Americans can't escape the tyranny of the penny

BY DAVID ALEXANDER

If I dropped on the floor a United States penny, minted 1985, legal tender worth one-hundredth of a dollar, how many of you would pick it up? For my part, I never stop to pick up a penny. In fact, at the end of the day I usually empty my pockets and throw away any pennies I find.

The truth is a penny is not worth my time or yours. This country should do away with pennies, which are a burden on the economy. Because of inflation and the rising costs of zinc and copper, the cost of manufacturing a penny is now about 1.7 cents. The U.S. Mint manufactures pennies and sells them at face value to the Federal Reserve and then to banks. As a result, our government loses some $50 million annually on the exchange.

What's more, wily entrepreneurs melt pennies and sell the metal for a profit, essentially pocketing some of those $50 million. Congress has recently passed laws making such activity illegal, but enforcing the laws will cost yet more money.

Consumers and merchants are also burdened. If you've ever waited in a checkout line while someone ahead of you counted out pennies, you might have wondered if it's worth anyone's time to quibble over a penny or two. In fact, Harvard Economics Professor Gregory Mankiw estimates that using the penny costs the nation $1 billion annually in lost productivity.

Perhaps the simplest solution to this problem is for the Mint to stop manufacturing pennies and for the government to require total prices on cash transactions to be rounded to the nearest nickel. As pennies fall out of circulation, both the Mint's financial burden and that of consumers would be alleviated.

This plan could be implemented gradually. First, Congress would need to pass legislation requiring merchants to round prices for cash transactions to the nearest five cents. The next step would be for the Mint to cease issuing new pennies. Pennies would still remain in circulation, but consumers would probably stop using them. Finally, the government could remove the remaining pennies from circulation.

Would price-rounding cheat consumers out of a few cents in every transaction? Robert Whaples, an economist at Wake Forest University, has shown that such concerns are overblown. By studying 200,000 transactions' worth of purchase data from a large convenience store chain in several states, he calculated that in the long run the average consumer would roughly break even. Sometimes the price would round up, sometimes down, but on average the consumer would be paying no more or less.

The elimination of low-denomination coins has been attempted successfully in several other countries, so we would not be venturing into unknown territory. New Zealand stopped making one- and two-cent coins in 1989 and five-cent coins in 2006. Sweden rid itself of several low-denomination coins in the 1970s.

There is even a historical precedent in the United States. Until 1857, we had a half-penny coin that was eliminated without any problems. It's worth noting that in 1857 a half-penny was worth 11 cents in today's money.

Alexander is second-year Ph.D. student in the Department of Biomathematics.