only dream of an eight-hour work day and vacation time.

Prosperity results when the value of our time, both working and leisure, is increased. Greater productivity and purchasing power allow us to meet our needs with fewer hours of labor, and improve the quality of our leisure time.

Another essential ingredient of prosperity is liberty. A highly productive person with lots of leisure time is not wealthy, if he must spend his private hours locked in a dreary cell. Money is less valuable when people don’t have a wide range of choices in how to spend it. Commerce produces less wealth when business partners cannot cooperate freely, and end that cooperation when they choose. Liberty is an essential component of competition, which requires consumers to have free choice between competing producers.

Liberty by itself doesn’t produce prosperity, though. A man living alone in a vast wilderness has a great deal of liberty, but would not live what most of us define as a prosperous life. No offense intended to those who voluntarily choose a simple, solitary existence, but a nation filled with people who live that way wouldn’t generate American levels of wealth and industry.

What brings liberty and productivity together, creating jobs and improving the value of our lives? Ambition.

Ambition is the fountain of prosperity. The desire for a better life, for ourselves and our families, drives individuals to achievement. The hunger for profit and success compels businesses to expand, and create new markets. The drive to offer new products, at reduced cost, leads to innovation.

Government control brings stasis, because it is necessary to inform controlled citizens that their ambitions are invalid. Aspirations are transformed into greed. Achievement gives way to re-distribution. Virtue is assigned to the satisfied, while the restless become troublemakers. Need becomes vastly more important than desire, which central planners regard as a sin.

ATMs don’t destroy jobs, because the ambitions of a bank are better fulfilled by devoting its precious human resources to more exciting pursuits than processing small cash withdrawals. The ambitions of bank employees soar beyond the simple tasks a machine can handle.

No matter how much high-flying rhetoric of “dreams” and “audacity” it adopts, the Left’s philosophy has always been perfectly captured by the communal farm, where the needs of each are fulfilled by the means of others. There is full employment in the fields, and at the workbenches where crude tools are fashioned. You don’t want to live there. No one in their right mind does.

What’s more troubling about Barack Obama’s statement though — and the White House doubling down on it — is that it leads to one of two conclusions, both of which are horribly wrong.

The first conclusion is that we should get rid of technology, declaring a veritable Butlerian Jihad. Doing so would cause companies to allocate resources more inefficiently, which might increase the labor pool in one sector of the economy, but assuredly wipe it out in another.

The second conclusion is that we must settle for this. It is arguable that we are in a period of stagnation with regard to innovation, invention, and technological progress. But settling for this as fact will most likely lead the government to take public policy steps to strengthen and expand the social safety net to compensate for lost jobs than to get government out of the way and fire up the private sector to move beyond the stagnation and innovation plateau.

We can see already that Barack Obama has decided to go with the second option — to accept a decline and prepare for the decay caused by the decline instead of taking proactive steps to get the economy firing up again.

Barack Obama shows himself to be clearly ignorant of the way a free market economy works and innovates. Consequently, his economy policy is founded on that ignorance, accepts as gospel the decline of the United States, and, until he is replaced, we’re screwed.

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