Is There Still A Case for the Postal Service?

This morning’s email brought a frantic request from a department chair in Boston anxiously awaiting a promotion review that was sent USPS from Connecticut a mere 9 days ago. I responded by sending the materials as pdfs via email (I am assuming the total transmission time could be measured in seconds). I am sure many of us can share similar anecdotes. They often lead us to puzzle as to what justification, if any, exists for the USPS.

There have been a few interesting pieces in the last few days on the plight of the USPS. The case for allowing the USPS to slip quietly into the night seems rather compelling. Drawing from a fine piece by Steven Greenhouse (NYT), the salient facts are as follows:

  • In an age of electronic communications and private carriers like UPS and FedEx, the demand for the USPS’ services has fallen: “Mail volume has plummeted with the rise of e-mail, electronic bill-paying and a Web that makes everything from fashion catalogs to news instantly available. The system will handle an estimated 167 billion pieces of mail this fiscal year, down 22 percent from five years ago.”
  • The USPS is far less efficient than its competitors: “Labor represents 80 percent of the agency’s expenses, compared with 53 percent at United Parcel Service and 32 percent at FedEx, its two biggest private competitors. Postal workers also receive more generous health benefits than most other federal employees.”
  • The USPS has little flexibility to manage its costs: “the agency has had a tough time cutting its costs to match the revenue drop, with a history of labor contracts offering good health and pension benefits, underused post offices, and laws that restrict its ability to make basic business decisions, like reducing the frequency of deliveries.”
  • The USPS cannot meet its existing contractual obligations to its workers: “the agency is so low on cash that it will not be able to make a $5.5 billion payment due this month [to fund the future health care costs of retirees] and may have to shut down entirely this winter unless Congress takes emergency action to stabilize its finances.”

Undoubtedly, if we told the story of a private firm that was encountering flagging demand, an uncompetitive cost structure, and an inability to make the necessary adjustments to become competitive, we would welcome its collapse. These are precisely the kids of enterprises that the market is supposed to eliminate. As the story notes, Postmaster General Donahoe is asking Congress to provide greater discretionary authority to address the costs (e.g., through layoffs, closing of offices, placing postal services through stores like Wal-Mart). But if the past is any guide, Congress will prove unwilling to allow the USPS the freedom to act like a private enterprise even if it is forced to compete with private enterprises.

I am trying in vain to think of a cogent argument for maintaining the USPS.  Yes, it employees 653,000 people. But the justification must go beyond its payroll (even if we accepted the claim that maintaining government employment was valuable in a recession recovery, one would still have to make the difficult argument that these 653,000 are somehow more deserving than another sample drawn from the long-term unemployed). At least in my household, if I could convince the letter carrier to deliver directly to the recycling bin, it would save me some time. If there is a physical object I need delivered, I turn first to UPS and FedEx—and they have never let me down. If it can be transformed into an electronic format and sent via email, all the better.

The key question: Is there any reason why we should not allow the USPS to pass into the history books?


7 thoughts on “Is There Still A Case for the Postal Service?

  1. I think there is still a rationale for some entity doing at least some of what the post office does, but it is long past time to have it untethered from government. You are right in that there is no rationale for a public postal service.

    There is a longstanding public choice argument that government regulators get captured by the industries they are to regulate. I think an even more pervasive and insidious type of capture is when government services get captured by public employee unions. This is the central problem with the USPS, schools and most any industry that the government decides to run. State and local governments are suffering from increasing sclerosis because they are hostage to public employees and their outsized benefit packages.

    Of course public employees should have the same right as anyone to associate with others, including participating in an employee union. But that doesn’t mean government should acknowledge or have any dealings with said union.

    The other political problem is that rural communities have outsized representation in Congress (notice that Maine’s Senator Collins is in charge of oversight), and those communities get heavy subsidies from urban communities. Why should it cost the same to deliver a letter from 8th Ave in Manhattan to 5th Ave as it does to send it to Outer Boondocks, Maine?

    There are social problems that markets have problems solving. Delivering mail is definitely not one of them.

    PS: I have to add, for no particular reason, that my postal carrier is one of the nicest most helpful guys you will ever meet. We love him. I’ve also had men who were postal carriers play important roles before in my life. So, I have a fondness for letter carriers. (On the other hand, I’ve received a lot of cold, rude treatment from post office employees, particularly in Chicago).

    1. I would love to see a comprehensive economic analysis of the true cost of delivering mail to rural areas. Charging rates that represent costs might not save the post office (nor should it), but I doubt it would hurt.

  2. “the agency is so low on cash that it will not be able to make a $5.5 billion payment due this month [to fund the future health care costs of retirees]”

    Using that as an argument against USPS seems unfair. Other government agencies do not attempt to finance today the future health care costs of employees. The treasury makes no attempt to finance today future Medicare or SS costs. There is an SS “trust fund”, but all the money is spent. And private companies are often no better at financing future benefits for their employees.

    1. Agreed. I think the existence of a quasi-public, quasi-private enterprise is a difficult one. The USPS is placed in a position where it is forced to compete with more nimble opponents who do not have to beg Congress for the right to do what is necessary to manage their cost structures. I would not want to be the Postmaster General.

  3. Article 1, Section 8 gives Congress the power, though not necessarily the duty, to create post offices and post roads. Perhaps Congress could shrink the USPS’ duties to the maintenance of post offices, only, and allow any private carrier to deposit mail in them.

    I am not sure that there is a compelling and practical reason for Congress to guarantee pickup and delivery of letters to every single address in the USA, six days a week. It’s nice, but not necessary. The only people who might complain about less than daily delivery are Netflix subscribers. It’s also absurd to charge the same for every letter no matter how far it goes or how fast it goes. In a market based system, rates would vary by distance and by time to delivery.

  4. I am but one person, but must say I don’t have a need for the Post Office. I don’t visit bank branches either. I ceased visiting book stores years ago. And don’t get me started on Public Libraries (and don’t you dare tell my librarian sister-in-law that I said that!).

  5. The post office disproportionately employs African-Americans in urban areas of the country. Indeed federal agencies of all kinds (think the the TSA) have essentially created much of today’s black middle class. No surprise that blacks have such contempt for the Tea Party. If the latter had its way, the black middle class would be decimated, even if that wasn’t the intention of the anti-government types.

    Murray Rothbard once asked if one would push the button that would immediately abolish the state. I was tempted to say “yes” then, but now realize that if I did so, we’d see riots across this country that would be immensely demoralizing.

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