Archive for July, 2006

The moon is gone, save your pennies!

July 15, 2006
Take a moment to celebrate the smaller engineering victories in the world.

For the last seven years, and up until very recently, Earth had another moon. But it might not have been the only one.

I’ve gotten caught up in the most recent round of debate about the fate of that most quintessential of American specie, the humble penny. The world demand for metals, notably because of construction booms in China and India, have driven the prices of copper and nickel to record levels. In fact, scroungers have brazenly been stealing streetlights and housing siding. These two metals are the main ingredients of nickels and pennies. With current metal prices so high, some coins are worth more for their metal value. Of course this does not make up for the cost of machinery, labor, and storage, so it isn’t quite profitable to melt pennies and nickels down for their metal content. But that’s already happening elsewhere. If you’re thinking of getting into secondhand metal processing in the US, please don’t. Anyway, unlike the first 200 years of its history, the US Mint is now losing money by making pennies and nickels. They more than make up for it by the profit from making larger denomination coins. But the lower coins have caught the attention of detractors. What is to be done now?

Well, how about using cheaper materials? The three standouts are aluminum, plastic, and clad steel. Aluminum was tried in 1974, and was shown to be too soft to hold up to wear and tear. Plastic is soft too, with an even more volatile price than metals, and using it for coinage would add to our reliance on petroleum. But clad steel is a good option, for now. Canada and the EU are already doing that. But how long will it be before inflation drives up the cost of steel? It may take 20 or 30 years, but we’ll find ourselves in the same fix we’re in now, with no cheaper metals left as an alternative.

Okay then, how about eliminating small coins? This also is a temporary solution too. First, the loss of the cent as a unit of currency would be a red flag to international currency markets that the USA is having inflation problems. And how long will it be before the dime’s time has come, or the quarter, or the dollar itself? Will the US be one of those countries like Japan, where the smallest coin is $100 and meals cost several thousand dollars? If it gets that bad, we will have to do something drastic that we’ve avoided doing… re-evaluating our currency by chopping off zeroes. Mexico did this in 1993, and Brazil in 1994. It brings short term penalties but longer-term stability. It may be as inevitable as price increases, but we’re still 20-30 years from this option.

There are much better arguements online for or against abolishing the penny. I will leave you to find those on your own, but I’ll give you my take on it. The Mint makes pennies at a rate based on demand. This demand comes from the Federal Reserve, which orders pennies from the Mint, and the Mint bases penny production on predictions of these orders. (This works the same way for all coins, not just the penny.) The Federal Reserve’s demand is generated by the requests from private banks, who stock their tellers with coins from the Fed. Private banks need enough pennies to meet demand from their customers, primarily businesses. Businesses need pennies because they have to give them out as change. Change is due because the price paid by the customer is rarely a whole number. Non-whole numbers are caused by sales tax. Odd prices like $XX.99 don’t help either. This is why pennies are needed under the current system. (You can also look elsewhere for arguements over mandatory price rounding.)

So, as long as pennies are needed to make change, businesses will order them from banks, who will order them from the Federal Reserve, who will order them from the Mint. The demand for pennies is entirely the fault of non-whole prices. The penny circulates mostly in one direction; Merchants give them to customers, who hoard them until they cart a jar to the bank. If you are a retailer and you are wishing you didn’t have to handle pennies, you actually have the most power to do something about it. Simply change your prices so that the addition of sales tax always results in a whole number result that can be handled with no less than a nickel. If businesses stopped giving out pennies, the reduction in demand would lower the Mint’s production numbers. Believe it or not, this is how the half dollar and $2 bill became so rare; people just stopped using them!

There are other factors in this debate too. Prices for measured products, such as vegetables sold by weight or gasoline sold by the gallon, are rarely round numbers with or without tax. The US dollar is the official currency in Panama, Ecuador, and El Salvador, where prices are much smaller, and thus a penny is more useful. Electronic money handling spares the need to handle coins, but takes a bigger bite out of smaller businesses, and uses up more plastic and electricity (read "need more oil").

One more interesting thing to point out is the recent production volume of pennies. I had no idea before, but we’re producing far fewer pennies than we used to. Penny production peaked in 1982 and 2000. But in 2002-2005, fewer pennies have been made each year than in 1974! But there are still a lot of pennies out there!

In personal news, we recently found a nice state park an hour south of us that has excellent kayaking. Now I can drop my boat in the water and paddle around! And if Evelyn wants to join me, the park has hourly kayak rentals. They even rent out tandem kayaks.

People are asking me for copies of Ferrball’s Mansion. The game badly needs independent playtesting, without myself present to guide the players along. What I need is to see how well it plays right out of the box by total strangers. If you’d like to help, let me know. Also, I recently changed the code cards from double-sided to one-sided, so an online interpretation might be in order (I need to finish Warriors first). I also need to hit the copyright law books.

I’ll be leaving next week to visit my family in Indiana, so there won’t be any updates for a while.

Nifty Wikipedia Thing: 1774 Gunpowder Incident (a belated July 4th treat)

Music of the Moment: "The Shadow of Seattle" by Marcy Playground

What I’m reading:
"Wahoo" by Richard O’Kane
"The Secret Agent" by Joseph Conrad

Strike Up the Band

July 4, 2006
Happy 230th birthday, USA!

TIAH is running my article today. Thanks and hooray!

Nifty Wikipedia Thing: I’d love to take this route as a road trip someday. It does start conveniently close to home.

Music of the Moment: "Anitra’s Dance" by Glenn Miller

What I’m reading:
"Wahoo" by Richard O’Kane
"The War of the Worlds" by H.G. Wells