A penny for our thoughtless society
By Scott Sumner
Slate.com linked to a group opposed to the penny:
According to the U.S. Mint’s 2011 annual report, the current cost of a penny is 2.4 cents per coin. With nearly 5 billion pennies minted in 2011, the U.S. spent almost $120 million to produce less than $50 million of circulating currency. When production cost is added to the opportunity cost of using the penny economists say that the penny drains almost $900 million from the national economy every year.
Right, left, or center, all parties know that the country needs to save as much money as possible, and it’s impossible to save money when it’s being wasted.
The Slate article said “The main arguments for keeping the penny these days seems to come from the zinc industry and relate to vague fears that getting rid of the single-cent will cause merchants to round up all their prices.” As if stores are more likely to round up from $9.99 to $10.00, than round down from $9.99 to $9.95.
Corruption and stupidity. And if you look around the world, you find that theme repeated over and over again. Unneeded weapons systems costing tens of billions get paid for because of both special interest politics and lazy thinking about national defense. The mindless way on drugs occurs because our criminal justice/industrial complex profits off of it, and because many lazy voters vaguely think legalizing pot would “send the wrong message.”
People often like neat and tidy monocausal explanations of policy failures, but if you look closely an awful lot of what’s wrong with the world is caused by a mixture of corruption and stupidity. You might say that stupidity enables corruption.
Back in the early 1990s I published a paper advocating the privatization of coin issuance. Even then it was obvious that the penny was a waste of money. Many also think we’d be better off replacing the dollar bill with a dollar coin, but that’s a closer call. In any case, a private firm would have an incentive to maximize profits, and thus would not waste money producing coins like the penny. The rights to each denomination could be auctioned off, so that they’d have an incentive to produce the correct form of money at the $1 denomination. In theory government could do the same, but government is structured in such a way that it’s decisions are much more likely to reflect the interaction of corruption and stupidity. A private company has no reason to worry about people’s cognitive illusions about the rounding of prices, nor does it need to worry about campaign contributions from the zinc mining industry.
Not everything can be privatized. But when we do so, we will usually get smarter decisions about the allocation of resources. Private schools might not be able to produce higher test scores, but I don’t think anyone seriously denies they can produce the same test scores at far lower cost. And I’d expect the same if we moved to a truly private and deregulated health care system–lower costs and the same life expectancy.