Tag: postal service

Need for Short-Term Loans Is No Joke

I’m a little behind on my comedy watching, as I get a regular dose just living in Washington DC, but last week comedians John Oliver and Sarah Silverman focused an entire segment on payday lending, which are short-term advances against a future paycheck.  Matt Yglesias at Vox has posted the video, as well as making the important point “people end up at payday lenders because stuff happens.”  Yglesias is correct here: there is an undeniable need for short-term credit products. Even Dodd-Frank recognized this need by creating a government subsidized payday loan product (Section 1205 of Dodd-Frank).

The alternative to payday proposed by Oliver and Silverman?  Do anything else but payday. I’m sympathetic to such. A payday loan should never be your first choice. I hope to never have to use a payday lender. But then, I hope my car never breaks down either. Silverman goes as far as suggesting just steal instead. I’d hope she was joking but it seems so many in Washington have already taken that advice to heart.

Yglesias’s alternative is at least a little more thoughtful than stealing: he suggests allowing the postal service to offer short term loans, because apparently he believes the USPS could offer payday “without taking nearly as big a cut”.  Now “big” is subjective but scholars have examined this question. In research reported in 2012 in Regulation, UC-Davis Professor Victor Stango compared the performance of traditional payday loans to those offered by credit unions. Some of his conclusions: “there is little to suggest that credit unions can offer a payday loan with competitive terms. Existing credit union payday loans often have total borrowing costs that are quite close to those on standard payday loans.” Maybe the USPS has a better cost structure than the typical credit union, but that seems unlikely as the USPS isn’t exactly known for its efficiency.

Professor Stango also reports survey evidence that payday borrowers highly value the convenience of payday lender’s hours and locations. Yglesias doesn’t address this, but last time I went to a Post Office, the hours were about as convenient (or less so) than that of a traditional bank. And of course USPS isn’t exactly known for its consumer friendly approach.  In all, it seems highly unlikely that without a major revamp and cultural change that the USPS could be a serious competitor to payday. Perhaps as important, the USPS would likely be viewed as “too big to fail”, so that allowing USPS to make high risk payday loans could easily result in a taxpayer bailout. Getting USPS into payday makes about as much sense as getting Fannie Mae into subprime mortgages.

Oh wait, we did that.

Cut Saturday Mail to Fund Highways?

The Highway Trust Fund will be out of money in a few months, mainly because Congress insists on spending more than it takes in. To avert this supposed crisis, Republican leaders are proposing to cut Saturday deliveries of mail and use the savings to replenish the trust fund.

There’s actually a tiny grain of Constitutional sense behind this proposal. The original legal justification for federal involvement in highways, back when members of Congress actually cared about such things, was that the Constitution authorizes Congress “to establish Post Offices and post Roads.” If the “post roads” aren’t paying for themselves, then who better to pay for them than the post offices?

In this sense, the Republican proposal is slightly more rational than President Obama’s proposal to use the increased revenues from a corporate income tax reform that will eliminate loopholes but reduce corporate tax rates. The administration predicts reducing rates will reduce corporate tax obligations in the long run but closing loopholes will increase revenues in the short run (interesting how Obama is promising corporations lower taxes after he is out of office in exchange for higher taxes when he is still in office). Obama wants to use some of those increased revenues to supplement the Highway Trust Fund.

More than offsetting the tiny Constitutional sense of the Republican proposal is that it will take ten years of Postal Service cuts in order to cover one year’s worth of red ink from the Highway Trust Fund. In other words, the plan is far from sustainable and will simply lead to another transportation cliff in a year or so.

USPS: Stuck With the Government Business Model

The U.S. Postal Service has released a new five-year plan for congressional consideration that it says would get the beleaguered government mail monopoly on sounder financial footing and thus avoid a taxpayer bailout. The plan repeats previous suggestions (i.e., workforce reductions, postal network consolidations, elimination of Saturday delivery, elimination of the retiree healthcare benefit funding requirement) and proposes an increase in the price of a first-class stamp from forty-five to fifty cents.

Whether or not it would achieve what the USPS hopes, it probably doesn’t matter given that asking Congress for greater operational flexibility is like asking a two year old to stop playing with their food. That’s why the focus should be on completely transitioning the USPS from a government-run business to a privately-run business (or perhaps businesses).

Over at the Courier Express and Postal Observer blog, Alan Robinson says that “just like all plans that came before, [the new USPS plan] started with the assumption that the Postal Service remains a quasi-governmental entity.” As a result, Robinson notes that the plan is missing two key ingredients for success that foreign posts have utilized: private capital and an expanded range of products and services.

In an essay on the U.S. Postal Service, I discuss how liberalization in other countries has enabled foreign mailers to diversify into non-postal activities:

Consultants at Accenture have found that diversification not only has a measurable impact on the performance of international posts, but that it is what ultimately distinguishes high performers from low performers. America’s relatively dynamic economy is particularly suited for the diversification opportunities that would arise under postal liberalization.

