Is USPS as American as Pumpkin Pie?

November 22, 2011

Chidem Kurdas

The United States Postal Service is in a deep financial hole that looks to get deeper unless the institution undergoes a major revamp.  Postmaster General Patrick Donahoe says current bills in Congress do not provide enough savings to get out of the hole.

US Mail has historical roots. What would Benjamin Franklin, who was appointed the first American Postmaster General in 1775 by the Continental Congress, do in this situation? Given the flexibility that existed in his time, he could no doubt make the changes to adapt the organization to the 21st century.  That flexibility, however, is gone. 

The Constitution gave Congress the power to establish post offices and post roads, a clear indicator of the importance of communication. But later came postal unions and under their influence US Mail became the epitome of an inefficient and rigid government bureaucracy.

By early 20th century, long before the frightful term “going postal” came to use, the post office was a metaphor for oppressive bureaucracy. Thus in 1944 Ludwig von Mises wrote of  socialists: “They promise the blessings of the Garden of Eden, but they plan to transform the world into a gigantic post office.” If you read Mises, you would not want to live in a society that resembled a gigantic post office.

However, a 1970 reform brought useful changes and since the 1980s USPS had the virtue of being self supporting. But computers revolutionized communications. The once lucrative first-class mail monopoly started to collapse as email replaced letter writing and the internet reduced snail-mail bill paying. A loss of  $8.5 billion in 2010 preceded another $5.1 billion loss in the fiscal year that ended this September.

Richard Geddes, an American Enterprise Institute visiting scholar and author of a 2003 book on postal reform, points out that USPS has exhausted its $15 billion borrowing capacity from the Treasury and is expected to run out of cash by mid-2012.

He recommends measures to reduce the exceptionally high labor costs – which constitute 80% of total costs –  but there is political opposition to downsizing from both Congress and the unions.

It goes without saying—the American Postal Workers Union and National Association of Letter Carriers oppose proposed cost-cutting measures such as layoffs, post office closures and reduced mail delivery from six to five days a week.

Mr. Geddes argues that more fundamental changes are necessary to limit the ability of Congress to block such decisions. He and other economists who’ve done research on postal services have for years favored eventual privatization as the solution.

But in light of recent experience, privatization would just shift the problem without solving it. Mortgage giant Fannie Mae was privatized, only to return to the Federal fold in the crisis of 2008-2009 with hundreds of billions of dollars in losses. Taxpayers are footing the bill. USPS, a huge employer with more than 600,000 full-time employees, would no doubt become another too-big-to-fail firm were it privatized.

While the Internet destroyed first-class mail, it created a new world of online shopping, which generates demand for the parcel post. UPS and FedEx make money delivering packages. What USPS needs is the flexibility to reduce costs and compete more effectively in delivering parcels.  If it were not in a vise created by its unions and Congress, it could retrench and reallocate resources to the parcel post. It could break even while still fulfilling its mandate to serve all addresses in the US.

Personally, having used UPS and FedEx, I find USPS convenient. Online businesses and consumers would be worse off without this option. Package delivery rates would no doubt rise. So there is a case to be made for the old post office, but not for its unions and their Congressional allies.

3 Responses to “Is USPS as American as Pumpkin Pie?”

  1. Alexander Says:

    Government should privatizise the USPS, No way out, you wont fill that hole never,

  2. chidemkurdas Says:

    Privatization may be the ultimate solution but to my mind the priority is to make sure there is no burden imposed on taxpayers. Notice that the privatization of Fannie Mae did not prevent that.


  3. I agree with chidemkurdas. However, great write up.


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