Do We Need a 37-Cent Coin?
freakonomics.blogs.nytimes.com
freakonomics.blogs.nytimes.com
So here, premise (2): "probability of a transaction resulting in value v is uniform." No! Not true! In reality, people price a disproportionate number of transactions to make easy change with the coins we have, be easily divisible, be .01 less than a larger number of dollars, and so on. The discovery that cash transactions had a uniform distribution of change would actually be quite weird.
But worse is the smuggling in of an unconsidered definition of the good in the form of the efficiency metric -- fewest coins per transaction. Even granting the uniform distribution, making change out of your pocket is still solving the subset-sum problem in your head, which is of course NP-complete. The existing setup of coins, including the first three powers of 5, makes this problem very easy while almost all the proposed "better" solutions actually make this aspect of the problem harder rather than easier. Who cares if I have to handle a few extra tenths of a coin per transaction if it means I don't have to spend two minutes puzzling out how to make change?
I suppose the lesson, as usual, is that business logic is lived experience, not theory.
Generally speaking, that's true. Most currencies however are designed, so that the greedy algorithm always works and produces optimal solution. The coin systems given in the linked article do not have this property, so they are actually inferior to real systems.
edit: come to think of it, they in fact do, but it requires ridiculous amounts of pennies, so my argument still holds.
SO you can work out the change IF you know the random extra amount that will be added at the checkout
A chemist, a physicist and an economist were stranded on a desert island when they discover a crate of canned food. The chemist says that they should leave the cans in the salt water for a while and then try opening them. The physicist says they should try banging them open with rocks. The economist says "Let's assume we have a can opener."
In our current system, the only one that doesn't work is breaking a quarter into dimes.
(And I presume you mean "first three multiples of 5".)
By that metric, 37-cent pieces are just about the worst coinage possible, 11-cent pieces are a joke, and even 15-cent pieces which don't evenly add up to a dollar are a suboptimal.
Even by economist standards, ignoring this aspect of the system is rather a disappointment.
I'd say that the pool of coin values we can choose from then are 50, 25, 20, 10, 5, 2, 1. The two cent piece is already in use in Europe, and many economists have suggested adding it to the coinage in the united states (usually in replacement for the penny altogether). It'd be interesting to see if the 20 cent coin would be a viable addition though.
Seems to me if one wanted to simplify the system, a good solution would be (1, 5, 10, 50). This would really make the math simple.
But I don't think people would give up quarters happily; nor do I think fifty cent pieces would go over well; and I think it's high time to lose pennies. So if I was the evil overlord in charge, I think I'd just drop to (5, 25). Cash transactions would round to the nearest nickel instead of penny. Getting back four nickels instead of two dimes would be gotten used to quickly, I think.
In all seriousness, how about vendors start pricing products with tax included, rounding to the nearest quarter dollar? Say what you will about movie theatre concession pricing, at least you're not going to walk out of there needing a tub for your change as well as your popcorn.
Sales tax in the US is just ridiculous. I've never understood why they would prefer things that way.
It's a crazy system, but state and local governments are dependent on sales tax revenue so it's impossible to dislodge.
The system in the UK isn't exactly sane either though, as I recall from the fact that everything at Pret is advertised with an "eat in" and "take away" price since the two scenarios are taxed differently. If you say you'll take it away but then change your mind and eat it in, you're presumably in serious (theoretical) trouble.
And then you've got the Australian system which is at least invisible to the consumer but is still annoying and inconsistent to the merchant. It was going to be a consistent 10% applied to everything, but the minor left-wing parties insisted at the last minute that it needed to exclude some but not all forms of food. Meanwhile feminists have been agitating for years to get tampons excluded as well... not because any analogous male or unisex product (toilet paper?) is excluded but because they have apparently run out of any serious problems to complain about.
Since there are sales taxes at multiple levels (another reason - taxes can change frequently and are far from national) having a feel for taxes comes in useful when voting since if you feel you're getting nothing for your local taxes, you can make an informed decision at the ballot box.
Also, something of interest, I have a lot of friends who come over here to Japan and complain at how expensive food is in restaurants. What I noticed is that while the price on the menu is much more expensive than in the States, your final cost is pretty comparative.
US Cocos: ($20 + 10% tax) + 15% tip = $25.30
JP Cocos: ($25 incl. tax, no tip) = $25
I had a Suica card that I bought the first time I went in 2008. I didn't use up all the money that I put on the card and kept it when I came home as a souvenir. When I returned in 2010, I brought it with me, figuring that there was a time limit on the validity of the card, or that I would have to get the card re-activated first. No, it worked just like it did when I bought it in 2008. When it ran out of money, I went to a Suica-issuing ticket machine and put more money on the card. So, don't throw these cards away.
