Is It Time To Kill The Penny?
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Banks and laundromats are scrambling. Arcades and gumball machine operators are bracing for the worst. Grocery stores are rounding their prices to even dollars or rejecting cash altogether. The specter of the coin shortage lurks everywhere.
Blame COVID-19. The U.S. Mint cut back on coin production this spring to keep its workers safe. Meanwhile, the economy is constipated. "With the closure of the economy, the flow of coins through the economy has ... kind of stopped," explained Federal Reserve Chair Jerome Powell last month. Coins sit idle in closed stores' cash registers and people's homes, and they're not making it to the banks and companies that need them for business.
The coin shortage could be a rallying cry for a long-running movement that has lost steam in recent years: Kill the penny! Last year, almost 60% of the coins that the U.S. Mint churned out were pennies. 60 percent. It made more than 7 billion pennies. Seven billion. That's a lot of manpower that could be used toward making coins we actually need.
The penny is basically worthless. Actually, it's worse than worthless. It costs the U.S. government about 2 cents to produce every penny. Pennies aren't even worth our time. Wake Forest University economist Robert Whaples has calculated that the typical American worker earns a penny every two seconds. It takes most of us more than two seconds to fumble around with change or pick a penny off the ground, which explains why there are so many pennies on the ground. Money is supposed to be the medium of exchange, not dead weight.
The congressman who tried to kill the penny
Jim Kolbe spent two decades trying to kill the penny. He's a former Republican congressman from Arizona, and he began his fight in the late 1980s. Initially, it was not a noble-minded quest to free us of the penny. He says, frankly, that he first wanted to help the copper industry in Arizona by getting rid of the paper dollar and replacing it with a copper-coin dollar. He saw polling that showed there was widespread support for killing the penny, so he and his colleagues bundled the idea of a new copper-coin dollar with the idea of killing the penny. (The penny is made mostly of zinc, not copper.)
But over time, Kolbe says, his proposal to kill the penny became more than just a way to help the copper industry. "It was a logical reform that would have saved the U.S. government a lot of money," he says.
By the 1990s, Kolbe says, he was introducing new legislation to kill the penny with every new session of Congress. But he kept facing resistance — for example, from the speaker of the House at the time, Dennis Hastert, who represented a district in Illinois, the home state of Abraham Lincoln. Lincoln, of course, is on the penny, and Kolbe says that proved to be a major roadblock. So were special interests such as zinc miners and the company that supplies the "penny blanks" used to mint the penny.
Penny defenders' strongest argument was that eliminating it would hurt consumers. All those $9.99 products? The prices would be jacked up to an even $10! They called it the "rounding tax." But Whaples, that penny-researching economist at Wake Forest University, conducted a study of convenience stores and found that the final digit of purchases, which usually involve multiple products and a sales tax, was pretty much random. "And so if you round it to the nearest nickel, the customer wouldn't get gouged," Whaples says. Sometimes you'd round up; other times you'd round down. In the end, it would basically be a wash.
For most of U.S. history, we never had a coin as worthless as the penny is now. Back in 1857, we killed the half-cent coin — which, when adjusted for inflation, was as valuable then as about 14 cents is today. And we did just fine. Kolbe, the former congressman, says that when he goes to the store and is handed a useless hunk of metal with Abe Lincoln's face on it, he is "bemused as much as anything because I think it's a good illustration of the problems in our legislative process."
The U.S. Mint lost over $72 million making pennies last year. But there doesn't seem to be much urgency about this because in the grand scheme of the federal budget, it's just pennies. We reached out to the U.S. Mint to discuss the coin shortage, and its representative Michael White told us that after retooling to keep its employees safe during the early part of the pandemic, the U.S. Mint has been operating at full capacity since mid-June. But depressed retail activity and reduced deposits by coin processors — like, you know, those machines at the supermarket that exchange your coins for bills — have hampered coin circulation. Since the U.S. Mint went into overdrive to end the coin shortage, White says, about 40% of the coins that it has produced have been pennies.
P.S. You should listen to a greatPlanet Moneyepisode about the penny, "What's A Penny Worth?" It has three fun stories, including a quest to find something (anything!) we could purchase with 1 cent and the dream of how 1-cent transactions could transform the Internet.
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