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A question for the ages
Posted by: mcq on Thursday, February 01, 2007

Brought to us by Austan Goolsbee:
How dumb do you have to be to mint money at a loss?
About as dumb as lending money at an interest rate less than you borrowed it. But since it's the same institution, more or less, we'll leave that for another day.

Goolsbee answers the question, of course - but it just hit me as both funny and typical. How much of a loss you ask?
In the latest only-in-Washington episode, we find that the government may have lost as much as $40 million coining pennies and nickels last year.
Did you get that? Last year.

Last year alone.

Anyway to the point ... now that we know how dumb you have to be to mint money at a loss, how easy would it be to eliminate that loss? Pretty easy:
But the United States doesn’t have commodity money anymore. Our coins are just tokens now. They are valuable only because the government says they are — because the government is willing to trade them for dollars.

And making tokens that cost more to manufacture than they are worth is monetary insanity. We could make them out of any material we want, so why in the world would we lose money?

To stop this senselessness, we would seem to have only two choices: debase the coins (i.e., make them out of something cheaper) or abolish pennies (and, perhaps, even nickels).
My guess is, though, we'll have to have studies conducted, hearings held and experts called in. And somewhere down the line, perhaps after we've wasted another 40 to 120 billion someone may come to a conclusion that we should fix this problem. Maybe.

"A billion here and a billion there and pretty soon you're talking real money"

Unfortunately our government rarely sees what it wasts as "real" money taken from real people who work their rear ends off to earn it.
 
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It’s part and parcel with the constant attempts to replace dollar bills with (cheaper, because more durable) dollar coins. At some point, the government has to stop focus-grouping this and just make the changes they know are needed; people will adapt.

Mills (1/10 penny, now only visible at gas stations) were made out of cardboard, eventually. Why not make cardboard nickels and toss the penny overboard? Actually, I’m all for tossing the nickel overboard as well, because so far as I can tell there isn’t anything that can be bought with a single nickel. Without that, the coin is about as pointless as the first 15 points in tennis.
 
Written By: Jeff Medcalf
URL: http://www.caerdroia.org/blog
for one, stop making pennies. ther is enough of them in my couch, i dont need more.
 
Written By: josh b
URL: http://
If we tossed the pennies, all of the products in society would go up in price to equal something like $.51 then the companies would always round up and charge $.55 and get a free 4 cents on every purchase. The same for dropping the nickel, all products would go up in price to equal something like $.51 and the companies round up so it cost $.60 and they make a free 9 cents on every purchase. Not to mention the post office.Twice a year the postage rates would increase buy $.10 . Talk about inflation.

As for the cost of manufactoring the coins themselves, the coins don’t run thru the economy one time and get destroyed. They cycle thru it for years so to get the true cost you would have to figure out how many times a coin runs thru the economy before it is retired.

I’m sure you all already new that since I have read some of the economics posts you have gotten into but it probably made for better propoganda to leave it out of this post.
 
Written By: SkyWatch
URL: http://
I’m sure you all already new that since I have read some of the economics posts you have gotten into but it probably made for better propoganda to leave it out of this post.
The costs of manufacturing the coins, which is the point of the post, don’t change no matter how many times you "run them through the economy."
 
Written By: McQ
URL: http://qando.net
There is a move afoot to abolish the penny...someone raised the issue of price inflation. I am agnostic on it. At one level there would be an incentive at a price of $0.52 to raise the price to $0.55, or in the case of the abolition of both penny AND nickel, to $0.60. So yes there abolition COULD lead to price inflation/gauging... BUT it is equally plausible that some companies, like Wal-Mart and Costco, would LOWER the price of the $0.52 product to $0.50, hoping to make up on VOLUME as folks bought from them rather than the $0.60 competitor.

I think it depends on your view of business. If you have a benign view you say either is possible and most likely prices would BOTH rise and fall, depending on business strategies. If you have a less benign view I figure you’re going to vote for the "Gauging."

Finally this isn’t just the GOVERNMENT’S idea, folks. They keep minting pennies and nickels because we USE them! It’s not clear that the public wants the penny abolished, therefore, whilst it might not make ECONOMIC sense to retain it, it makes PUBLIC POLICY sense to retain it. And government is about public policy, not ECONOMIC policy and sometimes libertarians forget that.
 
Written By: Joe
URL: http://
They keep minting pennies and nickels because we USE them! It’s not clear that the public wants the penny abolished, therefore, whilst it might not make ECONOMIC sense to retain it, it makes PUBLIC POLICY sense to retain it. And government is about public policy, not ECONOMIC policy and sometimes libertarians forget that.
Might help if you learn what "debase" - used in the context of the article - means Joe.
 
