February 14, 2012

Two Things to Like in the Obama 2013 Budget

One. He has one. <BenSteinVoice>Reid? Reid?</BenSteinVoice>

Two. Cheapening the currency. Not to be confused with monetizing the debt, he saves money by using cheaper materials to make nickles and pennies. I'd nuke them and round everything to a dime -- but it's a start.

Obama wants to change the composition of nickels and pennies to save money. The president's budget would give the Treasury Department the ability to "change the composition of coins to more cost-effective materials," pointing out the current cost of making the penny is 2.4 cents and the nickel is 11.2 cents. Of course, the value of the U.S. dollar isn't pegged to the materials that it's composed of, but it's still a compelling argument on its face. The composition of U.S. coins hasn't changed since 1981, the Wall Street Journal notes, while major components like zinc have become more expensive. Industry lobbyists stalled the proposal when Obama brought it up in 2010, but it may have new appeal to the frugally-minded.
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Obama Administration Posted by John Kranz at February 14, 2012 12:43 PM

And if pennies were still made of copper, as they were prior to 1983, they'd cost even more than nickels to produce.

I s'pose nobody is now willing to accede to my notice of Stealthflation (TM)?"

Posted by: johngalt at February 14, 2012 2:53 PM

Not me, man, sorry. "Doctor" Copper is a proxy for world economic growth. I s'pect Zinc is similar.

I'm downright Bernankian on Core PCE, making me a wierdo among the wierdos who support Rep. Ron Paul. It's a wonder anybody will drink coffee with me anymore.

Posted by: jk at February 14, 2012 3:14 PM

Fair cop.

Ned, do I hope you are right.

Posted by: johngalt at February 14, 2012 3:16 PM

Heard a news report this morning about gas prices going up already, and $4 regular/$5 premium by summertime. Also mentioned was "health care and food prices rising" with the word "inflation" bandied about in there somewhere.

But as I understand it, you're saying the price of everything can go up without being indicative of currency devaluation. Instead it represents only a higher demand for, everything. Right? We 'mericans just have to get used to greater competition for the trading of our dollars for goods from the dollars of other nations?

Please correct my oversimplification as required.

Posted by: johngalt at February 16, 2012 6:04 PM

True for certain values of "everything." If everything = food + fuel + health care, then everything can cost more without inflation. (Not coincidental that you picked three heavily regulated commodities. Toss in tuition "inflation" while you are at it.)

Food and fuel are excluded from core CPI and the core PCE deflator for their volatility and you are in great company calling "shenanigans" on that. I'd say all "price basket" measures of inflation are flawed, but valuable enough that you pick one with the least flaws and make use of it.

My many economic betters are going to wince at this, but I still hold that the inflation missed by core PCE is offset by hidden disinflationary effects of technology and trade. Like leap year, it is not perfect, accurate, or fair but it holds the system in balance.

Posted by: jk at February 16, 2012 6:46 PM | What do you think? [5]