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

[an observer]

No sane person who, like Observer, is a customer of ATT would argue for the end of the public post office. Its end will only result in a monopoly with higher prices, worse service, and unlimited $$$ for even more crony "capitalism."

There is no greater bargain in the world than the first class letter at 44 cents.

The Post Office is run in a substantially better fashion, given its mission, than all other NGOs (e.g., universities and hospitals), especially when one considers all the regulations imposed on its activities.

Last, the Post Office is the future. It is time for this country to realize that technology (the post office is mostly a victim of technology) is destroying good jobs faster than we can replace them.

Life in America, in 20 to 40 years, is going to be one giant WPA, for robots will do all the work.

Neither Posner nor Becker face the real question---what are postal employees going to do, if we close the Post Office? They will never be rehired in any significant number by any other business.

[Mitchell K.]

Becker makes excellent points, but he is not exactly correct when he claims that the USPS cannot continue without a "resumption of government subsidies." The losses posted by the USPS might not be intolerable if not for the mandated "pre-funding" of pension and medical benefits that other governmental agencies are largely exempt from (private companies pay pension insurance). This "pre-funding" (it is more like a tax) helps to finance the retirement and benefits packages of other government employees. The USPS employs many more civilians than other government agencies, and they pay a disproportionate amount (even after adjusting for the size of the USPS) towards its federal pensions.

When this is taken into account, the USPS is arguably receiving a negative subsidy. Without the USPS, the federal government would face a small crisis in financing pensions for other federal workers; it is as if the post office is bailing out the government.

[J Domenicucci]

Yes, the stamps are relatively cheap, however, postal salaries and benefits are not! Again, J.Q. PUBLIC is expected to bail them out because the union doesn't want to make voluntary concessions. If they loose their jobs those few concessions will look pretty good. Unless all the postal workers demand the union make concessions any solution they come up with will be just a temporay solution to a permanent problem....eventually greed will be the undoing!

[TANSTAAFL]

Deaf to irony, Observer complains about "victims of technology" by electronic posting on the Becker/Posner blog, a technological marvel. Fidelity to that viewpoint would be better served if Observer wrote a letter to Becker and Posner, stuffed it in an envelope, affixed a 44-cent stamp, and posted it the old fashioned way.

[Dennis Tuchler]

Will Congress really let the USPS have independence as to siting nd providing personnel for local post offices year around? Ask the Senators from Maine and from states with large rural and small-town voter populations.

Observer: why should USPS employees be more protected than others who have been laid off?

[Chin]

China postal system has changed radically.The cost we pay lower than before and most importantly we have more choices.

[Jim]

Can you imagine sending the IRS your payment or some other time stamped item and having GE or AT&T saying "oops, it wasn't our fault it didn''t get there", and having the IRS accept that? Not.

[NEH]

The degradation of the USPS is a classic study in the demonopolization of a once publically regulated monopoly. This demonopolization gave rise to the likes of UPS, Fedex, DHL, and the like which then proceeded to strip off the more profitable operations of the USPS. Such as Package delivery and commercial deliveries leaving the USPS with a shrinking profit base. Add to this the rise of the Internet and e-mail and Internet sales, billing and shipping via UPS, Fedex, DHL and the like and the profit base continues to shrink driving the USPS further into insolvency.

In order to solve this insovency problem perhaps the Congress needs to require the agents of insolvency to pickup the less than profitable aspects of Mail Service and Delivery which was left to the USPS. I can hear the wails and cries of these companies already concerning the Government's interference in their company operations and affecting their bottom lines and profit margins...

The question really is, are Publically Regulated Monopolies and Utilities operated in the Public Interest better for the Public; or should we move to fully unregulated private enterprises based solely on profit alone?

[Mike Hunter]

Interesting article. But don't we already have private competition regarding mail delivery?

I mean UPS can send a letter to my front door, just the same as the postal service can. The only difference is that they can't put it in my mailbox (who cares). We bascially already have private companies doing the same work.

[Jack]

Neither Becker nor Posner managed to mention that the cost of our postage is LOWER than that of most countries (most of which are smaller and of higher densities) often by half.