Germany’s former postal monopoly, Deutsche Post, illustrates the type of transformation possible by liberalization. Today, the private Deutsche Post World Net has changed its compensation structure, imported managers from other industries, modernized the mail and parcels network within Germany, and developed new products such as hybrid mail and e-commerce. The company now has interests in not only the traditional mail and parcels business but also express mail logistics, banking, and more.

Given that the USPS’s plan is going to be unpopular with various postal stakeholders (i.e., special interests), Alan says that they should consider the advantages of privatization:

It is clear that the business plan that the Postal Service has chosen is not the one that has worked in other countries. The plan avoids talking about either private capital or expanding the breadth of service offerings as neither is on the legislative table.    Introducing thinking about how private capital could be introduced and the product offerings could be expanded forces stakeholders to think about privatization, an idea that is nearly as unpopular as the changes that the proposed business model introduced.   However, as this brief post notes, privatization offers significant financial advantages that could reduce the operating and price changes envisions by the Postal Service’s business plan. Therefore, those who see the greatest harm from this plan need to see if the advantages of privatization could benefit their interests sufficiently to overcome long-held objections to the idea.

I think Robinson is right, but I suspect that the “stakeholders” believe there’s a good chance that Congress will ultimately come to their aid with some sort of taxpayer bailout. Therefore, it’s possible that they believe that it is in their best interest to continue fighting for the status quo. Unfortunately, the recent bipartisan federal bailouts of the financial industry and the automakers suggest that they could be correct.

U.S. Postal Service Fares Worse in Recession than Foreign Posts

A new paper from postal expert Michael Schuyler compares the financial performance of the U.S. Postal Service to foreign postal service providers. Not surprisingly, the USPS, which has lost over $25 billion since 2006 and ranks near the bottom of the Postal Index of Freedom, doesn’t fare too well.

From the paper:

[Universal Postal Union] data indicate that, in each year, the majority of posts in high-income jurisdictions were profitable. Declining mail demand was stressful, though: the share of posts reporting losses increased from less than one in ten in 2007 to more than one in three in 2010. Nevertheless, few posts lost money consistently: under 20% over the period 2008-2010 and under 10% over the period 2007-2008, which suggests most foreign posts reacted quickly and effectively to financial setbacks. The good news is that posts can adjust to change and remain financially viable. Unfortunately, USPS is among the posts with consistent losses. Further, UPU data show that, in each year, more than half the reporting posts in medium-income jurisdictions were profitable. Few spilled red ink year after year.

Schuyler says that he will explore the reasons for the USPS’s comparatively poor performance in a future paper, but notes that “A key finding will be that Congressional restrictions and pressure often deny the Postal Service the operational flexibility needed to manage its costs properly.” In a Cato essay, I discuss the problems with Congress’s micromanagement of the U.S. Postal Service and conclude that it should be placed on the path to privatization.

Another postal expert, Alan Robinson, notes Schuyler’s piece and offers additional commentary on the need for policymakers to figure out what to do with the flailing postal service. Should the USPS go back to being subsidized by taxpayers?  Or should the USPS remain a part of the federal government at all? Robinson concludes that “it is time for postal service stakeholders, and in particular its labor unions, to develop an acceptable path toward privatization.”

Postal Vision 2020

Postal Vision 2020 is a conference scheduled for June in Arlington, VA, that will discuss the U.S. Postal Service’s long-term prospects in our increasingly digitized world. Here’s how the Washington Post’s Ed O’Keefe frames the gathering:

As mail volume continues to plummet and more Americans use the Internet to pay bills and keep in touch, Google executives, social media experts and some of the most passionate tech evangelists are planning to meet in Crystal City in mid-June to sort out how to save and remake the nation’s mail delivery service.

That sounds like a good group for discussing ideas on how to “remake the nation’s mail delivery service” given that the USPS is the antithesis of companies like Google. Creative, innovative, entrepreneurial, and competitive are words that one would associate with Google—not the government’s mail monopoly. However, should these folks be getting together to discuss saving the USPS? That notion strikes me as akin to having Henry Ford come up with ideas on saving the horse and buggy.

As I discuss in a Cato essay on the USPS, the socialist mail enterprise cannot survive in its current form—at least not without a reintroduction of taxpayer subsidies. The USPS’s revenue base has been irrevocably undermined by the growth in digital communications, and congressional micromanagement makes sufficient cost-cutting extremely difficult. Thus, I would argue that the goal should be to create a market for postal services rather than to “save” the USPS:

Policymakers resistant to reform often depict the USPS as a “national asset” that “binds the nation together.” But these days, it’s the Internet and our telecommunications networks that bind families and businesses together across the nation. It’s time to let go of the nostalgia for the USPS and bring America’s postal services into the 21st century with privatization, open competition, and entrepreneurial innovation.

