The Debate Surrounding the U.S. Penny: Will It Survive or Fall by the Wayside?
The penny, a fixture in the American economy for over 200 years, is now facing a critical moment. Is it time to let it go, or will cherished sentiments and practical reasons keep it in circulation?
Why the Penny Lingers
No, the U.S. government has no plans to get rid of the penny. It would be considered a form of stealing from the population, as illustrated by the nine-tenths mark often seen at the end of gas prices. In Canada, where pennies ceased circulation years ago, the savings are eroding businesses' bottom lines. For now, the penny remains, thanks to lobbying from those who prioritize sentimental value and practical considerations over fiscal efficiency.
Legislative and Economic Reasons for Pennies' Survival
It's a classic case of sentimental attachment, as was alluded to by President Obama in a 2013 interview. Polls from 2014 show that a majority of Americans oppose the elimination of either the penny or the nickel. More interestingly, the New Yorker estimated that for every penny found, it would take 6.15 seconds to pick up and earn less than the federal minimum wage. Emotionally people are committed, but practically, the penny has staying power.
Practical Considerations
One must consider the economic implications of a pennyless society. In countries like Canada, where pennies have been out of circulation for years, the pricing system requires rounding to the nearest five cents. This can create a loophole. Retailers can strategically set prices to earn extra pennies on every cash transaction, a phenomenon dubbed a "rounding tax".Chipotle Mexican Grill, for instance, faced massive customer backlash when they tried to implement this system. Economists like Raymond Lombra at Penn State University estimate a loss of at least 600 million dollars annually should the penny be eliminated. Economically, the burden of this rounding tax would disproportionately fall on the poor and disadvantaged, who rely more on cash.
Alternative Solutions and Policy Recommendations
Instead of a mandatory policy, the smarter approach would be to induce voluntary behavior change. Encouraging major retailers to round down purchases to the nearest five cents can help transition the economy away from the penny. Such a change could even increase productivity and customer satisfaction. Imagine a scenario where simply reducing a few seconds from each transaction could lead to higher efficiency and happier customers. This could, in turn, compensate for the loss of revenue from pennies.
Lessons from Other Countries
Israel’s drugstore chain, for example, avoided the problem by rounding down consistently after their lowest-value coin was phased out. This approach highlights a more economically feasible alternative to a penny ban.
Conclusion: The Role of Bribes in Economic Reforms
Effective policy should leverage the power of incentives rather than force compliance. Offering small monetary rewards to encourage people to transition away from pennies, much like Israel did, may be a far more successful strategy. This approach respects the emotional attachment to the penny while addressing the economic challenges it poses.