The United States Postal Service lost $5.5 billion last year. That is the eighth annual loss in a row and the third highest ever. The only good news is that it remains below the red ink tsunami of $15.9 billion in 2012.
Why does the federal government deliver the mail? Why does it have a monopoly over delivering the mail?
The Postal Service one of the few government programs with actual constitutional warrant. Alas, America’s revolutionaries turned the system into a fount of federal patronage. Local postmasters became perhaps the president’s most important appointments. The Postmaster General was a member of the Cabinet from 1829 to 1971.
With politics rather than service the PO’s priority, Congress took the next step and approved the Private Express Statutes, preventing anyone from competing with the government in delivering first class mail.
That left the system ill-equipped to adapt to changing circumstances. In 1971 Congress turned the Post Office into the semi-independent USPS but retained its control over postal policies and, of course, preserved the system’s delivery monopoly.
Banning competition could not preserve the postal market. The number of pieces of mail peaked in 2001 and continues to fall despite a rising population. USPS’s last profitable year was 2006.
With characteristic understatement, observed the Government Accountability Office: “Given its financial problems and outlook, USPS cannot support its current level of service and operations.”
The postal unions insist that nothing is wrong—at least, nothing which a federal bail-out wouldn’t solve. They reserve particular ire for the requirement that USPS prefund workers’ retirement.
But prefunding protects taxpayers. Washington’s unfunded (government) retirement liability is about $800 billion, growing every year. Only USPS must prefund, which is unfair to taxpayers, not the postal service.
There’s no other obvious way for USPS to become solvent. Over the last half century the postal authorities raised rates 50 percent faster than the rate of inflation. Pushing hikes even faster in the future would encourage more people to use alternatives.
USPS has reduced costs through facility closures and staff reductions despite strong opposition. Cuts in compensation, retirement benefits, and workforce levels and improvements in productivity also are obvious responses, but must overcome union opposition.
Proposals for reducing services abound. All of these anger consumers, encouraging them to go elsewhere—including to Federal Express and UPS, which offer better options for packages. Irritated workers and customers also complain to Congress, creating political roadblocks for USPS.
Instead of attempting to save an unnecessary political monopoly, Congress should look abroad where numerous countries, some pushed by the European Union, have introduced competition and innovation into their postal markets.
The Organization for Economic Co-operation and Development reported that such reforms had yielded “quality of service improvements, increases in profitability, increases in employment and real reductions in prices.” Only in the supposed laissez faire paradise of America—where a union-led “Grand Alliance to Save Our Public Postal Service” just formed to ensure that whatever has been will forever be—do such ideas seem radical.
Yet even President Barack Obama admitted a few years back that “it’s the post office that’s always having problems.” In contrast, “UPS and FedEx are doing just fine.”
Better management and less politics would help. In fact, revenue was up a bit last year, despite the bigger loss. But over the long-term USPS cannot escape from a seeming death spiral of bigger losses, higher rates, poorer services, fewer customers, bigger losses, and so on.
As I contend in the Freeman: “Uncle Sam should ease out of the postal business. Privatize USPS and drop the federal first class monopoly. No one can say for sure what would happen. But history suggests that innovative entrepreneurs would be more likely to find a cost-effective solution than will today’s mix of politicians and bureaucrats.”