The Price of Pennies: Make or Buy?

The Answer Is Transaction Costs

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The make-or-buy decision is a fundamental aspect of economics that applies to businesses, households, and nations, with the U.S. penny providing a fascinating case study in economic inefficiency.
• It costs 2.72 cents to manufacture one penny, representing a loss of 1.7 cents per coin to taxpayers
• The U.S. Treasury loses between $85-120 million annually due to penny production costs
• There are approximately 130 billion pennies in existence, but only 5-10% actively circulate
• Most pennies end up sitting idle in jars, drawers, and coin collections after minimal use
• Arguments against pennies include production costs, inflation reducing value, transaction inefficiency, and environmental impact
• Canada successfully eliminated the penny in 2012, rounding cash transactions to the nearest five cents
• A potential alternative: buying back existing pennies at a price below manufacturing cost
• The Federal Reserve could implement a system paying $1.50 for 100 pennies, still saving over the $2.72 production cost
• This system would utilize the billions of idle pennies while maintaining the existing distribution infrastructure

Grass seed: Expensive!

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Chapters

1. Introduction to Make or Buy Decision (00:00:00)

2. The Penny Production Problem (00:01:44)

3. Current Penny Distribution System (00:05:29)

4. Proposal: Buying Instead of Making Pennies (00:08:53)

5. Twedges and Listener Question (00:12:49)

6. Book of the Week and Closing (00:14:48)