Penny-wise, pound-for-pound foolish?

Paul Jacob

6/11/2006 12:05:00 AM - Paul Jacob

The other day I discovered a tax token amongst my stuff. It was worth, in its day, a quarter of a cent, and was minted during the Depression. That's when so many sales taxes were introduced to grind every last quarter-cent from even the poorest of Americans. We needed government that much.

Whew: there's an idea whose time long went. (Well, actually, I was alive when Missouri and Oklahoma finally got rid of theirs; most other sales-tax token states had said good riddance long before.)

The penny remains, though. It's still with us, and not just for taxes. Inflation has happened since the departure of the tax token, so the penny's value has decreased since. And, meanwhile, the cost of zinc, one of its main current component elements, is rising. A penny was worth just under a cent (.97 to be exact) in metal last year; each one is worth 1.4 cents now.

Which gives Representative Jim Kolbe, Republican from Arizona, a pretty good reason to abolish the Lincoln penny, our current one-cent "token." When the cost goes just a tenth of a penny up, he predicts, "[e]veryone will horde their pennies because the metal will be worth more than the coin."

That is Gresham's law, isn't it? Bad money — that is, paper dollars, and nickels and dimes — will "drive out the good" because the good pennies are legally valued at less than their commodity value.

So Kolbe has a point. Let's stick with the "bad" money! Otherwise, some will get rich melting down pennies while the rest of us have to make do without. Maybe the penny should be gotten rid of, deliberately, before it goes without any plan at all.

Trouble is, if we do like Australia did, and make a rule about rounding up and rounding down in our cash transactions, won't there be a tendency to price goods in just such a way to reap a rounding-up reward? Will the sales tax states then insist that the incidence of this rounding reward accrue to the state and not the merchant? And won't this just be a mess?

Kolbe may not have addressed this issue, but he has pooh-poohed most arguments against the removal of the penny from circulation. Repeatedly. It seems like every few years he makes some motion in Congress to do just that.

I guess that's where Americans for Common Cents comes in. This lobbying group — which has, you have to admit, one of the better possible names for a lobbying group — defends the maligned penny against Kolbe's onslaughts. Mark Weller, Executive Director for the group, states that Kolbe is simply "wrong on this issue." He notes that when Kolbe advanced the penny demonetization idea in 2001, "he received no support. Not one co-sponsor. I think we'll see a similar response this time."

I have no idea. I don't even know if getting rid of the penny's a good idea or not. I can think of halfway sensible reasons on both sides. Still, the little copper-colored zinc disks do clog up the pockets, rattling around too much, falling out behind the seats in restaurants or behind the pews at church, tempting skinflints to skimp on tipping and tithing. ("Uh, check my seat; I left you a little something.")

But I do know something about politics, and it comes as no shock to learn that zinc manufacturers are to some degree backing Americans for Common Cents, and that Arizona, Kolbe's state, is a major copper producer.

Why should Arizona's metal industry matter? Well, it just so happens that copper is what our now-misnamed "nickel" is mainly made up these days. Stop making one-cent pieces and guess the result: The nickel would naturally be conscripted to do much of the work now reserved for the penny. And more Arizona copper winds up being bought, some of the profits perhaps finding their way even into the campaign coffers of You Know Who.

Are you shocked that self-interest might have a great deal to do with the obsessions of Congressmen?

Don't be. I'm not. And, for all I know, Kolbe's partially selfish, special-interest motivations might dovetail with good policy. Getting rid of the penny might be wisest.

Still, perhaps we should shed a tear or two as we watch our only on-the-horizon chance of establishing a hard currency go away with the penny. Keeping the zinc disks in the monetary system, and making the Mint crank 'em out regardless of cost, would put us on a metal standard again, wouldn't it?

And that'd be fitting, no? I know when I think American economic policy I no longer think gold. Zinc'll do. It would match the "genius" of our current jury-rigged fiscal and monetary policies.

We could do worse. We have done worse. We are doing worse. Perhaps we should think zinc.