Why The Penny Must Die, by Sebastian Rothstein

Why The Penny Must Die

This is an article by Sebastian Rothstein, President of the Economic Club of Santa Barbara, of which I am the Events Chair. 

You are encouraged to read this article on the ECSB Journal, of which I am an editor. (click here)

I think it is very interesting and also very true, so I felt like sharing it on my blog. 

After months of acting like a scavenger, you’ve finally filled up the jar which sits so elegantly on the table; the very same table where you have been studying arithmetic the entire semester before you and your friends could finally take off for summer break. The jar, which radiates a holy bronze aura, has ensured that you will have a summer break filled with joy; now, you can go down to the local candy shop every Saturday to pick up enough candy to make you sick after shoving down all that sugar in a matter of hours (but oh man was it worth it!). The jar, you may ask, what was in it? The jar was filled with pennies.

If you were born before the 1990s, this story may bring back some childhood memories. However, this is an experience which today's kids will never know. To spend $20 with pennies, which is roughly the amount one has to spend to buy 2 bags of chips, 2 litres of Coca-Cola, and 3 chocolate bar (or one barrel of oil, but that’s an argument for another day), one would have to spend 2000 pennies, which weighs approximately 11 pounds (you’d need a large jar for that).

So then, why should we get rid of the penny?

They cost more to make than they are worth.

To make one penny, it costs approximately 1.8 cents. Two forces conspired to make this the case, inflation and the rising price of metals. The United States Mint admitted that, “There are no alternative metal compositions that reduce the manufacturing unit cost of the penny below its face value.” Thus, unless they were to be made out of plastic, the penny will always cost more to produce than they are worth; yet, the U.S. Mint continues to manufacture 4 billion pennies each year. The U.S. even made melting down coins illegal as people realized that they could make a profit from the raw materials from the penny and the nickel.

The opportunity cost is too damn high.

There is a joke which goes something along these lines: Two economists walk down the road and they see a twenty dollar bill lying on the side-walk. One of them asks “is that a twenty dollar bill?” Then the other one answers “It can’t be, because someone would have picked it up already,” and they keep walking. The joke is supposed to portray the fact that there is no resources just lying around because someone would already have picked it up. However, had one-hundred pennies been lying on the street, the joke would probably sound something like this: Two economists walk down the road and they see a hundred pennies lying on the side-walk. One of them asks “is that hundred pennies just lying there?” Then the other one answers “most likely, since it’s not worth the opportunity cost to pick them up,” and they keep walking. Pennies are, quite literally, so worthless that picking them up is not even worth it. Actually, they are worth a lot less than nothing, as they cost as much as $1 billion a year in productivity cost. It’s estimated that the time we spend fiddling with pennies when we pay for goods adds, on average, 2 seconds for every cash transaction.

They don’t facilitate trade.

The reason why we have money is so that they can facilitate trade of goods and services so that we don’t have to barter like savages. However, the penny fails horrendously at this task. The usual places where you would use coins, such as vending machines, parking meters, and washing machines, do not accept pennies. In fact, no machine that sell goods or services accept pennies. Furthermore, since it’s nearly impossible to calculate the sales tax in your head, no one can get their pennies ready when they reach the cashier; resulting in an opportunity cost for you and everyone in the line. Businesses are even allowed under law to refuse pennies. Moreover, only ⅓ of all the pennies produced even circulates in the economy. 2% of the people in a  Gallup survey even admitted to throwing their pennies in the thrash. Currently, the only thing you can do with a penny is to throw it into a fountain while making a wish; given the penny’s current face-value, the only wish that would only be granted is if you wished to see what a penny looks like under water.

Are there any upsides to having the penny?

The penny lobby “America For Common Cents” (Oh my Lord what a bad play on words) argue that without the penny, prices would rise and charitable contributions will fall. The fact that they believe that citizens would not contribute to charity if not through something which is basically worthless is rather cynical; regardless, the statement is not true whatsoever. Countries like New Zealand and Canada removed their penny and did not see prices rise or charitable contributions fall. Not even Sweden, which removed their 0.5 Krona (50 öre), saw any significant change in prices or charitable contributions. At the time when Sweden removed the 50 öre, it was worth approximately 5 cents - maybe we should look into getting rid of more than just the penny.

But we love Abraham Lincoln

Well, who doesn’t? But at the end of the day, Lincoln would probably wonder what his face was doing at a coin which is worthless. Furthermore, we already have his face and his monument on the $5 bill; you know, the thing that is worth 500 times more than a penny.

Conclusion:

Ultimately, removing the penny will not do a whole lot for the economy. We will still have rampantly stacking debt, we will still have people in poverty, and we will still have crime; but removing the penny will still be a step in the right direction. Removing the penny would ultimately have the same consequences as the removal of the half-penny did. The half-penny was discontinued in 1857 when the U.S realized it was worth too little; however, when the half-penny was removed, it had more purchasing power than today’s dime.

With all the facts at hand, it’s time that we do the right thing. It’s time we kill the penny.