In Trouble Once Again: What to do About US Post Office? Becker

 

The United States postal system has a distinguished history since mail delivery is part of the Constitution, and Benjamin Franklin was the first Postmaster General. But during the past half century it has faced one financial crisis after another. Changing communication technologies may be the underlying source of its difficulties, but the postal system has also been hampered by regulations, and by its own inefficiencies. The solution: completely privatize the postal system, and allow other carriers to make daily mail deliveries using business and residential mailboxes. There are now enough actual and potential competitors, including the Internet, to make delivery of mail a highly competitive industry.

After running up billions of dollars in losses subsidized by the federal government from 1942-71, the postal service was made a quasi-independent non-profit enterprise (the United States Postal Service, or USPS) that no longer receives any direct government subsidy. Financially, USPS held its own until 2007, but since then cumulative losses have amounted to about $20 billion, and it is expected to lose another $8 billion this fiscal year. Obviously, this cannot continue much longer without a resumption of government subsidies, so this is an excellent time to consider major changes in the postal service and the economic environment in which it operates.

The most important factor behind its worsening financial fortunes is the sizable drop during recent years in the total volume of mail delivered. First class mail alone, although protected by a legal monopoly, fell by about 30% from 1998-2008, and has continued to fall rapidly during the past 3 years. The Great Recession is responsible for part of the decline in mail deliveries in recent years, but most of the fall has been due to the growing use of the Internet to pay bills, and to deliver newspapers, magazines, and books. The recession will end, but Internet use will only get more widespread, so the challenges facing USPS will continue to grow.

Defenders of the postal service correctly point out that part of its troubles is due to regulations that significantly raise its costs of operation. These include the requirements to deliver first class and some other mail 6 days a week at uniform prices to about 150 million residences, mailboxes, and businesses, including very remote locations that are costly to serve. Most mail prices can only be raised according to a formula fixed in 2006, and the USPS is restricted from entering new businesses.

The postal system would like to reduce costs by eliminating regular delivery of mail on Saturday, and by closing about 10% of it’s over 30,000 post offices. It would also like greater freedom in setting prices of first class and other mail delivery. The postal system should be given these and other requests to operate more freely. Regular Saturday delivery of mail is an expensive luxury that is no longer needed, and the cost of operating post offices in remote areas cannot be justified, especially given the growing use of the Internet to pay bills and receive news and advertising.

 However, greater freedom for the USPS should be part of a sweeping reform of the environment in which the postal service operates. Certain major advantages given to the USPS should also be removed. The post office has had a monopoly for over 100 years on the daily delivery of first class letters and other mail, a monopoly that includes exclusive access to customer mailboxes. Eliminating this monopoly, and allowing the postal service to operate as a private for-profit company, would force the USPS to try to compete more fully against Fed Ex, UPS, and perhaps new companies that would enter the mail business.

Competition would do wonders for mail delivery in the United States since it would make the USPS improve its operations if it wants to survive against competitors. We have seen how the 1971 law that required the postal service to be financially self-sufficient forced the postal service to eliminate losses. It did this by cutting costs through large reductions in the number of postal workers, and by closing many small and uneconomical post offices.

Nevertheless, the efficiency of the postal service still lags far behind that of Fed Ex and UPS. Part of this lag is due to regulatory restrictions, but some is due to its own mismanagement. As in prior discussions on our blog I refer again to the small town on Cape Cod where I have a summer home. Since its population expands 8-10 times during the summer, first class and other mail rises enormously during the summer. Fed Ex adjusts to this peak load problem in many ways, including renting trucks from Enterprise rental, delivering packages during longer hours, and shifting some employees from other locations. The local post office, by contrast, hardly adjusts at all. It has exactly the same hours as during the low volume winter months, which includes closing from 12-1 on weekdays, and only being open until noon on Saturdays. Since there is no mail delivery in this small town, most residents have mailboxes at the post office. Even though these boxes are in a separate room, which could be kept open when there is no other mail service, this room is closed too at about the same times when other mail service at the post office is closed.

Government enterprises, even quasi-independent ones like the USPS, are notoriously inefficient because of political and regulatory inefficiencies (see my op- ed of September 2 in Wall Street Journal on “government failure”). Sometimes, as with the military, there is no good substitute for a government enterprise. Fortunately, that is not the case with mail delivery since competition could be easily introduced by taking away the legal monopoly given to the USPS, eliminating the many restrictions imposed politically on its operations, and forcing it to operate like a for-profit company.

These changes will not be easy politically, although New Zealand and many European countries have either privatized or greatly liberalized their postal systems. But radical changes in competition and the regulatory environment are the only way to improve efficiency in mail delivery while trying to meet the major challenges posed by the Internet.