"The recession will end, but Internet use will only get more widespread, so the challenges facing USPS will continue to grow."

I haven't any hard data to support...... but note that most utility bills are still mailed out, though paying online is increasing.

But the "internet negatively impacting the PO?" I wonder...... and suspect that Ebay and LOTS of online ordering is ginning up MORE postal biz per capita than is lost by email and online bill paying.

Judging by my stack of "junk mail" the PO must still be a good buy for advertisers!!

" The question really is, are Publically Regulated Monopolies and Utilities operated in the Public Interest better for the Public; or should we move to fully unregulated private enterprises based solely on profit alone?"

........... Indeed! MUCH of our economy is barely more than "make work" (ala our using 11 med clerks to Canada's one, to figure out who is "covered" and for what) so THE question today has to include "What do we do with 'em once they are "efficiently" cast off? Add "them" to the back of our very long Deficit enhancing, unemployment line?

[an observer]

TANSTAAFL

Observer mostly sends real letters with 44 cents stamps to people who matter. This works because people such as Tom Friedman who use Observer's source and ideas, as evidence by Friedman's new book, of which a central focus is the death of America's vision, a constant theme by Observer.

Obviously, Observer cannot reach Tanstaafl by mail. Thus Observer also posts here.

[Dean C.]

Mitchell K. is exactly right, but he doesn't go far enough. Conspicuously absent from Becker's list of arguments concerning the reasons behind the USPS' recent annual shortfalls is the 2006 Congressional mandate that requires the USPS to pre-fund future retiree health benefits for the next 75 years within a decade.

No other private firm or public agency bears this kind of burden. Indeed, the USPS has been forced to play by rules no other entity is required to follow; when, predictably, it runs into trouble as a result of this draconian obligation, the privatization crowd hisses and wails that the USPS' red ink is evidence of the ineptitude of government and a concomitant need to open up the government's monopoly to private market competitors. Yet as a matter of fact the USPS' pre-funding requirement is responsible for 100 percent of the USPS' losses in recent years. Indeed, according to National Association of Letter Carriers President Fredric Rolando, "the roughly $5.5 billion annual payments since 2007 — $21 billion total —are the difference between a positive and negative ledger." Becker's own math confirms Rolando's assertion and betrays Becker's position: "Financially, USPS held its own until 2007, but since then cumulative losses have amounted to about $20 billion. . . ." Becker also fails to mention that operational revenues at the USPS have exceeded costs by $611 million over the last four years. In sum, Becker's assertion that "[t]he most important factor behind [the] worsening financial fortunes [of the USPS] is the sizable drop during recent years in the total volume of mail delivered" is flat-out wrong.

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. And lest one be tempted to argue that "the very different requirements" are the result of unions run amok and the insatiable greed of postal carriers, think again. The 2006 Postal Accountabi­lity and Enhancemen­t Act (PAEA) was passed by a Republican Congress and signed into law by former President Bush in an attempt to break the USPS by forcing it to cover obligations no institution could possibly cover, thereby creating space for the very arguments Becker and other private market advocates now advance.

This tactic is used over and over again by the anti-government/private market advocates. As only one more example, New Jersey Governor Christie has recently attacked New Jersey's public unions, arguing that outstanding pension benefits for public workers are too high given the state's financial circumstances. Yet Christie omits the fact that past governors failed to fulfill financial payments owed to the union's pension fund, and instead used the amount "saved" by not making these legally required payments to offset deep tax cuts on New Jersey's wealthier citizens. Effectively, the private market crowd breaks the public institution and then decries the institution for the fact that it's broken.

Let's at least have an honest discussion.

[Dean C.]

"This crowd is so wedded to the notion that government cannot and should not 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."

[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.

[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

[Kram Namon]

"Nevertheless, the efficiency of the postal service still lags far behind that of Fed Ex and UPS."

Oh, really? If I send a small package to California via UPS or FedEx, delivery time is usually 6 days. Same package by Priority Mail? 2 days. And 1/3 the cost.