LLR Pages

Saturday, September 10, 2011

The U.S. Postal Service Needs to Go

According to Monday's edition as well as Tuesday's edition of the New York Times, the U.S. Postal Service is attempting to avoid a default in its monthly $5.5 billion payment to the U.S. Treasury. The long and short of it is this: the quasi-government agency is faced with some looming (yet very likely) possibilities resting squarely on its shoulders:

  • Yanking Saturday delivery for its residential and business recipients;
  • Closing down 3,700 offices nationwide;

  • Consolidating other post offices;

  • Laying off 270,000 of its 574,000 employees;
  • and
  • Altering retirement and health care benefits and programs that its dwindling employee base enjoys;

According to the Times on Monday, the costs and reasons for the declining use of the Postal Service are simply the following:

'Our situation is extremely serious,' the postmaster general, Patrick R. Donahoe, said in an interview. 'If Congress doesn’t act, we will default.'In recent weeks, Mr. Donahoe has been pushing a series of painful cost-cutting measures to erase the agency’s deficit, which will reach $9.2 billion this fiscal year. They include eliminating Saturday mail delivery, closing up to 3,700 postal locations and laying off 120,000 workers — nearly one-fifth of the agency’s work force — despite a no-layoffs clause in the unions’ contracts.The post office’s problems stem from one hard reality: it is being squeezed on both revenue and costs.As any computer user knows, the Internet revolution has led to people and businesses sending far less conventional mail.

The Obama administration unsurprisingly responded on Tuesday with the following:

The Obama administration said on Tuesday that it would seek to save the deficit-plagued Postal Service from an embarrassing default by proposing to give it an extra three months to make a $5.5 billion payment due on Sept. 30 to finance retirees’ future health coverage.

Patrick Donahoe, the postmaster general, speaking before the Senate. His office has proposed alleviating its fiscal problems by taking back an estimated $50 billion in pension overpayments.Speaking at a Senate hearing, John Berry, director of the federal Office of Personnel Management, also said the administration would soon put forward a plan to stabilize the postal service, which faces a deficit of nearly $10 billion this fiscal year and had warned that it could run out of money entirely this winter.

'We must act quickly to prevent a Postal Service collapse,' said Senator Joseph Lieberman, independent of Connecticut, who is chairman of the Senate Homeland Security and Governmental Affairs Committee, which held the Tuesday hearing on the Postal Service’s financial crisis.

Postmaster General Patrick R. Donahoe testified that even with a three-month reprieve on the $5.5 billion payment, the post office was likely to run out of cash and face a shutdown next July or August unless Congress passed legislation that provided a long-term solution for the ailing agency.

To help erase the postal service’s deficit, Mr. Donahoe has proposed several painful and controversial steps, among them, eliminating Saturday delivery, closing up to 3,700 postal locations and laying off 120,000 workers — despite union contracts with strict limits on layoffs.'

The Postal Service is on the brink of default,' Mr. Donahoe testified. 'The Postal Service requires radical change to its business model if is to remain viable in the future.'

Mr. Berry said the Obama administration would push for legislation to allow a three-month delay in the $5.5 billion payment. But he stopped short of endorsing a far-reaching proposal, backed by the postal service, to allow the agency to claw back more than $50 billion that two independent actuaries have said the post office has overpaid into a major federal pension plan. Postal Service officials say such a move would go far to alleviate the agency’s financial problems.

Mr. Berry said the administration was studying the proposal, but not endorsing or opposing it at this point.

For the longest time the agency has engulfed itself in an economic, financial, and political quagmire. Although it is in some ways configured like a private business, it is not functioning like one, and it certainly is not one. The prices of its stamps, envelopes, packages, and other services proceed to spike on an annual basis with no end in sight. New Jersey-based Rutger University's very own The Daily Targum scribed in an op-ed that the agency's labor costs "make up 80 percent of the USPS's operating costs" and that its own mail inventory "is so small these days the USPS cannot keep paying as many employees as much money as it currently does." (Bear in mind that the paper is crying havoc over the complete shut-down of the agency, saying that "it is still something we don't want to see." Why? Because, according to the Targum, "The USPS is a valuable federal service.")

The Targum also opposes "privatization" of the institution for the following reason:

[T]he increased privatization of traditionally government-provided services is a frightening thought for too many reasons to list here, and, therefore, we'd rather not have to rely on private companies for all of our mail needs.

