Saturday, March 31, 2012

The Sarcasm Report v.155

March 30, 2012
Why the U.S. Penny Won't Die Like Canada's Just Did

There are objections to rounding, which one economist estimated could cost U.S. consumers as much as $1.5 billion over five years.

By all means, let's base our decisions on the opinions of *one* economist. That always works out awesome for us. Take Ben "There Is No Housing Bubble to Go Bust" Bernanke, lol.

And let's say it is true. One can only imagine the pain that was inflicted when the penny was once worth 20x what it is now. There must not have been any prosperity at all, due to all that rounding error.

Assuming it is true, then I wonder if there is something that could be done to compensate for this rounding effect. What if we were to tax corporations a tiny, tiny bit more and tax consumers a tiny, tiny bit less? No!! Taxing corporations more during a period of record corporate profits? That's just crazy talk!

Also, cutting out the penny may just put more reliance on the nickel—which is even more expensive to produce. In the U.S. loses 1.4¢ on each penny it makes and 6.2¢ on each nickel, according to Coin Update, an industry news source.

The U.S. loses $1.41 on each dollar's worth of pennies it makes. It loses $1.24 on each dollar's worth of nickels it makes. We must therefore keep the penny because nickels are just too darned expensive.

President Obama’s 2013 budget proposal includes plans to let the U.S. Mint change the composition of coins (page 173) so it can use less-expensive metals. It has changed materials before; pennies now are almost entirely made from zinc, not copper.

If only there was some way that we could replace what's in the nickel with what's in the penny and then reduce the size of the nickel to be the same size as the penny. I know it might sound hard to believe but there's a remote possibility that a dollar's worth of nickels would then be 80% cheaper to make than a dollar's worth of pennies. Could it work? Where's a rocket scientist when we need one!

It took a Canadian budget battle to kill that country’s 1¢ coin, but even in these economic times, don’t hold your breath for Congress to take down the penny soon.

This is what makes America great. We are masters of delaying the inevitable (can kicking). The penny has lost 95% of its purchasing power in the last century. Should this trend continue then we can expect it to lose 95% of its remaining purchasing power in the next century. So what does this mean? It would take about two thousand pennies to buy a candy bar. It gets even better. Those two thousand pennies could easily cost the equivalent of 50 candy bars to create. Prosperity? Here we come!

And lastly, if it was our intention to keep Abe Lincoln on the penny well into the distant future as an honor and symbol of our great nation, then perhaps we should have made sure the penny kept its value. Instead, we've debased his face.

19 comments:

Mr Slippery said...

This Canada news has me excited about my nickel play from last year! New Zealand has already dumped their nickel so there is a precedent.

Is it possible that there is some inflation going on whereby these countries first debase their coins, then stop using them altogether? No, Ben told me inflation is both transient and subdued.

Stagflationary Mark said...

Mr Slippery,

Is it possible that there is some inflation going on whereby these countries first debase their coins, then stop using them altogether?

Are you a rocket scientist?

I ask because your crazy conspiracy theory is so far out of the mainstream that it actually has some chance of being true, lol. ;)

Troy said...

"if you were to buy exactly the same products in 2010 and 1974, they would cost you $1 and $0.21 respectively"

But the bulk of that 5X inflation hit 1974-84:

"if you were to buy exactly the same products in 1984 and 1974, they would cost you $1 and $0.45 respectively"

1984 to 1994 was $0.45 to $0.31 (the dollar retained 70%).

1994 to 2004 was $0.31 to $0.25 (80% retention).

Troy said...

(the quote above is from the online "inflation calculator" if you didn't know)

Stagflationary Mark said...

As a side note, removing the penny won't solve the long-term problem.

I'm very concerned what what will happen to my penny one million years from now.

The bank statements are going to be nearly impossible to reconcile with all those zeroes.

Stagflationary Mark said...

Troy,

But the bulk of that 5X inflation hit 1974-84:

The bulk of the deflation hit between 1920 and 1935.

Stagflationary Mark said...
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Stagflationary Mark said...
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Stagflationary Mark said...

I guess that's just my way of saying that things tend to average out.

20^(1/100) = 1.0304
1.0304^100 = 20

It is entirely possible that our inflation averages 3.0% per year over the next 100 years (95% loss in purchasing power). It's already happened once.

I'm determined to get this right. Third time's the charm, lol.

Mr Slippery said...

Here is what should shock people about inflation. It's compeltely unnatural.

