A recent article in the OC Register found a proposal to stop production of penny.
Consumers will be shortened to a new US policy that will stop making pennies by early next year.
The US Treasury will save tens of millions of dollars by eliminating the 233-year-old 1-cent coin, but at a higher price boosted by millions of poor consumers.
Bill Maurer, dean of the School of Social Sciences in Irvine, California, says that if you leave a penny, no one will use bank cards or digital money options.
He settled on two parliamentary proposals that he ignored the gap between the rich and the poor. This is the “Common Cent Act” introduced by a two-part group of lawmakers, including US officials.
Both propositions will cease production of penny within a year of its enactment. And while pennies remain fiat currency, businesses will close out cash transactions to nickel, the nearest under the new law, eithher – a key concern for Maurer and others.
There are two issues with the claims made in this article. First, SEM is unlikely to play a useful role in our economy. Secondly, leaving a penny won’t cause a high price – in fact, the opposite is more likely.
Today, the CPI is almost 38 times higher than 1900. At the time, the smallest coin produced by the US government was penny, just like today. As for today’s dollars, Americans in 1900 chose not to produce coins from sects that are less than 38 cells. Not only is it not clear that pennies are needed, but even nickel and dimes are very questionable utilities. It seemed to work in 1900 without the coins of purchasing power.
Even in the mid-1960s (around me), Penny was considered very unworthy, so the kids were aunting by picking up one from the sidewalk. Still, today’s CPI is ten times higher than in the mid-1960s.
Therefore, Penny’s efficient argument is very weak. But what about a fair discussion? Did the rest of the penny increase the price as they summed the sneaker price from $29.99 to $30? I doubt that. It’s likely to close to $29.95.
But even if I’m wrong, if the retailer closes the price from $29.99 to $30, it won’t continue to be a penny and raise the effective price that consumers face, and the odds will be reduced. To understand why, we need to take a closer look at the dynamics of a highly competitive market.
Competition is fierce in most industries where companies are just under rounds. Examples include clothing retailers, grocery stores and gas stations. In these types of industries, long-term economic benefits are close to the usual rates of return of other similar competitive industries. Actions that reduce or reduce costs are passed on to consumers. It’s probably not immediate, but certainly in the long run.
It’s a hassle for retailers to handle small coins. Leave them out of the circulation reduces transaction costs (although certainly the effect is small). Even if some products are rounded up from $29.99 to $30, on average, the price level is slightly lower than if the penny was still in circulation.
This is similar to the argument I made in a previous post. This showed that regulations that prevent price gouging actually lead to higher prices for consumers in the long run.
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