Over at Talking Points Memo, Ryan Reilly has an intriguing post about the interest of some tea partiers for a new circulating dollar coin because it supposedly will save the federal government money. This follows a story in the Huffington Post from a week ago about how Rep. David Schweikert (R-AZ) introduced a bill that would eliminate the dollar bill and substitute dollar coins.
Here’s some very personal and U.S. history about the dollar coin and why this is a terrible idea that is really nothing more than a corporate subsidy.
Congress in the late 1990s mandated that the U.S. Mint create a new circulating (rather than a collectible) dollar coin. This eventually became known as the “golden dollar” because of its color. It was also often referred to as the Sacagawea dollar because of the image of the native American woman on the coin.
I not only worked for the consultant hired by the Mint to increase consumer awareness of the golden dollar so that it was more likely to be used, I led the team. And from that perspective — consumer awareness — the coin was a huge success. Positive awareness of the coin reached 85 percent within three months and the demand for it was so great that there were block-long lines around many of the Wal-Marts where it was first available.
But in spite of the consumer demand, the golden dollar was a huge flop. Why? The problem was that consumers wanted but couldn’t get it.
Banks initially refused to carry it because they said they already had a large supply of previously issued dollar coins like the almost universally reviled Susan B. Anthony and didn’t want or need any more. Even worse, they couldn’t or wouldn’t guarantee that you would get all or mostly golden dollars if you asked for a roll of them in a bank. You got what they had…period…and that usually was Susan Bs.
But it was worse with retail outlets. What Congress didn’t realize or care about when it authorized the golden dollar was that it costs businesses more to get coins than bills because they’re heavier and the delivery charges from Brinks or some other armored carrier are higher. Plus, you had to order dollar coins in bags of 2000, which is way more than most retailers need and want to keep in their safes. Because consumers ultimately didn’t care whether they got a dollar bill or dollar coin when they made a purchase, businesses saw no reason to pay extra to have the coins delivered or to take the extra risk of having them in their safes. Ultimately, therefore, they didn’t order them and you didn’t get one in change.
But the most infuriating situation of all was the vending machine operators who had actually been among the golden dollars strongest proponents and had lobbied hard for the legislation that required it be produced. The reason was that the dollar bill acceptors broke down often on vending machines and the machine owners and opeartors thought that a dollar coin would take care of the problem.
Because of this, the Mint projected the demand for the coin based in large part on the assumption that vending machines would be converted quickly so that they could accept it.
The problem was that the vending machine operators and owners suddenly realized once the coin was available that it was going to cost them about $50 to retrofit each machine so that it would accept dollar coins…and most flatly refused to spend the money. They wanted the Mint to pay for the retrofitting, which it wasn’t authorized to do.
With banks refusing to order the golden dollar in big numbers or distribute them exclusively when they had them, retailers refusing to order them because of the additional cost, consumer wanting them but having a substitute — the bill — that they liked at least as much, and vending machine owners refusing to get in the game, the golden dollar died the same ignominious death as the Susan B. Anthony.
In theory, a dollar coin absolutely saves taxpayers money compared to a dollar bill. When the golden dollar was released in early 2000, it cost the government about 12 cents to make and it was expected to last about 30 years before it had to be removed from circulation because of normal wear. Each dollar bill cost much less — about 4 cents — but most bills only remain in circulation for a short time because they deteriorate so quickly. That means that the savings over 30 years are significant: it cost 12 cents to have a dollar coin but 80 cents to have a dollar bill. So from a budget perspective, changing to a dollar coin makes a great deal of sense and having a bill instead could be included in the waste-fraud-and-abuse category that most taxpayers demand be cut.
But…and it’s a big but…rather than save money, a dollar coin actually costs the government and taxpayers a great deal if it’s not going to be used. The government will still have to manufacture bills to meet the demand and mint coins that few will ever use to meet the legislative mandate. Pure and simple…creating a new dollar coin will be the equivalent of building a new highway right next to one that already exists and is working just fine.
As was the case with the golden dollar, what’s really going on here is that companies in Arizona that mine the raw materials the Mint will need to make a new dollar coin want to sell them to the federal government. As Reilly points out in his TPM piece, those that sell the paper the Bureau of Engraving and Printing uses for the dollar bill don’t want to lose that very large and lucrative market so John Kerry (D-MA), the senator from the state where the largest of these companies is located, has introduced competing legislation to derail Schweikert’s dollar coin bill.
Meanwhile, there’s ample evidence that the market has repeatedly rejected the dollar coin. I know from personal experience that consumers truly don’t care whether they get a bill or a coin in change. Retailers won’t order them (FYI…We only got Wal-Mart to carry them by having the Mint direct-ship the golden dollars to each store at no charge) and banks don’t want them.
It’s more than just amusing that a number of tea partiers — who profess to being so close to their constituents and are the champions of free market economics — are taking up this cause when the evidence is so one-sided and incontrovertible. Add to history the fact that consumers these days are increasingly using credit and debit cards for small purchases and, therefore, the need for currency in general and dollar bills or coins is likely to continue to fall, and you have to wonder why other than providing new corporate welfare this is even an issue again.
(FYI…We did a number of very high-profile and award-winning television commercials for the golden dollar. This was my favorite (embeding isn’t working, sorry). It was directed by Bob Giraldi, who up to that time was best known for directing Michael Jackson music videos, and the voice of George Washington was Michael Keaton who had just finished shooting the first Batman movie.)
[Cross-posted at Capital Gains & Games]