Unfortunately, the sclerosis at the USPS is a reflection of the sclerosis in Congress. As Chris Edwards and I have repeatedly discussed with each other, it is incredibly difficult for Congress to think outside the box on policy. One reason is that because the federal government has become so massive, policymakers have little time to devote to big ideas like transforming the USPS. That, of course, assumes that policymakers are interested in such big ideas. For many members of Congress, interest in the USPS doesn’t go much further than franking privileges and naming post offices.

Bailout Coming for the Postal Service?

The U.S. Postal Service is in financial trouble. Undermined by advances in electronic communication, weighed down by excessive labor costs and operationally straitjacketed by Congress, the government’s mail monopoly is running on fumes and faces large unfunded liabilities. Socialism apparently has its limits.

While the Europeans continue to shift away from government-run postal monopolies toward market liberalization, policymakers in the United States still have their heads stuck in the twentieth century. That means looking for an easy way out, which in Washington usually means a bailout.

Self-interested parties – including the postal unions, mailers, and postal management – have coalesced around the notion that the U.S. Treasury owes the USPS somewhere around $50-$75 billion. (Of course, “U.S. Treasury” is just another word for “taxpayers.”)  Policymakers with responsibility for overseeing the USPS have introduced legislation that would require the Treasury to credit it with the money.

Explaining the background and validity of this claim is very complicated. Fortunately, Michael Schuyler, a seasoned expert on the USPS for the Institute for Research on the Economics of Taxation, has produced such a paper.

At issue is whether the USPS “unfairly” overpaid on pension obligations for particular employees under the long defunct Civil Service Retirement System. The USPS’s inspector-general has concluded that the USPS is owed the money. The Office of Personnel Management, which administers the pensions of federal government employees, and its inspector-general have concluded otherwise. Again, it’s complicated and Schuyler’s paper should be read to understand the ins and outs.

Therefore, I’ll simply conclude with Schuyler’s take on what the transfer would mean for taxpayers:

Given the frighteningly large federal deficit and the mushrooming federal debt, a $50-$75 billion credit to the Postal Service and debit to the U.S. Treasury will be a difficult sell, politically and economically. Although some advocates of a $50-$70 billion transfer assert it would be “an internal transfer of surplus pension funds” that would allow the Postal Service to fund promised retiree health benefits “at no cost to taxpayers,” the reality is that the transfer would shift more obligations to Treasury, which would increase the already heavy burden on taxpayers, who ultimately pay Treasury’s bills. (The Congressional Budget Office (CBO) prepares the official cost estimates for bills before Congress. Judging by how it has scored some earlier postal bills, CBO would undoubtedly report that the transfer would increase the federal budget deficit.) For those attempting to reduce the federal deficit, the transfer would be a $50-$70 billion setback.

Sounds like a bailout to me.

See this Cato essay for more on the U.S. Postal Service and why policymakers should be moving toward privatization.

Postal Service Announces $8.5 Billion Loss

The U.S. Postal service has announced a net loss of $8.5 billion for fiscal 2010. Since 2006, the USPS has lost $20 billion, and the organization is close to maxing out its $15 billion line of credit with the U.S. Treasury. Although the USPS has achieved some cost savings, they haven’t been enough to overcome a large drop in revenue due to the recession and the greater use of electronic alternatives by the public.

The USPS is required to make substantial annual payments to pre-fund retiree health care benefits. Last year, Congress allowed the USPS to postpone $4 billion of its fiscal 2009 into the future. However, Congress did not provide similar relief on this year’s required payment of $5.5 billion.

Critics of the retiree health care pre-funding requirement argue that no other federal agencies or private companies face such obligations. The argument is largely irrelevant for two reasons. First, the federal government’s financial practices are nothing to emulate. Second, very few private sector workers even receive retiree health care benefits.

In 2008, only 17 percent of private sector workers were employed at a business that offered health benefits to Medicare-eligible retirees, down from 28 percent in 1997. The actual number of private sector workers receiving these benefits is even lower as not all employees employed at the 17 percent of businesses that offers retiree health benefits are eligible to receive them.

The retiree health care benefit pre-funding requirement has become a rallying cry for the postal unions, as any threat to USPS solvency is a threat to the excessive compensation and benefits they’ve been able to extract from the postal service for their membership over the years.

Policymakers should properly view the retiree health care benefit as a symbol of postal labor excess, which continues to weigh the USPS down like an anchor. Therefore, they should avoid allowing the USPS to further postpone these payments into the future, which could lead to a taxpayer bailout. Instead, policymakers should recognize that the USPS’s financial woes require bolder action: privatization.