Monday, January 3, 2011

Post Office Shows Where U.S. Is Headed

Pictured Above: A Bloated & Inefficient Postal Service

Kevin Hassett is 100% correct - the post office represents the fundamental public paradigm: rising costs coupled with deteriorating services. Of course there are many poorly run private businesses, but the difference is that without public subsidies they face two options: reform or go out of business. This should be kept in mind when advocating for a greater government presence in health care and other sectors of the economy.

Post Office Shows Where U.S. Is Headed: Kevin Hassett

By Kevin Hassett

Oct 11, 2010 3:07 PM CT Bloomberg Opinion

(Corrects fourth paragraph to indicate billion.)

To understand where the advocates of big government will take this country, look at the U.S. Postal Service.

Start with the fact the Postal Service is a great jobs machine, employing 712,000 people at an average annual compensation, including wages and benefits, of $83,000. And those hefty pay checks are a great source of political contributions for Democrats. In 2010, almost 90 percent of the approximately $4 million contributed to campaigns by postal unions went to Democrats. Take a guess where much of the opposition to reform comes from.

But high-priced labor, which accounts each year for about 80 percent of costs, leads to high-priced mail services, and even higher costs for taxpayers. Over the past 10 years, the price of a stamp has risen from 33 cents to 44 cents, exceeding the inflation rate at a time when computerization should have been leading to big cost savings. Even so the Postal Service lost about $6 billion this year and by its own projections it will drop a cool $238 billion over the next decade. By 2020, the last year in the projections, the Postal Service will be losing $33 billion annually.

If its losses level off and it continues to lose that much each year, the Postal Service will lose $550 billion from 2010 to 2030. If the growth rate of losses projected over the next decade continues until 2030, it will lose more than $1 trillion in that span. The fiscal black hole that the Postal Service has become is no small potatoes, even in government terms.

Broken Model

In April 2010, the Government Accountability Office released a report that analyzed the operations of the Postal Service and concluded that, “USPS’s business model is not viable due to USPS’s inability to reduce costs sufficiently.”

A 2007 GAO study looked at the Postal Service’s use of facilities, and concluded that, “A 2005 contractor assessment of 651 randomly selected postal facilities revealed that two- thirds of these facilities were in less than “acceptable” condition, including 22 percent that were rated “poor.” Inspection of one facility in Dallas led the inspector to recommend that the building be immediately evacuated.

The decaying buildings provide a handy visual clue to the quality of service. Unfortunately, we don’t know how bad the service is, because the Postal Service collects data on its own service quality, but it refuses to make the data public. Isn’t it nice that your tax dollars pay for data that you’re not allowed to see?

It’s in the Mail

The Postal Service’s ability to lose mail is, of course, legendary. Here is an example of how bad it has become: last week the American Postal Workers Union had to postpone their national election of officers because so many of the ballots were lost in the mail.

The Postal Service is able to survive because U.S. law protects it with not one but two monopolies. First, it is the only entity that is allowed to deliver many types of mail. There are a few exceptions that have allowed FedEx Corp., United Parcel Service Inc. and bicycle carriers to flourish, but low- cost, high-volume letters are walled off from competition from other providers.

Second, the Postal Service actually has a legal monopoly over your privately owned mailbox. You bought it, but if another company starts to use it as a receptacle for letters, they are violating federal law.

Legal Cover

This organization has withstood political pressure for some time, in part because Postal Service advocates have argued that the monopoly is necessary because of the national objective of providing universal service. If we want to have everyone on the postal grid, they say, then the grid will be impossible to support with private markets.

This argument, of course, is specious. It would be trivial to fully privatize postal delivery with guaranteed universal service. We need only write regulations that require firms that compete for postal business to provide universal service.

The Democrats will never let us do that, of course. The political might of the public employee unions is just too great.

As with the stimulus, the American left finds itself far to the left of even the statist Europeans. Countless other nations have recognized the possible large benefits from privatizing the postal business. In 2005, Cornell University economist R. Richard Geddes reviewed the academic literature on postal reform for the distinguished Journal of Economic Perspectives, and reported that “comprehensive postal reform has been ongoing in other countries for decades.” Countries that have introduced major reforms include Germany and Sweden.

A U.S. Gain

Reforms tended to have, he reported, three characteristics. First, they would “corporatize” or privatize postal operations. Second, reforms have tended to reduce delivery monopolies. And third, regulators have guaranteed the continuation of universal service.

The possibility for real gain in the U.S. is enormous. The Postal Service owns or operates 33,000 facilities nationwide, and owns 219,000 vehicles. If we were to auction it off to private investors, the bids would likely be enormous. FedEx and UPS, for example, have a combined market capitalization of almost $100 billion. Given that, how much might a private bidder offer for the right to start a business with the Postal Service’s footprint? The $100 billion mark might be a good first guess.

Which means we have two paths to chose between. On one, we continue to operate the Postal Service, and watch it lose hundreds of billions of dollars. Along the other, we sell it to a private contractor, avoid those losses while cashing a nice big check.

If the Tea Party activists want to fix the country, they should start by privatizing the Postal Service. If we can’t fix that, then it is hard to imagine how we will ever fix anything.

(Kevin Hassett, director of economic-policy studies at the American Enterprise Institute, is a Bloomberg News columnist. The opinions expressed are his own.)

To contact the writer of this column: Kevin Hassett at

To contact the editor responsible for this column: James Greiff at

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