It's the usual story: capture of the USPS by its unions, such that 500k employees are getting raises simultaneously with their reports of "We're dying!!!"
America in 2011 simply doesn't need to set aside half a million lifetime sinecures to deliver two pieces of mail a week which actually matter. The nation receives no value from a civil servant whose full-time job is literally to convince BoA not to go paperless.
It's a cool institution. Let's remember it in a small museum somewhere.
The full story is more complicated. The USPS is in an unattractive position of being supposedly independent of the taxpayer's money, yet any major operating issues are at the whim of Congress. Predictably, it goes like this:
USPS: "Volume is down, we need to raise prices."
Congress: "Nope, sorry"
USPS: "Uhm, ok. We'll have to cut Saturday delivery then..."
Congress: "No can do, sorry"
USPS: "Well I guess we have to close a bunch of post offices at least"
Every member of Congress in unison: "Sounds great, but not in my district"
etc...
I'm a big fan of the USPS -- I've found them to be more reliable than UPS and FedEx by far and they're amazingly inexpensive to boot. They know what they need to do to fix themselves, but sadly it seems to take a crisis before Congress will get out of the way and just let them do it.
I personally doubt that the drop in volume is all that much related to prices. If they cut the price of a first-class stamp in half, mail volume would not go up much, because what we mail vs what we call/e-mail/fax/whatever is almost always based on capabilities, not cost. Likewise, if the price of a first-class stamp went up by 50%, I really don't see the extra 22 cents (or whatever it would be now) influencing all that many people to stop sending mail. A letter is already vastly more expensive than an e-mail. It seems to me that those items which are being mailed are those items which more or less have to be mailed.
Oh really? What if they raise the price of postage on First Class mail by one cent. Would you look at the stamps, scream bloody murder, and stamp (hah!) out of the Post Office?
Sure, increase prices, and demand will fall, but it's not perfectly linear, and even a one cent increase boosts revenues considerably.
Right. So pedantry wins. The point is that there is some number of pennies after which the demand is elastic notwithstanding the original poster's indifference to a one cent price increase now.
The class for which there is only a marginal benefit to sending it in hardcopy vs. email. Or the class of items whose delivery could be delayed long enough to combine it with another item.
Here are some types of letters that won't fall under that:
* Birthday/Christmas cards. The postage is a small fraction of the card.
* Legal-y letters, (e.g. when you make an offical complaint ), since the price of the stamp is again a tiny fraction of what you're complaining about.
* Big padded envelops of A4 print outs of contracts or something (again, postage is insignificant)
Most utilities are switching to electronic billing, and/or charging for paper billing, so they are already getting rid of postage.
Are you really arguing that the demand for first class mail is completely inelastic based on my lack of examples of what the marginal cases are? After some number of pennies of increase, demand will fall - are you actually disputing this?
All you're arguing is that there are some pennies of increase which could increase revenue. Fine. That's not saving the post office.
If you increase prices and demand falls enough, you don't get a revenue boost. Upon one USPS increase, they lost my business altogether (save for maybe 5 stamps per year, instead of 120); a one cent increase cost them a lot more.
> Would you look at the stamps, scream bloody murder, and stamp (hah!) out of the Post Office?
Maybe not me and not by one cent but eventually, if they keep raising the prices, I would look at the price and think, "hmm this is getting kinda pricey. I wonder what UPS would charge to deliver this..."
You can go check. USPS has a long way to go before it comes close to the prices UPS and FedEx charge. It's like comparing coach to business class airline tickets for the vast majority of mail. The postal service is truly an amazing service for small parcels within the United States.
That is why I said "eventually" ... it will be more than one cent and it will happen slowly. As price keeps cropping up some people will choose to use other services.
What about those news reports of multibillion losses? Well, the $20 billion in losses over the last four years has nothing to do with what you’ve been told about a failing business model or obsolete mail. Here’s the real skinny: In 2006, Congress mandated that the Postal Service prefund future retiree health benefits for the next 75 years, and do so within a decade—something no other public agency or private firm does. The resulting annual payments run $5.5 billion a year, costing the Postal Service $21 billion since 2007. That’s the difference between a positive and a negative balance sheet, as it would be for virtually any entity facing a similar burden — if any did.
Remove that unreasonable obligation and the Postal Service would have been profitable.
I don't get it. Why is it unreasonable? If I promise to pay somebody $40,000 every year after they retire, but I don't set aside money to do it, you can guarantee that down the road, I'll come crying to the government to get them to pay for it. It's not like they have to set aside the future value of that promise, just the present value - in other words, the amount that they're effectively promising to the employees today. It should be considered fraud if they don't do this.
That's a reasonable argument for a general change in accounting standards, requiring all pension plans to be pre-funded. Specifically requiring the USPS and nobody else to do that, though, feels more like something political is going on.
