Privatizing the U.S. Postal Service Wouldn't Make Us Go Postal

Sometimes it is nice to go back to previous blog entries and see if you change your mind a few years later. One such blog entry of mine that comes to mind is one I wrote about six years ago on the United States Postal Service. My conclusion was back then was that the USPS should be privatized. However, I recently came across this article from the conservative news and political commentary outlet Townhall, of all places, and I thought I would take another look at the state of the USPS.

Looking at their FY2016 financial results, whether the USPS ran a profit or loss depends on how you want to define profit. Standard practice is to define profit as "revenue minus cost [expenses]." By that standard definition, the USPS ran a loss of $5.6 billion. The USPS uses another metric of financial health known as controllable income. Controllable income is when one identifies the expenses that unit-level management controls and subtracts that figure from the revenue. In the case of the USPS, facets out of unit-level control are retirement benefits and workman's compensation. When filtering out those costs, the USPS' controllable income was a gain of $610 million for FY2016. And yes, using controllable income as a measurement is a legit practice under Generally Accepted Accounting Principles (GAAP).

How can we explain this discrepancy in profit figures? If you remove the retirement benefits, the USPS would be running at a profit, hence the controllable income measurement. The good news is that the USPS has found a way to earn more money delivering mail than it costs the USPS to deliver it. However, it's not like retirement benefits can be isolated from financial reality. They are still a financial concern of the USPS. Before Congress passed the Postal Accountability and Enhancement Act in 2006, retirement benefits were paid under a pay-as-you-go system, much like Social Security. This changed in 2006 when the Act mandated that the USPS pre-fund its benefit obligations. It might sound like a case of solving the problem with repealing a fiscally unsound law. But isn't it more fiscally unsound to provide lavish benefits that you cannot afford, even with being tax-exempt, having monopolistic power of first-class and standard mail, being exempt from zoning laws, and borrowing money from the Treasury at subsidized interest rates [for which they already maxed out their credit line] (Shapiro, 2015)? This is all the more the case considering that the USPS provides higher worker compensation than its private-sector counterparts (ibid.). No wonder the USPS lost $51 billion between 2007 and 2014!

Not only is there a lack of flexibility on how it handles its retirement benefits, but the USPS has shown inflexibility that is not typical in the private sector. Two examples: there has been pushback on facility consolidation and eliminating Saturday service. Also, the USPS has a monopoly on certain classes of mail. I have complained about monopolies before because they cause inefficiency and create less welfare for the people (see here, here, and here). Even the Government Accountability Office (GAO) recognizes that the USPS needs to stop its monopolistic ways. The USPS is incapable of reaching its goals for on-time delivery for its First Class mail. First Class mail volume dropped by 40 percent from its 2000 peak in no small part due to the Internet and paying bills online. Advertisements accounts of 60 percent of current mail volume, which asks additional questions about the USPS' use and help make us realize that monopolistic protection won't save the USPS from its decline.

The USPS is in need of reform, so what to do about it? Privatization, which is something the centrist Brookings Institution agrees with (at least in part). We have seen privatization of postal services in some other countries, including Japan, the United Kingdom, and the European Union. Since I am a bit on a time crunch, I'll paste a list from this Cato Institute study that illustrates examples of when postal service privatization worked in other countries:

We have seen other countries successfully privatize their postal system in response to declining mail volume. Creating an initial public offer (IPO) to put it on the stock market could generate $40B for taxpayers [in 2011 dollars]. I know that the USPS is one of the few government services that is explicitly mentioned in the Constitution (Article I, Section 8), but based on what has happened in other countries, relinquishing government control and opening the postal market to competition could very well be the way to save it.