This refrain is all too common from the minds of "privatization" (preferably, marketization) opponents. They believe that a federal post office must be maintained, and that Congress must rescue the agency and save its workforce from the impending forces of layoffs as forced upon by real, natural market forces working against the federal establishment, their concession that the agency is unable to remunerate its employee base as much as it used to due to the excessively low demand for its services notwithstanding. What the paper fails to figure into account is the health care and pension costs that are drying up the funds for the agency, which are mandated by the labor unions in their existing contracts. The unions as well as Congress have made it virtually (almost) impossible for the agency to craft its health care and retirement benefits plans, simply due to the political and protectionistic nature of these parties. Oh, and let's not forget that the USPS is protected by congressional edict from free market competition with any company that wants to jump into the game and offers consumers a better value and service that the USPS has failed to accomplished at its given, ongoing rate. This means that the organization is a legally-protected, government-approved, and government-imposed monopoly on the delivery of first-class mail and standard mail (once known simply as third-class mail). No other firm can legally challenge the USPS and provide more efficient products and services to customers because of the government cementing the Offices as the only legitimate provider of delivered U.S. and international first-class and standard mail; thus, Congress merely restricts access to mailboxes by the USPS. Other private mail firms are legally prohibited by law allowed to drop off deliveries to mailboxes.

The reason for this is that the prices charged by the USPS are universally uniform across the board throughout the States, irrespective of where its customers live. And the old congressional law that sustains the enterprise's monopoly on these services ensures that package deliveries are set at a uniform price based on the weight and volume of the contents within them, especially when it is cheaper than Fed-Ex or United Parcel Service (UPS).

The Constitution's own Article 1, Section 8 stipulates that Congress is accorded with the power "to establish Post Offices and post Roads." But just because the Constitution allows the government to get involved doesn't mean that the State should get involved, and that it should be granted an exclusive monopoly over mail service.

But how did the Postal Service become powerful? Throughout the 19th century, just shortly before the passage of the Postal Act of 1863, mail was dispersed from city to city where a post office would pick up the volumes, or an independent contractor handled the delivery. Then came the Postal Code of 1872, which put into place a local monopoly on mail delivery by outlawing private carriers. At one point these carriers numbered to 147 and pioneered some innovative services. For instance, they introduced postage stamps just before the Postal Service got into that business.

Before 1971, postal service was provided by the U.S. Post Office Department, which centrally planned the agency by fixing prices of its products and services and determined which managers would be charge. The agency was the biggest recipient of globs of congressional subsidies and an annual appropriations budget as set by the governing body. By the time the Postal Reorganization Act of 1970 was passed and signed into law, the Department was shut down and reallocated into what has become the USPS today, thus making it a quasi-public independent agency separated from the Executive Branch and structured to be a self-financing agency whose own existence and its operations depend upon the sales of its postage, mail products, and other services. According to federal law, it must cover its costs, and request the U.S. Treasury to lend funds to it (which is supposed to be limited to approximately $3 billion annually in bailout subsidies to its coffers and allow for a total debt ceiling of $15 billion).

What makes this firm so different from real private firms is that it carries privileges that other companies are not allowed to possess. For instance, it is not subjected to vehicle licensing requirements, and it pays no sales and property taxes. As Tad DeHaven of the CATO Institute noted a year ago:

It doesn’t have to pay parking tickets, and it has eminent domain powers. It pays to itself the income taxes that it would owe if it were a private business.

Understand this point for once: the USPS is more or less a wing of the U.S. federal government. The Postmaster General and a Board of Governors, along with some federal control and oversight by the Postal Regulatory Commission are unaccountable to the taxpayers and the American public at-large. The federal mail delivery organization in itself neither has any incentive to innovate, nor reduce its internal and external fixed and varied costs, nor enhance customer service and other areas in the name of efficiency, nor establish other ways to keep it financially and economically solvent.

And this claim that private companies are not capable of providing our needs is nonsense. A private mail service enterprise could provide physical delivery of mail at a much faster and cheaper rate than the USPS does and provide postage, packaging, and a variety of options and services for clientele that would be far superior in terms of innovation and quality than the USPS does. However, in the grandest scheme of things, the Internet and smart phone technologies have provided innovative means of electronic communications for customers by ISP and mobile phone carriers at a fraction of the costs that rival the high, exploding costs of the USPS, thus making physical mail delivery a relic of American history.

While DeHaven and other similar critics urge for the privatization (or marketization) of the organization, I dispute that notion. I call for the abolition of the firm and allow an unfettered free market to prop up and flourish, providing more quality and more pioneering products and services to consumers globally at the lowest price. This signifies an end of the U.S. Post Office, an idea whose time has ultimately come.