During dinner this evening, my friend said that she loves her local post office. A very small branch in a teeny building, they know her name, her needs, and are a neighborhood institution.
But, is it worth $1 billion a month?
During the first 3 months of 2012, the USPS lost $3.2 billion. First class mail volume is down and their retiree expenses are massive.
Changes have been proposed and opposed in Congress. Close 252 mailprocessing facilities? Lose jobs and still 235 remain. Stop Saturday deliveries? Let’s gradually do it during several years. Close my friend’s post office and hundreds of others in rural communities? Just let them remain open for fewer hours. Change the rules for prepaid pensions and maintain pension benefits? Attrition might work.
My bottom line: I keep returning to the Congressional oversight that makes innovative leadership impossible. Maybe we should just say that the USPS is such a valuable institution that we are willing to accept the huge expense and mediocre business model.
After all, I really would hate to lose the small and friendly post office near my home.
The Washington Post’s “Federal Insider” is a perfect source of information on the USPS as the issues evolve.
While the U.S. had postal services since the 1600s, Ben Franklin transformed the system. Appointed Deputy Postmaster for the Colonies by the British, he established our first home mail delivery system, diminished to a single day the letter delivery time between New York and Philadelphia, and to 6 days between Philadelphia and Boston. When the British fired Franklin for his rebellious political activity, the postal system was making a profit.
Is it possible to bring Ben Franklin’s spirit to today’s USPS?
More than 2 years ago, the Washington Post expressed an answer. Comparing creative innovation from a privatized Swiss system to tired thinking from the USPS, they said we are dealing with a hybrid entity “hamstrung by a large and heavily unionized workforce, congressional management, and an antiquated business model.” We could add that George Mason economist Tyler Cowen tells us that we have been sacrificing new ideas and cost efficiencies because our Postal Service is a “privileged quasi-monopoly.”
A Postal Fact: 12345 is GE’s zip code in Schenectady, NY
The Economic Lesson
A controversial idea: Defined on Planet Money, a public good is “something that we all need that will make our lives better, but the market will not and cannot provide.” One podcast example of a public good was the benefit provided by a lighthouse. Maybe the US Post Office is very different from a lighthouse.
An Economic Question: Should mail delivery be a public good?
In Canada, when postal workers went on strike because of wage cut proposals, many people were saying, “Who Cares?”
In the U.S., Hallmark and Amazon have said that they do care about the future of the Postal Service. If asked, approximately 650,000 postal service employees would have agreed.
The problem is money. Last year, the USPS lost $5.1 billion. And that total would have been double if Congress had not postponed retiree prefunding payments that were due.
The USPS is a huge business. One of the largest US employers, they run more than 32,000 post offices and target 150 million points of delivery. And yet, the US Congress makes their big decisions. Just to decide the fate of Saturday mail delivery, a Senate bill has required 2 years of studies. (How long would FedEx have pondered the issue?)
Here, here and here, other econlife posts discuss USPS problems.
The Economic Lesson
As Deputy Postmaster for the Colonies, Ben Franklin established our first home mail delivery system, diminished to a single day the letter delivery time between New York and Philadelphia, and to 6 days between Philadelphia and Boston. When the British fired Franklin for his rebellious political activity, the postal system was making a profit.
Crucial for U.S. economic development, the information infrastructure that Ben Franklin initiated was only the beginning. For a history of The Information, this James Gleick book is superb. Also, this Teaching Company lecture (#28) ideally conveys the issues.
An Economic Question: Why are USPS cutbacks such a dilemma?
There are so many reasons not to change the US Postal Service. For tough to reach rural communities, post offices are conveniently located. For homebound elderly, 6-day dependable prescription delivery is crucial. USPS workers have been promised generous pension dollars. The USPS employs more than 600,000 people. Amazon would like us to receive books on Saturday. Or, maybe checking the mailbox almost everyday is just what we are used to.
But, on the other hand…
The USPS is hemorrhaging money. Mail volume is plunging and expenses are soaring. Supposedly supporting itself through stamp money and other services, by the end of 2011, the USPS will have a $10 billion loss. A USPS paper says that were it a private business, it would already have filed for bankruptcy.
The bottom line?
Should the USPS offer fewer services and if so, what? Or should its expense be further added to an already astronomical federal deficit?
The Economic Lesson
Every decision has an opportunity cost. Choosing is refusing.
If we choose less spending, then what USPS service are we willing to sacrifice? Change contractual retiree benefits? Increase the price of stamps? Close less-used post offices and distribution facilities? Sell real estate? Charge more for Saturday delivery? Slower service?
An Economic Question: If you were solving the USPS financial crisis what opportunity cost would you accept as a tradeoff?
You’ve got mail? Maybe not on Saturday. As explained in a Teaching Company lecture (#28), the U.S. Postal Service (USPS) faces competition from UPS and FedEx, from email, faxes, and texts. Their salaries average 30% higher than the private sector, they have massive pension and retirement obligations, and their productivity lags behind national averages. Hemorrhaging money, they have to cut back.
Recently, Bloomberg Businessweek explained the plight of the USPS. Providing amazing service, the USPS delivers mail by pack mule to the Havasupai Indian Reservation in the Grand Canyon and by snow mobile in parts of Alaska. During 2010, its revenues were $67 billion. But it spent much more.
What to do?
Close post offices for economic reasons? Prohibited by federal regulation. Fire employees? Union contracts say no. Eliminate Saturday mail delivery? Congress has to say yes. Union concessions? A new contract with 250,000 postal workers includes a no-layoff provision, a 3.5% raise during 4 1/2 years, and 7 uncapped cost-of-living increases. Soon, 3 other postal unions will be negotiating. Innovate like Sweden (letting customers use mobile phones to create individualized postcards) and Germany and other foreign services? The USPS has resisted digital creativity.
And finally, have any public postal systems solved the same problems? Yes, Sweden, Finland, Germany, Switzerland.
The Economic Lesson
While we have had postal services since the 1600s, Ben Franklin transformed the system. Appointed Deputy Postmaster for the Colonies by the British, he established our first home mail delivery system, diminished to a single day the letter delivery time between New York and Philadelphia, and to 6 days between Philadelphia and Boston. When the British fired Franklin for his rebellious political activity, the postal system was making a profit.
An Economic Question: How might incentives for government agency leaders and private business CEOs differ?