Penny-Wise and Dollar-Foolish

The Chicago Tribune brings us a laughable report of government stupidity:

The U.S. government, its vaults stuffed with 1.4 billion one-dollar coins bearing the likenesses of dead presidents, has had enough of them. It is going to curtail production.

"Nobody wants them," Vice President Joe Biden said Tuesday. That is for sure: The Mint says there are enough $1 coins sitting in Federal Reserve vaults to meet demand for a decade, and the inventory was on track to hit two billion by 2016.

More than 40 percent of the coins that are minted are returned to the government unwanted, the Treasury said. The rest apparently sit in vending machines -- one of the few places they are widely used -- or in the drawers of coin collectors.

Numismatists among us may recall the wildly-popular "state quarters" set issued around the turn of the century.  Your humble correspondent, indeed, has an almost-complete set of them - if anyone happens to have a spare Washington DC quarter with a Denver mint mark, I'd be most grateful.

The state quarters were a roaring success for the government, because so many people collected them and stashed them in the closet.  Doing this may be educational, but in economic terms it's giving the government free money.  After all, you paid 25¢ to obtain something that cost the government barely a nickel to make, and then removed it from circulation entirely.

What worked once should work twice; so the Mint swung into a series of "national parks" quarters.  These weren't nearly as popular for collections, but at least they didn't do any harm; people used them as ordinary quarters which would have needed minting anyway.

Godless dead Presidents.

The dollar coins are a different story.  For many a year, the government has tried to cram dollar coins down the throats of Americans, and for every bit as long Americans have resoundingly rejected them.  From Susan B. Anthony and Sacagawea to the latest Presidential coins, Americans want the good old paper greenback and nothing but.

About the only waves the Presidential dollar coins made was when the first batch was found to be atheistic - the Mint had omitted "In God We Trust" from its proper place on the face.  Even now it's merely around the edge where it won't be noticed.

But, by law, the Mint kept churning out the coins at vast expense, even though nobody wanted them, only to stow them in a secure vault at additional expense.  What a waste of scarce taxpayer dollars!

Finally, Vice President Biden seems to have managed to get the flow turned off, though exactly how he managed to bypass an Act of Congress without coming up with a different Act of Congress, we are not told.  It may not be much in the grand scheme of things, but every little bit helps; his heart is in the right place.

Right?

Too Stupid Even to Make Money

Wrong!  For in supposedly trying to save money, the Obama administration has merely revealed its total economic ignorance yet again.

As mentioned before, when the government prints or coins money it makes a profit.  Everything except the penny is cheaper to manufacture than its face value; the difference is pure profit to the government, called seigniorage.

Now it might sound nice for the government to pay its bills simply by printing money, and in fact some governments have tried that, but it's not a good idea: you simply create rampant inflation and destroy the value of everyone's money.  We're already worried about the electronic money being created willy-nilly by the Fed, and the damage it will someday do to our economy if it ever gets off the ground again enough to matter.

But these Presidential dollars are a different case, precisely for the reason that they're a waste: nobody wants them.  Unlike the Fed's infinite loans and bailouts, they aren't entering the economy at all; they're just locked up in a warehouse somewhere doing nobody any harm.

However, from an accounting standpoint, they are very real: the government owns $1.4 billion in assets that only cost a few tens of million to create.  The profit is still there, but the inflation is not!

In a time when our deficits are hitting unimaginable heights and our future liabilities are even worse, wouldn't you want the government to hold a free asset?  In fact, Yale Constitutional Law Professor Jack Balkin has written, perfectly seriously, about exactly this as a solution to Obama's deficit problem:

A little-known statute gives the secretary of the Treasury the authority to issue platinum coins in any denomination. So some commentators have suggested that the Treasury create two $1 trillion coins, deposit them in its account in the Federal Reserve and write checks on the proceeds.  [emphasis added]

Those coins, which certainly should bear Obama's likeness, would never circulate - who has $1 trillion to pay for them?  Hence there'd be no inflation, but the assets would be real in every accounting sense.

What's more, should the Chinese ever wish to redeem the Treasury bonds they've bought from us, we'd be fully prepared to pay them off in cold, hard, and rather awkward cash.  Anyone have change for $1 trillion?

But no; First Moron Joe has managed to screw up one of the few government programs that more than pays for itself.  We can all be grateful that his visage, at least, will never grace currency of any kind.