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Making Peace with the ATM Machine

by Sam Kaplan

As we troll in waters of economic uncertainty, perhaps we should stop and examine the causes of the last two periods of economic growth. No, I'm not referring to the conventional nonsense of the pedestal-perched Greenspan. I'm not talking about the usual suspects trotted out by the me-too economists such as cutting tax rates or ending budget deficits. I’m talking about the real reasons that have never been offered to the public. First, we should admit that our economic system is a chaotic system, meaning that small inputs can make for dramatic changes in the output side of things. James Gleick's book Chaos describes this as the butterfly theory: a butterfly's wings disturbing the air in Beijing can effect storm systems a month later in Seattle. So what wings flapped the economy into motion in the last two expansions of 1982-1989 and 1992 - present?

First let's recall for those not too addled by the information-overload 90s, that the 1980s economic boom was widely considered a consumer driven one. People buying compact discs, taking in The Karate Kid at the movieplex, scoring babes at the fern bar--spurred the economy for most of the decade. Why were people spending more money more freely? Now don't give me that Reagan tax cut explanation. And please spare me the Kensyian big budget deficit nonsense. Think boys and girls. What innovation became popular and pervasive in the early 1980s that made it so much easier to spend our hardly-earned dollars? The ATM machine. The spread and use of ATM machines reached critical mass in the early 1980s. It was this simple cash dispensing device which was the chief cause of the 80s economic boom.

In 1979, approximately 15,000 ATM machines were installed throughout the United States. As Barclays Bank noted in a history of the ATM, "…in the mid-1980s cash dispensers truly became a worldwide phenomenon." By the early 1980s, "banks began to take advantage of improvements in telecommunications technology and formed shared ATM networks with other banks, allowing customers of one bank to withdraw money using ATMs of other banks" In other words, money for the first time in history, was widely available on a 24-hour basis. For the first time, when out drinking and carousing on a Friday night, our darling, drunken consumer need not rely on a more organized friend--one who had stopped by the bank earlier in the day to retrieve adequate amounts of cash--to pay for the evening's revelry. Nope. Need more money? Just walk to the corner ATM and voila--here's forty bucks to spend on booze, women and the most important entity of the 80s--yourself.

Like all economic booms, the 80s' ATM train was bound to slow down and it did in the latter part of the decade and into the early 90s. Then it roared back to dizzying speeds due to something that was predicted in the late 80s. Ironically, the explanation for the expected boom was forgotten as good times unfolded.

The fall of the Soviet empire in 1989 led many to predict a "peace dividend" as our concentration, efforts and investments were converted from defense to other areas. But in the next couple years our economy went into a recession and we all but forgot about the promised peace dividend. In fact, the peace dividend occurred almost exactly as predicted. In 1989, Business Week wrote that the economic impacts of shifting time and priorities from defense to more productive endeavors would mean "short-term interest rates could fall to less than 5 percent, housing could surge, the federal budget would move into surplus, and growth would accelerate…long-term gain with near-term pain."

On the issue of the peace dividend, the Federal Reserve Bank of New York noted in an analysis written in the early 1990s that "In the long run, the economy is likely to benefit from lower defense spending as resources are released for more productive uses. However, considerable short-run pain will accompany the transition." The short-term pain was due to reductions in defense-related industries. Between 1987 and 1992, employment in those industries declined by some 440,000. It noted that these cut backs hit a few states hard, those that were heavily dependent on defense spending: Virginia, Massachusetts and California. What do you recognize about those states? They are three of the hubs of the high technology boom. Those that lost their jobs in California, according to the Bank, were heavily concentrated in "aerospace, electronics and communications industries." So as our national psyche stopped concentrating on the Cold War, it turned towards more productive pursuits and eventually the high technology boom more than assimilated those displaced by defense cuts. As the Federal Reserve Bank of New York correctly noted in 1992, "The Cold War build-down will free a substantial amount of resources that can be applied to other public and private pursuits."

There was short term pain. Also, the boom was delayed by the Persian Gulf War. But in the end, exactly what was predicted did occur. With a Cold War no longer sapping our concentration and energy, the best, the brightest and the lucky were turned loose on computers, telecommunications and all sorts of other economically productive endeavors. The last decade has been our expected, our predicted, peace dividend.

So the two explanations for the last two economic booms are not monetary policy, tax cuts or eliminating budget deficits. It was the almighty ATM machine and the predicted peace dividend. As those on both sides of the political aisle gnash their teeth over tax policy, interest rates or other economic noise, remember it is likely to be something else that is more important. What will propel the next boom? The common cold. But more about that another time.