 

Comments

[NEH]

Jack, "Indeed"! I really, really, hate that word! In my opinion, it's one of the few words that ought to be banned from the English language. ;)

Dean C., Christie's approach (along with others and I won"t mention Social Security or other Pension Funding) is what I call a "Reverse Robin Hood". Steal from the Middle Class and Working Poor and give to the Rich. And we wonder why we're having problems... ;)

BTW, the U.S. has slipped in the International Economic Standings from first to fourth and now fifth. Due primarily to political back biting and a lack of Corporate Ethics. This says a lot...

[an observer]

The fact of the USPS' pension obligation is obviously known to Becker. Why, then, does he omit any reference thereto in his article? Given the obviousness of the issue, the only logical conclusion is that Becker, like a lot of the private market/anti-government crowd, is serving an ideological agenda rather than one driven by facts. This crowd is so wedded to the notion that government can and should in many instances (prisons, public works, public schools, water, etc.) maintain a role in serving the public good through monopolistic or semi-monopolistic institutions that it refuses to acknowledge the very different requirements heaped upon public institutions

How true, how true, how true

That don't come more dishonest than Becker Posner

[Jack]

NEH Indeed it's true! though currently I find THE most annoying linguistic fad that of getting "No problem" in return for a hopefully gracious "Thank you". Mostly, being the gentle soul that I am, I avoid agreeing that bringing the meal or fresh coffee should not be a "problem".

I've less tolerance for the "I have Nooooo Idea" as a substitute for not knowing an answer, or seemingly, anything.

Ha! my Dad who had no formal econ training but did spend his early years in the Depression and WWII, used to say as long as money is being circulated we can all get a piece of it and the rich will do fine......... it's when it stops, then it's a bitch. Indeed! so it seems.

[TANSTAAFL]

Imagine how the Federalist Papers might have turned out, had Observer, NEH, and Jack been around 220 years ago to write them, instead of Madison, Hamilton, and Jay. And imagine the likely result. America today would be like Zimbabwe.

[Julia]

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[Jack]

Tans: Well, No. I, along with the others mentioned strongly favor "developing our nation's resources for the general welfare of THE people".

I, perhaps as 2nd gen Irish, on one side, am at least as equally opposed to an ALL FOR THE RICH including utterly unaffordable Bush tax cuts, as were they who originally fled the poverty and oppression of the lords.

Perhaps, again? review the continuing, worrisome, nation splitting trend:

http://lanekenworthy.net/2008/03/09/the-best-inequality-graph/

Marx, in those early days of the development of capitalism failed to get the solution right, but in predicting repeated consolidations of wealth, crashes, and revolutions, peaceful or otherwise, was prescient. (Omitting "indeed!!" for benefit to NEH)

BTW if you've ever played a game of Monopoly, what do you think of those final rounds and how they'd work out for the nation and the world's largest economy?

[an observer]

TANSTAAFL

You have no idea what you are talking about. You have never read the Federalist Papers or even Adam Smith of Burke.

[an observer]

Financial Times has an excellent story, today, on USPS---its problems are entirely made by Congress

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[harold]

This is the biggest assault on Americans and American standard of living I have ever witnessed . This is not about the unions or obsolescence or e mail or junk mail or postal workers. This is about trillions of dollars. If they get away with this, the price of
shipping and postage will skyrocket. There are very powerful people behind this and they have done a masterful job of misinformation in order to create a public opinion that is apathetic and or anti Post Office . The plan to dismantle and privatize the USPS has been in motion for at least 5 years and they are using members of Congress to carry out this huge rip off of the American people . It is a lie that USPS is loosing money! Please take a look at this web site for more info http://saveamericaspostalservice.org/ , and please see this article

http://redtape.msnbc.msn.com/_news/2011/10/07/8191425-twisted-government-accounting-behind-postal-service-woes. for insight into exactly how this is being done . Why I believe it's being done. Everything bought and sold on the Internet has to be shipped.
THE USPS IS THE MOST LEVERAGED AND ADVANTAGED PLAYER IN THE SHIPPING BUSINESS. Tax exempt, non profit and possessing the largest shipping infrastructure on earth , UPS, Fed EX ,DHL no one can compete with the USPS. Once the USPS is eliminated , there will be no one to keep prices in check. The USPS owns billions if not trillions in real estate, free and clear with no tax liabilities. They have begun to secretly sell off these great assets. They have closed hundreds of Post Offices already and incredibly most people are unaware or just don't care. Case in point . Recently a Beautiful Post Office land and building in Palm Beach Florida , built by Americans under FDRs New Deal, owned free and clear for decades was sold and the Post Office moved from there to a strip mall where they now pay many thousands of dollars per month in rent. I ask who got paid to sell us out there? Mismanagement at the very top. The USPS can generate massive revenues for the American people. Instead of going into our treasury, huge profits will go into the pockets of profiteers. It's not just about the money. We have the right to a public postal service free from profit and possibly even foreign control. Check out article 1 section 8 of our Constitution. Please do not let them sell off an infrastructure that took our ountry over 200 years to build while the multi nationals make a grab for our postal system.