Free Markets, Free People

Who killed the US Postal Service?

Jordan Weissman, writing in the Atlantic, addresses that question.  Why is the USPS in such dire straits?  What is it that has caused that entity to be tottering on the brink of insolvency?

Ok, not on the brink … it’s insolvent, it just won’t admit it.  So how did this happen?

Weissman points first to the Internet:

In the days of yore, sending letters by mail was pretty much the most efficient way to communicate in writing. Then the Internet happened. Although total mail volume stayed relatively steady until 2006, it has dropped an astonishing 20 percent in the past five years. More important, first-class mail, the Postal Service’s biggest moneymaker, has fallen 25 percent during the past decade. That’s a huge problem for its bottom line. The agency now delivers far more "standard mail" — what most of us call junk mail — than first-class mail. According to Businessweek, it takes three pieces of junk to equal the earnings from a single stamped first-class envelope. J. Crew catalogs and pizza menus alone won’t pay the bills.

I disagree here.  While the Internet certainly cut into its revenue, it didn’t put it in the shape it is now.  That had been set in motion well before the Internet became a factor. The Internet has simply pushed it to the tipping point earlier than it might have arrived otherwise.

The two real culprits?  Labor and Congress.

Yet even as its profits have dwindled along with the mail it handles, the agency’s labor costs have remained stubbornly high. Salaries and benefits make up 80 percent of the Post Office’s budget. By comparison, FedEx spends 43 percent of its budget on labor, while UPS spends 63 percent, according to Businessweek. Why the disparity? As the magazine put it, "USPS has historically placed the interests of its unions first." For years, it has happily negotiated contracts with generous salary increases and no-layoff clauses.

Why?  Because it could. 

And there had to be this belief, despite the problems, that it was never going to go out of business.  In other words, it was felt it would be bailed out if push came to shove.  So it happily negotiated away your tax dollars to provide generous benefits to its employees that it would never be able to afford if it were an actual business entity.  Its first priority wasn’t its customers.  It was the interest of its unions.

As for Congress, well the postal service we have today is the result of a 1970 law that was, as Weissmann writes, “intended to transform the mail system from a dysfunctional dumping ground for political patronage into a self-sustaining, independent agency.”

Or it was supposed to become a business. 

But the politicians never really let it. The Postal Service doesn’t receive any taxpayer dollars, funding itself entirely through customer revenue. But it still has to deal with Congress as a micromanager. It isn’t allowed to shutter post offices for purely economic reasons, meaning that roughly 25,000 of its 32,000 now operate at a loss. It needs permission for rate hikes from a special regulatory commission. And for 30 years, it’s been required to deliver mail on Saturdays, even though that day is a money loser.

The Postal Service’s current woes are also due at least in part to Capitol Hill’s meddling. In 2006, Congress passed a new law requiring the agency to pay about $5.5 billion a year into a trust fund for future retiree pensions. When revenues were rising, the idea might have seemed reasonable. But the timing was exquisitely bad. Now that the agency is in the red, the pension burden has helped to force drastic measures like the ones we’ve heard about today.

The Postal Service is begging Congress to let it recoup some of those prepayments, as well as give it more flexibility to manage its business.

A primer in intrusion.  An example of what such meddling does in other areas as well.  Instead of telling the USPS to become more like a business and then letting it do that, Congress has chosen to interfere.

The USPS – an example of the “why” government should stay out of business.  It granted itself a monopoly and is managing to run even that into the ground.



Twitter: @McQandO

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8 Responses to Who killed the US Postal Service?

  • “Our success has never just been about survival of the fittest.” – Barack Obama
    Clearly, government meddling is what is needed! Let’s run the nation like the USPS! What could possibly go wrong?

  • As I commented at The Atlantic, I find the blame passed to Congress to be a bit misdirected.
    “In 2006, Congress passed a new law requiring the agency to pay about $5.5 billion a year into a trust fund for future retiree pensions.”
    Except for government and union employees, virtually all employees are no longer accuring a pension any more. My employee still has a pension, based on employee of yore, but no longer contributes to it and excluded new employees from the old pension fund 4 or 5 years ago.
    But you have to ask .. who was going to pay these pension to retired postal workers ? Did somebody expect the money to reign down like manna from heaven. Face it. It is all a question of labor and labor costs.

    • “It isn’t allowed to shutter post offices for purely economic reasons, meaning that roughly 25,000 of its 32,000 now operate at a loss. … And for 30 years, it’s been required to deliver mail on Saturdays, even though that day is a money loser.”
      I could agree that these intrusions by Congress are not helpful, but agreeing in the last union contract to no reductions in labor force by USPS management didn’t help either.

  • If you’re wondering why UPS has a much higher labor cost, it’s because in any ways they follow the USPS/Union model. UPS has been bantering with the Obama regime to force FedEx to unionize. UPS has agreements with many merchants to use only UPS or USPS and not FedEx (actually, FedEx’s Ground division). Under other regimes, that’s good grounds for an anti-trust action.

  • I don’t know if it could be saved, but here is one suggestion to make things a lot better. INCREASE THE COST OF BULK MAILOUTS BY THREE OR FOUR TIMES!

    No one wants that crap, and it has to have a lot of costs associated with the sheer volume. Make people pay more for this form of advertising. If that turns away some business, then good!

  • A small case-study in monopoly. And remember that any economic activity taken on by government is the ultimate monopoly.

    Why does the Collective love monopoly power so much, while pretending otherwise?

  • I’m not inclined to believe the first Post Master General was an ardent socialist. So the Postal Service was created for a reason and there was nothing blocking a free market equivalent at the time. There were probably plenty.

    So in our haste to burn everything to the ground with the stink of government on it. We should be careful if we’re overlooking something. Maybe the reason it was founded may still exist just forgotten in time probably much smaller too but maybe not completely gone.