The US, on the other hand, is the most plastic-heavy culture I've visited. It's the only place where it's socially acceptable to pay for a $1.50 cup of coffee with a credit card.
(But you should avoid the Golden Week if you're coming from abroad)
When I buy orsell something of craigslist right now it is almost always cash and the infrastructure available would have to change substantially for that to change.
1. Vending machines
2. Giving change to folks on the street
Also, plenty of people, for whatever reason, pay cash at stores; coins are needed there, of course.
And finally: for better or worse, cash is anonymous. Until a dependable replacement that is also anonymous comes along, people won't switch from cash.
cash is in general, but not coins.
The problem would come in assigning a static serial number to a pool of bits. If I spent an electronic dollar, did that dollar come from the few bucks my neighbor gave me for gas after he borrowed my lawn mower, or from my paycheck? It's not like I care which one gets spent, since they are the same, but how would you determine which one get priority. I guess the same argument applies to dollars sitting in my wallet, but its something one would have to consider designing such a system.
I don't really see it. There are cryptographic protocols designed just for this kind of things. The real thing is it would be more awkward than just cash.
We simply couldn't produce enough food.
Propane powered vehicles, propane fueled fire, propane refrigeration.
...and there is this (A Solar Ammonia Absorption Icemaker): http://homepower.com/article/?file=HP53_pg20_Vanek
Now all you need is a way to power your currency.
Without some accepted medium of value exchange between an electronically disconnected region and the outside world, it becomes much more difficult to establish or restore connectivity. So the purely cashless system is actually much less robust with respect to physical failures.
Anything less than that, you use batteries.
The point about cities I'll give you to some extent: a city with very high population density is generally dependent on a much larger total rural area which supplies them in exchange for economic support. If the loss of power also kills all transportation, you're doomed. But our current transport infrastructure generally includes autonomous non-electric options even where public transport is primarily electrical (trains etc). You can pay someone to bring you food from outside the city without needing a network connection.
Really this reinforces my point above about currency though: absent an uncompensated intervention (ie government), a city which loses its power and connectivity must have some medium of exchange to pay for its food supply to be transported in, and to get itself back on its feet. Some non-electronic medium (ie cash) is essential in these cases.
For most transactions, a merchant is charged between 2-3% of the purchase price. This means that whatever you are buying could be 2-3% cheaper if cash were used instead. (However, for high-volume stores this may not be true since credit transactions take less time than getting change from cash.)
Furthermore, if someone steals your credit card number, you call them and have the charge removed. Does your credit card company take the loss with this? Not usually. The merchant that accepted the stolen card will pay. This in turn, makes the price of goods go up again.
These things take some toll on the overall economy. The real question becomes, how can we make cash transactions more efficient so that it improves commerce for individuals and improves the profits of businesses?
The Euro/cent has far too many denominations with 1/2/5 at each power of 10 up to €500 (split between 8 coins and 7 notes). Combining 2s & 5s into 3s would reduce that to 10 denominations total, and I think it would be reasonable to drop single-digit cents from cash transactions entirely. IIRC Finland has "banned" 1 & 2 cent coins already. (they're in circulation obviously, but no prices require anything below the 5 cent coin)
Of course no country other than Geekistan would actually do this, so I would settle for a 1/3/10/30 system.
¹Or pound or euro, of course.
²We couldn’t call them “cents” any more, could we?
You do know about pre-decimal Pound Sterling, right? http://en.wikipedia.org/wiki/Pound_sterling#Pre-decimal
I particularly like the insanity of the Guinea denomination (1 Pound + 1 Shilling = 21 Shillings). My girlfriend's mother apparently was still nominally paid in Guineas as a legal secretary in the early 70s. Reminds me of volume controls that go to 11.
Part of the reason for the widespread use of cashless payment might be that for larger amounts cash is totally impractical; the largest de facto denomination is £20, the £50 note gets you nowhere.
That said, I do really like the current design of the coins.
But weird currency experiments would be cool.
Edit: I'm in the UK - I use a chip-n-pin debit card for most things.
-- Have you your bill? We had better pay her, Mulligan, hadn't we?
Stephen filled the three cups.
-- Bill, sir? she said, halting. Well, it's seven mornings a pint at twopence is seven twos is a shilling and twopence over and these three mornings a quart at fourpence is three quarts is a shilling and one and two is two and two, sir.
