Economics: David Letterman Style

I Returned My New Phone

After a week with it, I had had enough of the T-Mobile Dash. My reasons:

1. Windows Mobile is as bad as everyone says it is
2. The phone could not go all day if I hadn't charged it the night before. I figured that by the time this phone was a year old, the battery life would become a crippling problem.
3. Sound quality wasn't so good.

So I've now acquired a Blackberry Pearl, which has very much impressed me so far. SureType takes some getting used to (essentially, when you type, it is constantly recommending words you might be typing), but the "Pearl" trackball is very nice.

I've been pretty much completely drunk the past two nights, and have an open bar event tomorrow night. In the meantime, this weekend is admit weekend for Round 1 Applicants at the GSB, also known as those super over-achievers who had their shit together by October.

I Got a New Phone

So if you don't have my new number, ask. I'll probably send out some mass email soon.

One of My Professors Tackles the Penny

link

Now That a Penny Isn’t Worth Much, It’s Time to Make It Worth 5 Cents

By AUSTAN GOOLSBEE
Published: February 1, 2007

How dumb do you have to be to mint money at a loss? In the latest only-in-Washington episode, we find that the government may have lost as much as $40 million coining pennies and nickels last year.

The metal in them — the zinc, copper and nickel — has soared in value in the last few years, making the coins more valuable as raw materials than they are as currency. The government reaction has been to ban the melting of the coins to get the metal. But there is a good chance that we will find ourselves in an outright coin shortage of a form we have not seen in four decades and one that harks back to the monetary problems of medieval times.

In their landmark book on monetary history, “The Big Problem of Small Change,” two economists, Thomas J. Sargent of New York University and François R. Velde of the Federal Reserve Bank of Chicago, point out that before the 20th century, the value of coins came from the material they contained: silver or gold. In the words of economics, it was “commodity money.”

But as the price of silver or gold increased, people pulled the coins from circulation. These shortages are a basic problem with commodity money and began almost as early as Charlemagne’s minting of the first silver penny around 800 A.D.

But the United States doesn’t have commodity money anymore. Our coins are just tokens now. They are valuable only because the government says they are — because the government is willing to trade them for dollars.

And making tokens that cost more to manufacture than they are worth is monetary insanity. We could make them out of any material we want, so why in the world would we lose money?

To stop this senselessness, we would seem to have only two choices: debase the coins (i.e., make them out of something cheaper) or abolish pennies (and, perhaps, even nickels).

The United States has debased money in the past. In World War II, we made steel pennies to save copper. In the 1960s, the high value of silver caused a run on quarters and dimes and led to a full-blown coin shortage until we substituted copper and nickel. We also took most of the copper out of pennies in 1982 for the same reason.

But debasement only puts off the inevitable for a short time. Because the penny is fixed in value at 1 cent, no matter what the penny is made of, the cost of its material will rise with inflation and eventually be worth more than a cent.

Most economists, then, argue that we should use this opportunity to abolish pennies the way Australia, Britain, Finland and the Netherlands abolished their smallest coins. Because of inflation, a penny isn’t half the coin it once was. Indeed, the United States ended the half-cent in 1857 when it was still worth about 8 cents in today’s terms, so we’re probably well overdue to retire some coins.

But polls show that a majority of Americans like their pennies, and abolition might lead people in Illinois — the land of Lincoln, where pennies still work at tollbooths — to outright currency rebellion.

On top of that, Raymond Lombra, an economist at Pennsylvania State University, claims that the rounding of prices — a $6.49 bill would cost you $6.50 — might not be evenly distributed and might cost consumers as much as $600 million a year, a cost that would be paid disproportionately by the poor who use cash more often.

Others counter that retail stores could not get away with such shenanigans. But, clearly, the case for abolishing pennies is not universally believed.

So what to do?

Mr. Velde, in a Chicago Fed Letter issued in February, has come up with a solution that would abolish the penny, solve the excess costs of making nickels, help the poor, keep the Lincoln buffs happy and save hundreds of millions of dollars for taxpayers.

As Mr. Velde explained in an interview, “We face a very medieval problem so I took inspiration from the medieval practice of rebasing.”

He would rebase the penny by having the government declare it to be worth 5 cents.

At first that sounds impossible. But our coins are just tokens the government gives a value to. We can say they are worth whatever we like. Indeed, Mr. Velde observes that the United States did something similar in 1834, when it changed the gold-silver ratio and suddenly the half-eagle $5 coin was actually worth $5.625.

Pennies would then cost a little over 1 cent to make and would be worth a nickel, so the government would again be making a profit on money. We would have plenty of new Lincoln nickels so we could stop minting our current nickels at a heavy loss. The Jefferson nickels would stay in circulation, just as the old wheat pennies do now. Because metal in nickels is valuable, though, they would probably be melted down.

