"A penny saved is a penny earned" is a truly old saying that dates back to the 17th century in a time when a penny had value. Today we toss pennies into a receptacle next to the cash register or into a bottle in the closet just to get rid of them. Rarely does anyone actually count out pennies when making a purchase. They are generally regarded as worthless, at least in terms of purchasing power.
But they are not worthless to the U.S. Mint, which is legally obligated to keep making pennies to replace the ones we put away in closets, and it is no small item. This year it is costing the Feds $1.63 cents to make a penny. A penny is 97.5 percent zinc and 2.5 percent copper which means the cost of making them varies in tandem with metal prices. In 2011, the cost of pennies reached their all-time peak of $2.41 cents apiece to make. The Mint is spending more than $100 million a year to make pennies that serve mainly to annoy people. This is the sort of thing that brings government into disrepute.
There are occasional efforts to abolish the penny -- as many other nations have done -- to save money and get rid of an annoyance. But the zinc industry predictably fights all such efforts and it has always been relatively easy to prevent sensible things from being done in Washington. In the current political environment, our government seems doubly determined to avoid doing anything that faintly resembles sensible. So the penny foolishness continues.
On a related topic, our government could also save a bundle by abolishing the paper dollar in favor of dollar coins which it has stockpiled in abundance. A paper dollar lasts about a year and a half; a dollar coin for 30 years. But Washington can't bring itself to do that either. Rational governments such as those in Canada, Australia and Great Britain have long since moved to dollar (or pound) coins without bringing on the end of days, but our government flees in terror from anything that smacks of change, no matter how innocuous it might be.
So we end up stockpiling pennies by the jar which makes no sense, but then saving dollars doesn't make much sense either. The Federal Reserve in its obsessive -- and thus far futile -- quest to stimulate economic growth and job creation continues to keep interest rates at near zero, which means there is scant payoff on savings. This penalizes people, especially the elderly, who depend on interest from their savings, while encouraging irresponsible speculation in the financial markets by money managers desperate to find a return.
Meanwhile, the Federal Government continues to run annual deficits in excess of $500 billion a year, adding to the national debt, while the Federal Reserve has on its own initiative has added more than $4 trillion in federal debt through its risky quantitative easing program.
The moral of the story is that we cannot sensibly expect reasonable fiscal management of trillions of dollars by people who cannot be trusted with pennies.
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Jerry Jasinowski, an economist and author, served as President of the National Association of Manufacturers for 14 years and later The Manufacturing Institute. Jerry is available for speaking engagements. September 2014