Due to productivity gains (think Moore's Law), and increasing labor force, things should always be getting cheaper, and lifestyles getting better. Yet, despite the incredible gains in productivity, manufacturing methods, time management, automation, the Fed and Central Banks are DETERMINED to force prices up.

Bernanke defines stable prices as 2% inflation. Let's say that productivity increases 2% a year. To force 2% inflation, the money supply has to increase by 4% all things being equal. It takes hard, deliberate work to debase the currency when the rest of society is working to make things cheaper.

Troy said...

The bulk of the deflation hit between 1920 and 1935.

That's Mellonism for you.

Backing up the inflation picture to 1913:

http://research.stlouisfed.org/fred2/graph/?g=67U

shows how WW I was a major inflationary event. I haven't studied this at all but my casual opinion is that the diversion of the US economy from consumer to war spending (and the collapse of imports for that matter) reduced the amount of goods in trade while at the same time flooding the country with Europe's hard money from war production wages.

Inflation would be baked into the cake with this scenario.

We've gotten used to inflation now, but as late as 1970 it was an spectre to be fought. The general outrage at the early 1970's inflation events seem almost charming in retrospect:

http://research.stlouisfed.org/fred2/graph/?g=67V

shows the inflection point of 1967.

My thesis tells me that the fact that the bumrush into the workforce thanks to the baby boom turning 20 had something to with that, and

http://research.stlouisfed.org/fred2/graph/?g=67W seems to confirm that at least.

Troy said...

Due to productivity gains (think Moore's Law), and increasing labor force, things should always be getting cheaper, and lifestyles getting better. Yet, despite the incredible gains in productivity, manufacturing methods, time management, automation, the Fed and Central Banks are DETERMINED to force prices up.

This is missing the dynamics of limits of natural resources IMV.

We tend to forget that buildable land is a primary resource and the manufacturer of it went out of business about 6,000 years ago.

Over on Delong's site I brought up the point that the apartment my parents were renting in 1974 for $1300 (today's money) rents for $1500/mo today.

No productivity gains there, actually 15% decrease of productivity!

Gasoline, same thing. Pump price in 1974 was $2, now it's $4. We're really going the wrong way with that.

The Fed can't do anything to de-fang these "All-Devouring Rents" that can be found all throughout the economy, in land, energy, and healthcare especially.

That's where our productivity gains are going, bidding up the cost of life's limited necessities.

Stagflationary Mark said...

Troy,

That's where our productivity gains are going, bidding up the cost of life's limited necessities.

Meanwhile, on planet bidding war...

July 26, 2011
Chinese Luxury Price Inflation Is Even Crazier Than Overall Price Inflation

AllanF said...

I delight in explaining at length to my 7 y.o. how the nickel is the last coin not to be debauched...

"The ten's and twenty's were the first to go, of course they were solid gold. FDR did that in the 30's. Next were the dimes, quarters, half-dollars, and dollars. The year was 1964 I can't remember if it was LBJ or Kennedy (I can, but it tells better this way). Doesn't matter they were both Democrats. The lowly penny came next in '82.5. It's only a thin foil of copper over a near worthless zinc slug. All that's left son is the nickel. It hasn't been debauched. Well except for those couple of years in the Big War. They needed the nickel for bullets instead. But they'll be coming for the nickel soon. It's the most expensive coin to produce. Start saving them now. Don't ever spend a nickel, son."

It's really nice when he brings it up when we're out in public, "Dad, have they debauched the nickel yet?"

His teacher unfortunately is oblivious. Actually complained about his always bringing it up. That and the talking about Sirhan Sirhan shooting Robert Kennedy in Chicago? I know, I know. If she was doing her job... freakin' govt schools.

Stagflationary Mark said...

AllanF,

"Dad, have they debauched the nickel yet?"

Awesome!

Let's say I was drinking a soda and I heard a 7 year old ask his dad that question at McDonalds.

The odds of me spraying drink through my nose would have to be at least 50/50, lol.

Stagflationary Mark said...

It's just one of those things I would not expect to hear. ;)

AllanF said...

Yeah, it made my day. :-)

Stagflationary Mark said...

AllanF,

My best friend in college was about to eat a cupcake. I said that he couldn't fit the whole thing in his mouth.

As soon as he got it all in there I said, "Says elephant."

That pretty much made my day too, lol.

Stagflationary Mark said...

It started off slowly with a few crumbs being ejected every few seconds. It built from there, lol.

I'm so mean. :)