Written By: McQ
URL: http://qando.net
I’m in complete agreement about demonetizing the penny, which is effectively worthless. We don’t even have to (or should want to) demonetize the monetary increment of $0.01 of a dollar. Just mandate that final prices be rounded to the nearest nickel when paid in cash and no one will notice. They don’t notice rounding the mills off at the gas station after all. If you want to pay to the last cent, just use a credit or debit card. Or write a check.

But when I brought it up on my blog a while back people were generally against it too. Changes to the monetary system are scary.

Oh and the only reason we don’t have a dollar coin is because the Treasury Department doesn’t have the balls to just issue coins and stop issuing paper dollars. You have a monopoly for Christ’s sake! Use it already! The Canadians have already switched over with one and two dollar coins, why can’t we?
 
Written By: Jeff the Baptist
URL: http://jeffthebaptist.blogspot.com
One word... no, two words: Vending machines. Pennies... there may be a few vending machines that still use pennies, but that’s pretty negligible.
Nickels, OTOH, are used in and by every vending machine out there, and vending machines account for a significant portion of the retail sector. "Debasing" nickels is not a trivial matter of, say, stamping them out of cheap steel.

We’ve gone through this once before; are any of you kids old enough to remember real silver coins? Look at that dime or quarter in your pocket edgewise. Those three layers there are there to make the coin have the same size, weight, and magnetic characteristics as silver. That’s how a vending machine distinguishes between a "real" coin and the same size slug of brass. To keep from screwing up a big portion of the retail sector, the "cheaper" coin would have to match up with the existing coin in all those characteristics, and this is obviously going to add cost to the "cheaper" coin. Not quite as simple as it first seems, is it? It may not *be* possible to "debase" the coin.

Incidentally, any of the sources say if the high cost is due to material cost increases, or labor?
 
Written By: bud
URL: http://
Lets abolish the penny and the nickel, and round to the nearest .1 dollars, then lets divide all the prices by ten and reintroduce the penny (now worth what was once considered to be a dimes worth). We get to keep the penny and its value becomes relevant again. Of course the other path, phase out the penny and then the nickel, dime, quarter, one five ten as inflation rules then insigninicant is also a good option.
 
Written By: John
URL: http://
McQ wrote:
The costs of manufacturing the coins, which is the point of the post, don’t change no matter how many times you "run them through the economy."
But the value of the penny to the economy isn’t in its cost to manufacture/penny vs. dollar value/penny. It’s value is in the number of times it is used in commerce to make a transaction balance out to the nearest penny. In pedantically refusing to recognize the value of a penny is more in it’s use, not it’s material, you leave your thumb on the negative side of the scale and ask to ignore that.

A penny keeps it’s actual value to the economy until you convince enough people not to worry about pennies no matter how many times that penny would increase the accuracy of a transaction. I am far from convinced that rounding up to the nearest 0.05 or 0.10 dollar increment would happen no less frequently than rounding down, I think it would happen more often.

The "give a penny, take a penny" dishes at most store registers do not point out the valuelessness of the penny—they show its enduring value in helping transactions balance out to a level of accuracy that satisfies us.

You may think it’s petty of your fellow Americans for keeping track of pennies, but hey, that’s your call.

Yours, TDP, ml, msl, & pfpp

PS. John, are you high? Really?
 
Written By: Tom Perkins
URL: http://
You may think it’s petty of your fellow Americans for keeping track of pennies, but hey, that’s your call.
Never said a thing about what I thought of my fellow Americans keeping track of their pennies.

I said it costs more to manufacture pennies than they’re worth.

 
Written By: McQ
URL: http://www.qando.net/blog
I said it costs more to manufacture pennies than they’re worth.
That’s quite debatable, because their worth can’t be found by looking at solely at the cost of manufacture versus their nominal value. You aren’t measuring or even recognizing their whole worth, so why is should even you think your post is worth the while to consider it further?

Which I most likely won’t be doing.

Yours, TDP, ml, msl, & pfpp

 
Written By: Tom Perkins
URL: http://
That’s quite debatable, because their worth can’t be found by looking at solely at the cost of manufacture versus their nominal value.
That’s correct. And that’s also why the word "debase" is found in the story. You might want to try reading it.

This isn’t about their nominal value ... it’s about their cost to produce.
 
Written By: McQ
URL: http://www.qando.net/blog
Oh I agree with debasing the coins with respect to the commodity value of the metal in them, up to the point they are not so delicate they wear out at an unacceptable rate and can still actuate vending machines.

My point is that they are still worth more than they cost to make even now, and that you are not taking their full value into account in saying otherwise.

Yours, TDP, ml, msl, & pfpp
 
Written By: Tom Perkins
URL: http://

 
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