Costco Connection - December 2006

Robert M. Whaples is a professor of economics at Wake Forest University, Winston-Salem, North Carolina; an expert on the history of the U.S. economy; and director of EH.NET ( www.eh.net).

NOVEMBER
DEBATE RESULTS:
Should airport security procedures
include ethnic and religious profiling?

A SPARKLING, newly minted penny might suggest the innocence and joy of childhood, but pennies have a dark side as well. For one thing, pennies cost more to make than they are worth. Since the price of zinc has soared, the U.S. Mint will lose about half a cent on each of the 9 billion or so pennies it will churn out this year.

Even worse, pennies waste our valuable time. With wages in the United States averaging more than $18 per hour, it takes only about two seconds for the typical person to earn one cent. According to a recent study, using a penny probably adds slightly more than two seconds to the average retail transaction. Picture yourself waiting in line to make a purchase. There are, say, three people in front of you, and each of them decides to pay in cash and either fumbles around for a penny or receives one in change. If the line’s length is constant, each penny use wastes the time of five people (the purchaser, the three people in line and the clerk). By the time you reach the front of the line this has been multiplied threefold, and half a minute of time has been literally wasted because when you’re waiting in line you can’t be doing other things—perhaps hurrying back to your business or getting off your feet.

This scene is repeated untold times each day. Each instance is pretty minor, but with time valued at $18 an hour and pennies being used in about one-third of the roughly 100 billion annual transactions in the United States, a delay of only two seconds per penny use compounds to a loss of about $600 million per year—even if no one else is in line.

Some people say that in a penny-free marketplace rounding bills to the nearest nickel would usually mean rounding upward—and burden the poor, who use cash more often. However, this doesn’t seem to be true. Data I recently analyzed on nearly 200,000 transactions from a multi-state convenience-store chain suggest that there is no “rounding tax.” The number of times consumers’ bills would be rounded upward is almost precisely equal to the number of times that they would be rounded downward.

It’s time to stop wasting our time and money. Let’s eliminate the penny. C

YES 60%

NO 40%

Opinions expressed are those of the individuals or organizations represented and are presented to foster discussion. Costco and The Costco Connection take no position on any Debate topic.

from experts in the field:

Mark W. Weller is the executive director of Americans for Common Cents ( www.pennies.org) a broad-based advocacy group of business, charitable and numismatic organizations.

VIRTUALLY ALL Costco shoppers appreciate a good value, watch their money closely and benefit from more accurate pricing that comes with our current mix of coin and currency. If the penny were to be eliminated, consumers and our overall economy will suffer.

Rounding simply can’t be done fairly. Research by Penn State Univer-
sity economist Raymond Lombra shows consumers will be hit with a half-billion-dollar “round-
ing tax” each year without the penny. Plus, there is little or no evidence suggesting that application
of state sales tax would lessen the rounding hit.

While there have been increases in electronic spending, more than 60 percent of all transactions of $10 or less are conducted in cash. The 10 million Americans without checking or charge accounts who must pay cash at the register would feel the sting of rounding most of all.

Without the penny, the mint will have to produce more nickels that cost twice as much to produce in today’s prices. Because of soaring metal prices, it costs more than 7 cents to make a nickel. Spending more money to produce more nickels is no way to save money.

Moreover, the penny is a hedge against inflation. Without it, government spending is anticipated to increase by nearly $1 billion over five years.

The time associated with making transactions will increase, not decrease, without the penny. The time lost at the cash register handling pennies is exceeded by the time needed to process check and electronic transactions. Plus, consumers who use cash provide merchants, particularly small businesses, relief from onerous bank fees they must pay on debit and credit transactions. Cash is always the cheapest payment form to process.

Americans overwhelmingly support continued penny production (79 percent in a recent Coinstar poll). The federal government’s experience with the metric system and dollar coins suggests that changes imposed without public support will fail miserably.