Greg Mankiw and the Penny
On Friday, Greg Mankiw again argued that it makes sense to get rid of the U.S. penny and quotes Treasury Secretary Hank Paulson saying it would make sense. Part of the reason Mankiw wants to eliminate the penny is that it costs more than one cent to make it.
Some quick thoughts.
First, the value of any coin or bill isn't just its face value: it's also its value in promoting commerce. So the manufacturing cost of the penny may still be less than its total value even if all the components can't be quantified to an economist's satisfaction.
Second, if the manufacturing cost of a penny is greater than what it sells for, why isn't anyone suggesting that the U.S. Mint consider alternative materials and processes? Isn't this what any private sector manufacturer would so.
Third, who says the Mint has to make money on each of its products? Again, like a private sector manufacturer, couldn't the profit on some coins be used to subsidize the rest?
Fourth, the average person may not like getting a handful of pennies, but I'm willing to bet that rounding up to the closest nickel (or dime if Mankiw gets his way) will be even less popular.
Finally, pennies are mostly useful for calculating sales tax. Does anyone really suggest that consumers will happily pay more tax if the amount has to be rounded to the nearest five cents?