I think if you really want to minimize the number of coins per transaction, you can always add more (than four) denominations of coins, up to some reasonable number.
I suppose the first step would be to unify sales (or whatever) tax across the country.
(Just curious)
Of course there are two other factors that don't help:
a) Previous dollar coin designs have been ugly and filled with misguided feminism (I still don't know and don't care who Susan B Anthony was, and I only know Sacagawea from The Simpsons), and
b) Previous dollar coin designs have been damn near indistinguishable from quarters by feel. Make 'em bigger or thicker or give 'em flattened edges or a hole in the middle or something! Preferably all of the above so you can look at it and say "Wow, that sure looks like a dollar's worth!"
I remembered the dollar coin as George Washington, silvery, larger than all others. And quite uncommon, especially compared to the dollar bill. Still really not something you'd confuse with quarters. Has it changed that much?
And what are those feminism attempts you seem to refer to?
The Japanese solution works very very well. the 100 yen coin (their system's $1 equivalent) is smaller than a US quarter and much lighter than a british pound coin. The 500 yen coin is about as big as a Susan B. Dollar coin, yet is still quite light. I often have as much as 2000 yen in coins in my pocket at a time, and it doesn't feel particularly heavy. Paying a transaction under 1000 yen is generally quick and pleasant.
Contrast with US $1 dollar bills, that are for some reason almost always falling apart, crumpled rags, and with the Quarter being the largest coin in common circulation, paying for something under $10 inevitably means fishing out a mix of disintegrating bills and small change.
My friend had a 500 yen coin bank, which when full held over 50,000. It was not a large coin bank.
You'll hate nickels.
Do it now.
We'll rename the coins (issue all new ones) "decies".
Sort of like a reverse stock split. Let's renormalize all our cash. Due to inflation it's necessary to do this every 100 years or so.
Then you could have 1,2,3,6 cent coins and 1,2,10 part coins.
For anyone that can manage the calculations for feet/inches/yards/miles, drams/ounces/pounds/tons it should be simple.
The imaginary part could represent some orthogonal aspect of worth, e.g. consumption of scarce resources.
The lack of an abstract market selling and buying abstract "calories" at some price doesn't mean there isn't a conversion between them, just that it isn't clean and has a lot of other moving parts, just like everything else in the real world.
Hie thee hence to a microeconomics textbook forthwith, I've been enjoying http://www.daviddfriedman.com/Academic/Price_Theory/PThy_ToC... but heck anything would do.
Any food I contemplate has a cost somewhere in dollar-calorie space, so the currency with which I buy food can be accurately modeled as a two dimensional vector space (or perhaps as the complex numbers, though I guess I don't really use the field properties...).
Perhaps something for interdisciplinary theoretical economist-physicists.
I see your point, I doubt the distribution is completely uniform. But it's probably not as clustered as you'd think (different taxation levels helps).
You're still ahead of the game because for a .99 purchase you'll get .01 back which is just one coin where if I'm using bills would need to pay with two singles and get .93 back (which for the US is at minimum 8 coins). It's no coincidence why I have tons of change collected.
Assumptions of uniformity are usually (uniformly) wrong.
“How can you tell that Patrick is a young economist from the preceding discussion? Because he finds that the current government solution for the coins we use is 98 percent efficient and thinks this is inefficient.”
They also had 1 and 2 dollar coins.
The best part was that the change in your pocket was worth enough to actually allow you to buy things with it. Not like we have now, where people only use it to avoid getting more change back.
Make the coins lighter! So my pocket doesn't wear out from carrying half a pound of worthless metal.
should just switch to a digital currency already...disposable credit cards that can transfer funds between each other.
are you seriously suggesting that we should outsource the "minting" of our money? are you insane?
// Sorry - couldn't help myself.
(And any country whose central bank supports completely digital anonymous cash will suffer the fate of Nauru: first it will attract money launderers from all over the world, and then the world financial system will shut off all contact with it until it reforms.)
1. Privacy
If you use a card for every transaction, then you can be tracked for every transaction. Simple as that.
2. Tangible spending
If you have digital currency, it is often hard to mentally understand the value of money. Everything is equal; be it $10 or $1000. I value an hundred dollar bill much more than an hundred dollars in my bank account, and consequently am less likely to spend the bill.
Digital currency has it's upsides. Let's remember there are real downsides as well.
These numbers are also more interesting than pennies: http://usdebtclock.org/