Economics and the mid-life crisis have much in common: Both dwell on foregone opportunities

C'est la vie; c'est la guerre; c'est la pomme de terre . . . . . . . . . . . . . email: jpalmer at uwo dot ca

. . . . . . . . . . .Richard Posner should be awarded the next Nobel Prize in Economics . . . . . . . . . . . .

Thursday, February 10, 2005

Ban the Penny --- Again/Still

After my appearance on CBC radio last week, during which I discussed my recommendation that Canada stop minting pennies and nickels, I received several more telephone calls. One, from Professor Dinu Chande, deserves special mention.

Professor Chande, along with his colleague Tim Fisher at Wifrid Laurier University, published an article in Canadian Public Policy last year with results that are strongly supportive of my position.
Using 2001 figures provided by the RCM [Royal Canadian Mint], we have estimated that each penny cost 4 cents to produce and distribute. Furthermore, if the existence of the penny adds just one second per cash transaction, its cost to the economy increases to almost ten times its face value. Inflation will only increase the economic cost over time.

They found that if only mintage costs are considered, then the Royal Canadian Mint earns a bit of seignorage in producing pennies and nickels; but once distribution and other costs are considered, in 2001 the RCM lost over $24m producing and distributing pennies, and they lost over $3m producing and distributing nickels!
What a waste. But that's not all.

They also estimate that the user cost, in terms of delayed transaction times, is at least $64.9m, but unfortunately they valued that time at $16/hour, the average wage rate. To make the case stronger, I would want to ask what is value of the next best thing someone could be doing with that time? I would attach a value of only $4/hr, just to understate the case, which implies a user time cost due to pennies of $16.2m [I had done a back of the envelope calculation that I mentioned on-air and come up with $10m]. This is per year!

So the total costs of using pennies and nickels in the Canadian economy are roughly $44m per year at a minimum! and very easily could be much more.

What an outrageous waste.
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