As Congress prepares once again to decide the fate of the penny, with deliberations to take place next week concerning whether to revive the WWII-era practice of striking pennies of steel, so as to at least avoid wasting more than a penny’s worth of resources on each penny struck, penny (read: zinc) lobbyists–henceforth “pennysniffs”–have been busy making the case that messing around with the penny, especially by doing away with it but even by altering its metal (read: zinc) content, will hurt American consumers.
Of various bad arguments for keeping the penny–and all of them are bad to some degree–perhaps the worst is the one first promulgated by
Zinc Lobby Penn State economics professor Raymond Lombra, and recently repeated by Eric Wen in The New Republic. It is that, if pennies are abolished, retailers will respond by rounding up to the nearest nickel, making everything cost more. Lombra calls it, ominously, a “rounding tax,” presumably to win gullible conservatives over to his cause.
I’m tempted to stop typing now, and make this into a pop-econ quiz, the quiz question being: Why would any economist, or even any intelligent journalist, say anything so stupid? No, sorry, that’s the second quiz question. The first is, Is this argument consistent with the most elementary principles of economics?
If you answered “no,” congratulations! You have at least some grasp of how competitive market forces work, especially by recognizing how they would force rival retailers to come up with some alternative to merely “rounding up” prices in every instance, probably by rounding up some and lowering others, because under competition something called a “zero profit” condition holds, which is a fancy way of saying that if any firm in a competitive industry raises prices more than it has to to earn a normal return it will see its customers blazing a trail to some rival firm or firms smart enough to resist doing the same.
If you answered “yes,” on the other hand, you too may have a future as a professional pennysniff, perhaps for Americans for Common Cents; alternatively you may qualify as a staff-writer for a neo-liberal monthly. But please have some consideration for others in choosing your vocation, and don’t go ’round pretending to be an economist.