The U.S. Postal Service Was Screwed Before Coronavirus: The Latest GAO Report and a Need for Postal Privatization

When the Post Office was enumerated in the Constitution (Article I, Section 8, Clause 7), it is understandable why it would merit constitutional protection. Being able to communicate across the country was difficult for much of U.S. history. The telegraph and telephone helped advance communications in the U.S., but there was still a place for the postal service. Once the digital age set in and the Internet became ubiquitous, the U.S. Postal Service (USPS) has become increasingly irrelevant and unsustainable.

The Government Accountability Office (GAO) report that was released last week provides just how irrelevant and unsustainable the USPS is. And to think I'm saying that as someone whose grandfather worked at the USPS for most of his adult life! The title of the report, "Congressional Action Is Essential to Enable a Sustainable Business Model," says a lot. Why does it not have a sustainable business model in the first place? The GAO report found that the USPS lost $78 billion from 2007 to 2019. As the GAO figure below shows, the main driver of said debt is workers' benefits, whether in the form of unfunded liabilities for retirement benefits, unfunded liabilities for health benefits, or workers' compensation.

The other major challenge that USPS faces is declining mail volumes. First-class mail has declined 44 percent from its 2006 peak (GAO, p. 8-9). As the Cato Institute points out in its 2019 analysis of the post office (see chart below), mail has declined substantially. What makes that more upsetting is that most of the items being delivered by the USPS is marketing mail. Junk mail and debt are the USPS' main contributions to society. Imagine that!

I have previously analyzed the USPS in 2017 and in 2011, so it's no surprise where I land on this topic. As a recap both of this blog entry and to provide a summary of past blog entries, labor costs are too high. The USPS is a tax-exempt entity with monopolistic power in first-class and standard mail, and it still cannot create a net profit. Delivery routes plateau and Saturday service remains while mail volume declines. The price of stamps went up 10 percent in 2019, but the gap between revenue and expenses widened. There is a reluctance to close post offices, in spite of the notable decline of foot traffic. Most of the USPS' deliveries are junk mail. The divergence between mail delivered and number of employees is notable and close to eye-popping.

It is true that the pandemic is putting pressure on the USPS. COVID-19 and the subsequent lockdowns have caused a decline in mail volume, as well as generating a net operation loss. This is why the Democrats are seeking $25 billion to revive the USPS. Conversely, what we see is that these trends predate the pandemic by years. As Cato Institute expert Chris Edwards brings up in his 2019 testimony to Congress on the subject, we need to work towards postal service privatization. Germany's Deutsche Post, the Dutch PostNL, Japan Post, CTT Correios de Portugal, and the United Kingdom's Royal Mail have all gone the privatization route. Sweden and New Zealand have put their postal systems in corporate form. It is clear that relying on the USPS to contain costs while demand for its services (save package delivery) is on the decline is too much to ask since neither the USPS nor Congress can provide the flexibility required to reform the USPS. Ultimately, introducing privatization and greater competitive forces will be the best way to make the postal service vibrant and sustainable.