Archive for Thursday, July 13, 2006

Penny no longer pays its way

July 13, 2006

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Federal factories in Philadelphia and Denver have already stamped out 4.8 billion little tan disks this year so that purses might be encumbered, cashiers oppressed and tradition preserved.

No more.

It's time to abolish the penny.

The store of value and unit of account that inspired bards from Shakespeare to the Beastie Boys has stopped paying dividends. It stores little value - 1/8th of a stick of gum is about right. It clogs the economy like mud in a machine.

And now it costs more to make than it's worth. Pennies are mostly zinc, and these days a pennyweight of zinc is worth almost as much as a penny.

Counting labor and transport, the U.S. Mint loses 0.23 of a cent on every cent it produces, according to a document obtained by USA Today a couple months ago. That'll add up to almost $23 million this year.

For the government, $23 million is chump change. Unless, of course, you're measuring in real chump change, which is pennies. In that case there would be 2.3 billion of them, and they would weigh 6,300 tons.

And that's the real reason to prohibit the penny. Worthless alone, a nuisance in bulk, it deserves to sleep with the farthing and sestersius.

The nickel is the new penny. Five cents today buys what one cent bought in 1970. Making the nickel the lowest denomination would merely ratify reality. Think what it would save the Brink's truck people on shocks and worker's comp.

A couple years ago, when economists worried about deflation, it looked like we might need the penny. If a dime were going to buy a Coke again, a penny might pay for a jawbreaker. But the deflation threat vanished. Thanks to Alan Greenspan and Ben Bernanke at the Federal Reserve, consumer prices are rising at a 4 percent annual clip.

If you like the penny now, you'll love it after several years of 4 percent inflation, which erodes the value of all money. (Maybe we could switch out Lincoln's picture for Greenspan's.) Nanotechnology is wonderful, but not for monetary units.

Those most passionate about the penny seem to have a financial interest in its fate. The penny's Capt. Ahab is Jim Kolbe, an Arizona congressman who introduced an unsuccessful penny-abolition bill a few years ago. Arizona is a big producer of copper, chief ingredient of the rival five-cent piece. (The copper in a nickel is worth more than 5 cents these days, but at least a nickel can still buy a few minutes on a parking meter.)

Americans for Common Cents, the pro-penny lobby, is partly backed by zinc mines, its director told National Public Radio last month. Canada, the world's biggest zinc producer, may also be worried. Several big Canadian papers carried endangered-penny stories the last few days, mentioning a new bill promised by Kolbe.

But Canada and the United States should take a lesson from the second-biggest zinc producer: Australia. Australia stopped making pennies years ago and is thriving.

The smallest Aussie coin is five cents. Australian prices are still often expressed in pennies, but for cash payments prices get rounded to the nearest multiple of five. If the total is $1.02, you pay $1. If it's $1.03, you pay $1.05. Shoppers save money when stores wanting to advertise prices just below the next dollar unit put "$1.95" on their fliers rather than "$1.99."

And for nostalgics, the penny lives on digitally. One-cent units are tallied if you pay with a Visa card. Bank statements and paychecks come with virtual pennies.

It's just that Australians don't mess with the real thing.

They don't have to excavate their pockets in the checkout line or bum a penny off somebody behind them. They don't waste a dime's worth of time on a few cents. They turn zinc into something valuable: galvanized steel and cold tablets.

Americans may not believe they're ready to live without the 99-cent value menu at Wendy's, but they'd learn to adjust.

Jay Hancock is a financial columnist for The Sun.

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