The Post Office — return to sender
Suppose a company that was losing customers to other firms responded by increasing prices, cutting service, granting raises to workers and overpaying management. If the company then demanded a lavish government bailout, the public would laugh.
The company I have just described is the United States Postal Service.
A USPS bailout is not the solution. Blowing up the Post Office — its monopoly, its customer-be-damned attitude, its system of lifetime job guarantees regardless of performance — is the solution. After the dust from the explosion settles, the mails will continue to exist, in a leaner, sustainable and more customer-conscious form.
The USPS just reported a $2.2 billion first-quarter loss, despite having a federal monopoly that exempts the Post Office from competition for its core business. Exemption from competition is the core of the USPS problem, allowing the agency to drag its heels against the modern age, while clinging to bad business practices.
Any private firm losing market share, as the USPS is losing market share to electronic mail and to package services such as FedEx and UPS, would respond by cutting prices, in order attract business. Textbook economics says cut prices, and demand will rise — this sure worked for cell phones. Increase prices, and demand will decline. Since 2006, the USPS has increased first-class postage rates by 13 percent — almost double the rise in the Consumer Price Index in the same period. Also in that period, mail volume has declined 20 percent, with sharp drops in first-class mail. This is not a shock. This is textbook economics!
In its last fiscal year, the Post Office lost $8.5 billion, and projects total losses of $42 billion from 2010 to 2015. Despite raising first class rates twice in the last five years, the Post Office has filed for another rate increase. Despite staggering losses, the USPS just agreed with its primary union on a contract including raises and a no-layoffs clause. Here, Business Week recounts more bleak or embarrassing USPS info.
The pay of the Postmaster General, the system’s CEO, rose 40 percent from 2006 to 2010. In fiscal 2009, the Postmaster General paid himself $800,000, plus preposterous perks such as country club membership. The new Postmaster General is earning a mere $276,000, plus perks.
This would be humorous if taxpayers and mail users weren’t being taken for a ride. Here, the Postmaster General of 2009 declares that because of congressional mandates, he has almost no authority. If the Postmaster General has almost no authority, why high pay? Hire a teenager to run the USPS after school.
There is one thing the USPS consistently does right, and that is fully fund its pension program. The law that changed the Post Office from a government branch to a quasi-independent entity required that in return for the gift of taxpayer-financed federal property across the country — Post Office real estate is worth a bundle — the USPS would cover its own pensions. If only all state and local government branches, and all corporations, were honest about fully funding their pension obligations.
Since fully funding its pensions is the one thing the USPS does right — the agency wants to stop! The mail service is asking Congress for a pension bailout; senators Tom Carper of Delaware and Susan Collins of Maine, ranking members of the Senate committee with USPS oversight, just introduced a bill that would in effect force future taxpayers to cover USPS pension costs.
So an organization that is performing poorly, while exempting its workers from accountability via no-layoff rules, wants federal taxpayers to take over its pension costs thus freeing up more money for USPS management and unions to waste on themselves.
This would be amusing, if average people weren’t being bilked. The money the USPS wants doesn’t pop out of the air. It would come from average people trying to post letters or packages, or from future generations being saddled with yet more pension expenses.
The idea of creating more unfunded pension costs — when federal, state and local unfunded pensions are already a scandal — is absurd. Since the idea is absurd but benefits a special-interest consistency, naturally the United States Congress is interested.
The only solution is to end the USPS mail monopoly: let private competition enter the fray, and let the chips fall where they may.
Yes, this would inevitably lead to the closing of tiny rural post offices, and that would be a sad day. But there are no horse-drawn stage coaches stopping at the town saloon anymore, either, and rural America gets by. It will get by with a revamped modern mail service, too.
Correction: The two senators have separate bills with similar titles. Both senators’ bills would streamline USPS operations. Both would allow the USPS to reduce its pension contributions, citing studies that suggest the USPS is setting aside more pension reserves than needed.
Author’s Note: Perhaps the Senators are right, and USPS pension contributions may safely be reduced. But recent history on this point is not encouraging — many states, and General Motors and Chrysler, cut their pension contributions, and bailouts followed.
Photo: A U.S. Postal Service vehicle navigates amid the storm-damaged Alberta community near Tuscaloosa, Alabama, April 29, 2011. REUTERS/Marvin Gentry