There is a 350,000-sq.-ft. Zinc plant a few miles outside Greeneville, Tenn., with a distinctive claim, but you wouldn't know it if you happened to pass by. Only the company's website offers a clue about its unique role in the U.S. economy: "Jarden Zinc Products manufacturing facilities and technically trained, experienced employees are the first choice of many countries, including the United States."
Since 1982, Jarden has been the U.S. government's exclusive supplier of penny blanks the metal discs that become 1¢ coins. The relationship has been good for the company, which, since 2000, has recorded more than $800 million in revenue from federal contracts, the majority of which are no-bid, according to USAspending.gov The currency Jarden helps produce, however, hasn't fared as well.
The value of the penny has been dropping for decades. In 1913, the coin had almost 25 times the purchasing power it does today, according to the Bureau of Labor Statistics. It reached something of a tipping point in 2006, the first year it took more than a penny to make a penny. It now costs 2¢ to produce a 1¢ coin.
The skewed production costs combined with the increasing use of debit, credit and mobile payments have led many countries to stop issuing 1¢ coins altogether. Canada, which has a currency model similar to the U.S.'s, will become the latest to do so when it ends penny circulation on Feb. 4. In his 2013 budget, President Obama proposed exploring changes to the composition of the penny to save money.
Given the penny's high production costs and declining utility, is the time finally right to get rid of it? That will depend, in part, on whether the Canadian experiment proves successful, the reach of a lobbying group and the value of the U.S.'s second cheapest coin.
PENNY-WISE OR PENNY-FOOLISH?
In his four-decade career, Raymond Lombra has done significant research on the Federal Reserve and U.S. monetary policy. But the Penn State University economist's work on the penny seems to be the only thing people want to talk to him about.
In 1990, Lombra presented a study before the Senate Banking Committee analyzing what would happen to prices without the penny, a scenario that would force consumers to round up or down to the nearest nickel. The study was commissioned by Americans for Common Cents (ACC), a pro-penny lobbying group funded largely by Jarden. Lombra's analysis of 10,000 retail transactions found that prices tended to be rounded up because many of them ended in a 9. Therefore, Lombra testified, the move would impose a "rounding tax" on consumers that could total as much as $1.5 billion (in 1990 dollars) over a five-year period.
Other experts dispute Lombra's conclusions. A 2006 study of nearly 200,000 convenience-store transactions by Wake Forest University economist Robert Whaples found that customers did not pay more when prices were rounded to the nearest nickel. In fact, Whaples contends that getting rid of the penny could save $730 million per year by eliminating the time customers and cashiers deal with the coin in cash transactions.
At the time of Lombra's report, the penny was still making a profit for the government through seigniorage, a funny word for the difference between the value of currency and its production cost. In 1990, it cost about 0.6¢ to make each penny, which meant the U.S. earned 0.4¢ in seigniorage. That profit disappeared in 2006, and penny production has been costing the government ever since.
This is partly due to higher metal costs. In 1982, zinc replaced more expensive copper as the primary metal in pennies. But zinc prices have risen over the years, all but negating the earlier cost savings.
These are among the reasons it is so difficult to find an economist who argues for keeping the penny even Lombra, to whom Time was referred by the pro-penny camp.
"If somebody said to me, Is there a point at which it would be rational to get rid of the penny?" Lombra says. "Well, of course! If the benefits of getting rid of the penny are in the neighborhood of what the costs are, that's sufficient."
Pennies are big business in Greene County, Tennessee, where Jarden employs about 200 people. Though the company manufactures coin blanks for 30 other countries, U.S. pennies make up a substantial chunk of its business. It's Mark Weller's job to keep it that way.
The executive director of ACC, Weller is the public face of the publicity-averse zinc industry's campaign to preserve the penny. Jarden has given $1.2 million to the lobbying group since 2006 and last year doubled its annual contribution to $280,000, a good value by corporate-lobbying standards. Weller's argument for keeping the penny boils down to three points: without the penny we would become more reliant on the nickel, which has its own issues; charities, dependent on penny drives, wouldn't be able to raise as much money; and a poll released last year shows most Americans don't want to get rid of the penny.