Let Them Use Change

Something interesting. Perhaps.

I heard recently on the old radio that new studies in economics could suggest alternative ways to tackle the recession. Briefly detailed, the first study consisted of paying gas station customers $5 for filling out a brief survey before they went in to pay for their gas. Depending on how they were given those $5 determined how they spent it. More specifically, those given the cash in the form of a five dollar bill typically ended up placing the cash in their wallet and moved on with their lives; while those given five individual one dollar bills typically spent a small portion on drinks, candy, and corn nuts; while those given five one dollar coins typically spent the most leaving the store with nothing but Big Gulps, a handful of lotto tickets, and a receipt for their short sightedness. The lesson: either people just really hate one dollar coins and strive to relieve themselves of them as quickly as possible, or smaller denominations of currency leads to increased spending.

To further push this point home a second study was cited. In this study, women house cleaners in China were given a week’s worth of their salary in varying denominations. Those given larger bills tended to save while those given a giant wad of small bills tends to splurge frivolously.

So the practical recommendation? If Obama wants to stimulate the economy, or if Bush wanted to back in the day with his tax rebates, he should refrain from sending out bulk sum checks. Instead give everyone change. Flood the nation with Sacajawea dollars and people will be consuming again in no time.

And I agree. Although likely not terribly practical to dispense sackfuls of coinage, it does make sense that if people feel that they have a lot of something of little value, say a handful of small bills, they will spend it more freely than if they feel they have a few of something of great value, say one or two Grover Clevelands. I can even say I have consciously experienced this effect myself, which is why I propose we go one step further. Let’s join with our transatlantic, Western brethren and adopt the euro! If economists thought people spent one dollar coins fast, they haven’t seen tourists go through shiny silver and gold two euro coins. Not only do they pack greater value into a single coin, but with exchange rates as they are we get even more bang for our buck. Hand a man a handful of euro change, and he will be poor and penniless again in no time. That, my friends, is some serious stimulus spending.