Not Making Cents Not Making Sense

Jeff Jacoby takes a look at the economics of Trump's recent attempt to kill the penny:

On the surface, the observation seems logical and germane: Why keep minting pennies that cost more than a penny to mint? What good is a 1-cent coin that takes (according to the US Mint's most recent annual report) 3.69 cents to produce?

Jacoby discusses the low value of the penny relative to its metal content as being a result of the dollar being a fiat currency, and he is correct as far as that goes.

While Jacoby unfortunately does not call for getting the government out of money, or even a return to a gold standard, he still shows that the move is likely more trouble than it's worth:

I can certainly see a strong argument for doing so: The purchasing power of the penny has dwindled to almost nothing. Most people won't bend over to pick up a stray penny in the street. A coin that the public routinely treats as litter is, pretty much by definition, a useless coin. So why should the government keep spending $85 million a year minting coins that are effectively worthless? Other countries, including Canada, Australia, Sweden, and New Zealand have all pulled the plug on their one-cent coins. Presumably the sky wouldn't fall if America followed suit.

Then again, I can see a decent argument for continuing the status quo. Eliminating the penny will necessitate minting more nickels, which, as noted, cost even more to make. Moreover, notes The New York Times, "many states have a sales tax that specifies taxes collected must be rounded to the nearest cent, so they would probably have to modify their laws to accommodate cash purchases." That would mean rounding all prices up to the next-highest nickel. Over time that would cost consumers many millions of additional dollars -- even those who never pay for anything with cash. [bold added]

Do note the above savings for no longer minting pennies: It's less than a third of a cent for each American! And even that princely sum will be at least partly offset or more by some of the other costs Jacoby outlines that will result from this knee-jerk, un-thought-out move.

Trump isn't wrong that minting pennies is wasteful, but his solution may waste even more money, and it will do absolutely nothing to address the cause of the problem, which is that we are using fiat currency.

-- CAV