...and I strongly support the general accounting change, particularly for government or semi-governmental entities that might be counting on taxpayers footing the bill they run up. Just because USPS suffers by having to do something reasonable because of politics doesn't mean that it's a bad idea.
It's unreasonable to impose a much tougher standard on one and only one organization, even if you think that standard would be good if applied to everyone.
It's not unreasonable from the taxpayers' perspective to require the Postal Service to fund its pension obligations as they are incurred. And this is also not unreasonable from the employees' perspective. When the US government runs out of new creditors (as has already happened to Greece and Italy) employees who are relying on government revenues for their pension will be out-of-luck.
Even if true that it's only the USPS, and yummyfajitas implies that it's actually a broader requirement, here it's a difference between a mistake and not making a mistake. It's not simply an accounting treatment. It's not a defense of the USPS to suggest they should be allowed to make the same mistake that other companies make.
As a business owner concerned about cash flow, I can tell you that paying for anything in advance is always a pain. Reasonable or not, setting aside enough cash to fund the retirement needs of all their workers for 75 years and generating that cash from revenue sounds like a huge pain.
What happens with inflation and interest over that 75 year span? Does the mandate to pre-pay use some formula to take that into account?
I'm not familiar with general accounting practices, but it seems like if it didn't it would be potentially forcing the business to save far in excess of the funds necessary to meet it's obligations when the bill actually comes due?
No. As I understand GAAP, the projected inflation and projected income (including interest) are taken into account at least annually. The company then pays the delta (or underpays the next installment by the delta, if appropriate).
A problem many govt agencies had over the past decade (even before the collapse) was too conservative of estimates on inflation and too exuberant estimates of interest. There was, for example, a federal policy (law, IIRC) passed early in the decade (2004-ish?) that many school districts and other agencies struggled with.
If a) you're borrowing $10 billion from taxpayers, b) you are telling future retirees that you're going to give them gold-plated pensions, and c) you claim to be profitable, you are lying. My heuristic as to who is being lied to is simple: you guys actually get a check every month and I don't? Drats, you're lying to me.
But the unions do have influence. The Business Week article is from May. A few days ago, the USPS proposed a plan that would break existing labor contracts in order to keep it solvent. The plan includes cutting the workforce by 120,000 and running their own health care plan. Naturally, the service unions opposed it, making congressional highly approval doubtful.
Here's the related article from the Washington Post:
There's a difference between "influence" and "bad influence", and between "influence" and "running it into the ground".
The union quite reasonably objects to cutting 120,000, because there's no need to. The postal service could be quite solvent if Congress -- which is not the union and not, so far as I know, acting at the union's behest -- would take away the idiotic mandate to fund 75 years worth of benefits.
In other words, this is something the union should oppose.
Exactly. I worked for the USPS for a short time 13 years ago & my dad still does. A lot of the postal workers want to get rid of this clause as well. They realize that it is a giant albatross hanging over their necks and they are willing to work something out. It is Congress that will not allow it.
I look forward to when you move back to Kansas and expect mail delivery six days a week, or the ability to ship a package anywhere for less than fifteen dollars.
Like ubernostrum and bodyfour point out, the real story is much more complicated than this.
This isn't to say that the USPS hasn't made many terrible missteps along the way, or that they don't need to dramatically revise their business model: they have and they do.
But, the fact remains that they are critical to many aspects of American life, even for stalwart market-driven replacements [1]
I'm surprised that nobody has asked the question in this thread yet--why is the government still in the mail business?
Pure libertarians would say the government should only exist to protect citizens from each other and external threats. I see a somewhat wider role: government is where we pool our money to accomplish projects that are beyond the scope of any private institution, like building an interstate highway system.
But mail? The USPS is fairly unique among government entities in that it competes directly with industry: FedEx, UPS, etc. It might have been legitimate a hundred years ago, when delivering mail nationwide was an epic undertaking that no private organization could do, but today, the USPS is obsolete.
It provides a public good and is part of our national infrastructure. Maybe you don't see the point of it but it keeps a lot of our economy and communications lines going.
>It's the usual story: capture of the USPS by its unions...
Oh, if only it weren't for all those undeserving, greedy workers! Clearly the problem is that they banded together to protect each others' wages, access to medical care, and dignity in the workplace! Thank goodness we have Businessweek to confirm our reactionary free market biases for us.
You guys must be loving these budget crises — they provide such a convenient pretext for attacking worker's rights and consolidating the power of the owning class while sidestepping the inherent contradictions of the system which caused those crises at the outset.
America in 2011 simply doesn't need to set aside half a million lifetime sinecures to deliver two pieces of mail a week which actually matter. The nation receives no value from a civil servant whose full-time job is literally to convince BoA not to go paperless.
It's a cool institution. Let's remember it in a small museum somewhere.