Rebasing pennies is printing money. But don’t get too worried about inflation. With about 140 billion pennies in circulation ($1.4 billion) — counting the ones in your couch and your kids’ piggy banks — this rebalance would make them worth $7 billion, adding about $5.6 billion to the money supply. For comparison, at the start of 2007 there was about $1.4 trillion in currency and money available for purchases, to say nothing of credit cards.

Plus, the money would go disproportionately to the poor (and to people getting allowances from their parents), more than offsetting any “rounding tax” from eliminating the penny.

So pull out those sofa cushions, ladies and gentlemen, and start looking for the shiny face of Honest Abe. All that glitters may not be gold, or even nickel, but it may be worth 5 cents.

Schadenfreude

Door: 1, Bub: 0

OUCH!

Picture this: Yours truly has a coffee in my right hand, a book between my right arm and my side, my left glove in my teeth so I can get my left hand into my pocket for my keys. I pull out the keys and go to open the door. Door starts closing a bit, so I go to grab it with my left hand. Because of the cold air outside and the warm air inside, the door slams shut faster than I expected and BAM, I find that my finger gets caught in the door. I quickly reopen the door, walk inside, and start shaking my hand thinking:

• Damn, you can break your hand that way
• I hope this isn't the kind of injury that is best cured by this shaking I'm doing
• Why is there blood all over the floor?

That last question was a bit of a doozy. I looked down and the tip of my left middle finger had turned mostly black with some blue and was bleeding. I still had my glove in my mouth. I went to the emergency room, and after three hours, including one spent watching a decent episode of Law & Order: SVU (Ice-T!) in the waiting room, had some x-rays taken, some hydrogen peroxide poured on it, and was told it wasn't broken, didn't need stitches, nor did I need to lose the finger nail.

So I can write and type, but my rocking ability has been put out of commission for the short term. I also got to show up to school the other day wearing a ridiculous bandage on only my middle finger, which was high comedy in my opinion. I was impressed that most people I knew approached me with genuine concern, as I think my natural response would have been to laugh first and ask questions later.

other random notes:

• Those wanting to be sent stuff through the mail should give me their CORRECT address. It's a very important part of the process. I hope whoever the stranger living in St. Louis that I sent my "Famous End of 2006 Mix" to enjoys it.
• I had grape vodka for the first time last night. It was made by Three Olive, who stands out in my memory as the vodka bottle that had about a shot left in it, and nobody would drink for two or three of my old roommate and my house parties.
• I was selected for the Entrepreneurial Internship Program here at the GSB. This means I can work for a cool small company for the summer. This also puts an end to my flirtation with structured derivative products. You were the most ridiculous sounding career option I could pursue, but in the end it just couldn't work out. It's not you, it's me.
• I've decided to ditch my Boston telephone number. It's on my business card, but I just don't want to have a Boston number two years from now. 3-1-2 in the heezy (or 773, I'm not quite sure which one I'll get).
• Biggest silver lining of the Colts winning the Super Bowl? Is it class act Marvin Harrison getting a ring? Peyton Manning being able to tell various ESPN know-nothings to STFU? Tony Dungy doing the same? Massholes everywhere watching the Colts, the COLTS, with Adam Vinatieri on their team win the big one? No, it's paycheck-player, gold-grilled UM jerkoff Edgerrin James sitting around his apartment wearing a Cardinals jersey with a frown on his face.
• BTW, wrong but funny
• The bar where TNDC was last night, Delilah's, not only plays damn fine music, but will be showing Twin Peaks episodes all month on Sundays. FWWM and the Series Premeire this Sunday. Sweet. creepiest bad guy ever. For those of you that have never seen the show, I didn't give anything away.
• Some other bar I was in last night was playing Fast Times at Ridgemont High on flat screens, while oldish people danced to 80s tunes, and my friends and I downed red-headed sluts and overpriced Coors Light bottles. As two of the guys I was with had never seen it, I offered to lend it to them in either VHS or DVD format, and told them to observe the scene where Phoebe Cates teaches Jennifer Jason Leigh how to give a blowjob to a carrot. I proclaimed it the best high school movie ever, and didn't back down (like Tom Petty) when confronted with "Better than Dazed and Confused?"

Nostalgia

As my past week has included writing a feasibility study for a business, as well as reading a case study on E-Ink, a company that sells ink to be used in an array of devices, including eBooks, I grew nostalgic for an eBook device business plan I and a few others wrote once.

Blast from the past!

All the CAD work was me. We were supposed to have already done $3.5M of EBITDA last year. It didn't quite work out that way. :(

It's Obama! It's Obama!

If I were Barack Obama's campaign manager, I would make this his campaign song. Sure, it's got Lemmy singing "It's a bomber, it's a bomber," but Lemmy's kinda hard to understand, so it works.

Besides, who doesn't like Lemmy? I'll tell you who: the terrorists.

On the moon we can post signs wherever we want! Isn't that right Err?

Boston is stupid.