Do We Need the Post Office?

October 27, 2011

For immediate release (692 words)

What should we do with the U.S. Postal Service (USPS)? The answer is obvious if you’re a fan of natural selection, economic markets or competition — or if you agree with the Tea Party and Occupy Wall Street about monopolies and corporate subsidies.

But if you’re someone who benefits from the status quo, is a fan of big government or labor cartels, or has a limited policy imagination, then you’re in the increasingly difficult position of defending an expensive dinosaur.

As an economics professor, part of me loves bad policy, since it gives me great examples to use in the classroom. Take away the failed Keynesian stimulus efforts of Bush, Obama and Congress — and Macro fiscal policy becomes mostly a theoretical and historical exercise. Take away our country’s staggering sugar policy — and I’ll need a new example to open my courses on the need to think through primary and secondary consequences.

Take away the Post Office in its present form — and I’ll lose a great opportunity to talk about “monopoly,” “degrees of monopoly power.” the ability of technology and market competition to erode monopoly power and “elasticity.” (How much will quantity demanded decrease with January’s rate increase to $.45 per letter?)

For years, it’s been easy to predict the Post Office’s death spiral — as the private sector erodes its first-class mail monopoly, and especially, as technological advance renders its services increasingly obsolete. Some of the more subtle details are also telling. Labor costs for the USPS are more than 80% and about 50 percent for United Parcel Service (UPS). The USPS does not pay property taxes or vehicle registration fees. I’m told that it’s common to take advantage of their “next-day guarantee” on Express Mail, knowing it’s unlikely they’ll meet the commitment. So, you can often get a package delivered quickly (in two days) for free. Or consider the recent proposals to reduce mail processing, claiming that it would save a lot of money. This would indicate that it has been grossly inefficient for awhile or it can’t be expected to do much to decrease costs.

In recent months, the Post Office has gotten a lot of attention because its deficits and debt have grown, its future has become more obviously bleak, and it looks like we’ve reached a threshold in the public’s perception of its tenuous future. As with many other government services (federal, state and local), the Great Recession has caused people to think twice about such programs — an interesting by-product of the bungling efforts by Bush, Obama and Congress with our economy.

If we don’t disband the Post Office or reduce its function to subsidized services for those in rural areas, we’re just rearranging packages on the shelves of a sinking ship. But that’s probably the way things will go for another few years, since special interest groups — corporate and labor– have so much to lose. As such, assuming away dramatic reform, what should the USPS do?

Two things seem like no-brainers. “Reformers” are talking about dropping Saturday delivery, but that’s just a tweak. Home delivery should be reduced to once or twice per week. If so, labor costs would be reduced dramatically. And how often do people need to receive mail? For individuals who want more frequent delivery, they can pay additional for the service or get a P.O. Box. Business delivery could continue daily for a charge based on volume.

Among other significant reforms, the USPS could outsource some of its inefficient functions and focus more efforts on logistics. They could sell advertising on vehicles and naming rights for buildings. And we should no longer subsidize “junk mail.” Unfortunately for the USPS, this would significantly reduce the demand for its services, in terms of quantity and especially weight and volume. (Although it is already about half of their volume, they want to deliver more “junk.”) But it would help the economy and the environment — a win-win.

The long run will deliver a defunct or greatly diminished Post Office. If the service continues, the policy questions are about its size and the size of its subsidies — and how long it will take this package to reach its destination.

Eric Schansberg, Ph.D., an adjunct scholar of the Indiana Policy Review Foundation, teaches economics at Indiana University at New Albany. © Copyright Eric Schansberg; distributed with permission for the use of member newspapers; all rights reserved.


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