Change of Subject
December 5, 2012
What if the smallest bill we had in the U.S. was a five spot?
And for a dollar we had just a coin, no paper? And the nickel was the smallest coin in the drawer?
"Most men don't want a lot of coins in their pockets," observed U.S. Rep. William Clay, D-Mo., at a hearing on Capitol Hill last week titled "The Future of Money," in which a House Financial Services subcommittee considered proposals to stop minting pennies and to replace the dollar bill with a coin.
And evidently women don't want sagging pockets either. "Some 1.4 billion" unwanted, uncirculating dollar coins "now languish in Federal Reserve bank vaults," testified James Miller, former director of the Office of Management and Budget. He added that polls show "three out of four Americans think all of this business about replacing the dollar bill is at best a budget gimmick."
As for phasing out the penny, "Americans abhor the idea of rounding" prices to the nearest nickel, testified Mark Weller, executive director of Americans for Common Cents. "Over 77 percent think that merchants would use that opportunity to raise prices," he said, while conceding that studies show the actual inflationary effect would be "very small."
Other witnesses noted that the benefits will outweigh such costs. A report released last week from the U.S. Government Accountability Office underscored its recent projection that replacing flimsy paper dollars with sturdy coins will save $4.4 billion over 30 years.
Canada pulled the switch in 1987 and the "profits that came from substitution were 10 times what the original estimates were," testified Philip Diehl, former director of the U.S. Mint. "They had so much success, they subsequently introduced a $2 coin to replace their $2 note in 1997. And they reaped similar kinds of benefits."
U.S. Mint director Richard Peterson testified that, even after the recent implementation of efficiencies, it still costs roughly two cents to make one penny — a net loss of $180 million in 2012.
Many nations have successfully abandoned their pennies as well as their small bills in the last 50 years. But here, the traditionalists — cheered on by lobbyists for companies that make the paper for our money and sell the metal for our coins — have beaten back many such efforts by playing the "what if?" card.
Thing is, the United States has already run the experiment.
In 1973, the smallest bill we had — the $1 note — was worth roughly $5 in today's money, even as a penny had the purchasing power of today's nickel, according to online inflation calculators.
And in 1976 we were all carrying coins that are worth what a dollar is worth today. We called them quarters.
Life wasn't better then — in fact the music and the hair and clothing styles were pretty dreadful. I'm not going nostalgic on you. I'm just saying it was far from the currency hell envisioned by opponents of modernization who quite clearly won't relent even when the penny becomes worth less than the lint that accumulates around it.
And yes, the savings are small. Spread out over 30 years, $4.4 billion plus somewhat similar savings from scrapping the penny will do nothing to change our nation's financial outlook. And because of the increased use of electronic payments at the cash register for even small purchases, the savings might even be less than projected.
But the symbolism is large. One of the notable aspects of the ongoing debate over big money issues in Washington is how reluctant citizens are to make any sort of sacrifices — to pay more or do without — in order to try to get the economy back on track.
Our near crippling tendency to cling to things as they are prevents us from taking fresh, bold looks at old ideas.
Reform cherished entitlement programs? Overhaul the tax code with all its cherished goodies?
When we can't even let go of pennies and singles?
Our desire to cling to small change illustrates why big change is so hard.
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