How to Fix the U.S. Postal Service
Published on: August 1, 2012
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  • The Watcher

    More misinformation and plain ignorance. First, let’s get some terminology correct. What the author refers to as “second-class” mail actually used to be called “third-class mail.” Today it’s called “Standard Mail” and it’s used for advertising. Mailers use it because it’s cost-effective. And what used to be called “second-class mail” today is called “Periodicals” – this is what normal people call newspapers and magazines.

    Now some economics. As a class, Standard Mail actually covers its variable costs by a huge margin. On average as a class, this advertising mail is not subsidized (although small parts of it are by other mail within the class) by First-Class Mail. If advertising mail left the system, the Postal Service would actually be worse off financially since this mail covers its variable costs.

    But the Postal Service has increasing returns to scale, so there are large fixed costs. This also means that even if the Service covers its variable costs, it may not cover its total costs.

    With decreasing volumes and fixed costs and burdened by abovve market wages and a price cap, the Service does not break even. For it to break even, costs must either decrease or revenue increase or some of both. The arithmetic is easy, the politics are hard: sound familiar? But blaming the situation on advertisinig mail is not only incorrect but may also suggest “solutions” that exacerbate the problem.

    • Adam Garfinkle

      Sorry about te terminology–you’re right: I confused 2nd class and 3rd class, or what’s now called standard mail. But I disagree that this mail covers its variable costs. I still think you can only get to a conclusion like that if you exclude a whole range of factors from the calculation. Unfortunately, it’s almost impossible to prove this one way or the other, since the data is so convoluted and presented so poorly.

      The Post Office was created to move mail and to serve citizens, not to be a taxpayer-subsidized vehicle for corporate America. But that’s what it’s become, with Congress’ blessing. That’s my story and I’m sticking to it.

      • The Watcher

        It’s a wonderful country and you are certainly free to stick to any fictional tale that you want to believe: I am told that there are people who don’t believe in evolution and who do believe that Barack Obama is not an American citizen. But you may wander to consider some additional information on the Postal issue.

        The Postal Service is regulated by the Postal Regulatory Commission, the PRC, an independant regulatory agency. The PRC requires the Postal Service to report costs by mail class according to economic principles and accounting methods that it approves. For Fiscal Year 2011, the Postal Service reported revenues for Standard Mail of $17.826 billion and costs of $12,078 billion. With these numbers, Standard Mail covered its costs and contributed more than $5.7 billion to cover the fixed costs of the Postal Service.

        Now you can argue that the cost methods are incorrect – that a regulatory agency with five commissioners no more than three of whom may be from the same political party, appointed by the President, and confirmed by the Senate with a well respected apolitical technical staff has put its thumb on the scales to benefit advertising mail. But at this time, the methods are what they are. Further, I have yet to see any reasonable evidence or argument showing that under alternative methods, Standard Mail is subsidized.

        I am also sure that you or I or anyone with any facility with numbers and spreadsheets could construct a set of costs showing a different outcome. This, however, does not make it true.

        As to your complaint that the date are convoluted and poorly presented, I’d be more than willing to give you a tutorial. And I’d be curious as to what factors you believe are excluded from the calculation.

        Finally, please note that citizen-to-citizen mail comprises a tiny fraction of the mail volume in America, and if you drove out all the rest of the mail, what remains would become extremely expensive. The punchline here is that advertising mail is good for the entire postal system. And that’s not only my story, that’s what the facts show, and I’m sticking to it.

        • VFNH

          Can you please clarify what you mean by

          “… citizen-to-citizen mail comprises a tiny fraction of the mail volume in America, and if you drove out all the rest of the mail, what remains would become extremely expensive.”

          What about mail (packages, letters, etc.) that is solicited from businesses by citizens? In other words, all *solicited* mail, so to speak. That cannot be an insignificant amount of mail.

          Not a new argument at all but I see the USPS as an essential service not unlike agencies that maintain bridges and roads, or the military, or other systems we could not do without, even if we may debate whether some should be entrusted to government v. private parties. Zero subsidization, while desirable, should not be the golden standard in such cases. Currently the USPS is subject to advert exploitation on a mind-bending scale. This is only “efficient” because the advertisers exploit a pre-existing system that they themselves would never develop and pay for on their own. They have been allowed to convert a system that was never designed with such ends in mind.

          No persons or businesses should have any “right” to exploit any vital service in this country, unions included.

          • Servius

            Just a quibble. USPS is not an essential service. Delivering mail is an essential service.

            However, grocery stores and a host of other businesses not run by the government are essential services.

            It is difficult for me to see the desirability of a government run post office when most of the mail it delivers is undesirable.

  • njcommuter

    I am a postal customer not by choice but by monopoly under law. So long as the Post Office has the power to set my mailing address (which other carriers must use), change my mailing address (which it has done twice, for its convenience) or deny me a mailing address (which it did to my brother when he lived outside Saugerties, NY.) the universal service guarantee should stand. And I don’t mean universal service three hundred feet from my door across a parking lot. Universal service is part of the monopoly deal, as far as I am concerned.

  • Steven E

    Advertising is deductible because it’s a business expense, whether you’re buying print, TV, radio, Internet, direct mail, flyers handed out by teenagers, or whatever. Just like office space is an expense (and thus deductible), salaries are an expense (and thus deductible), raw materials are an expense (and thus deductible), machine tools are an expense (and thus deductible, though on a depreciation schedule as capital), electricity consumed by the business is an expense (and thus deductible), office supplies are an expense (and thus deductible) . . . et cetera.

    None of that represents a “subsidy”; it simply reflects the fact that we tax income, not total receipts. If it costs a company $95 to make and sell a device, and they sell it for $100, we tax them the 15-35% corporate rate on $5, not $100. Because the company made $5, not $100. If they, because (say) they spent too much on advertising to sell it, spent $105 to sell an item at $100, we tax them nothing on the $5 they lost. Because they didn’t have income, they had a loss.

    • Nearsited

      The author’s apparent lack of business and tax knowledge is crushing.

    • Mark P

      Well said Steven E. Subsidies in the tax system usually take the form of tax credits.

  • Andrew Allison

    It’s unfortunate that Mr. Garfinkle cast his net so wide as to provoke largely irrelevant arguments. The issue is that, whatever the reasons, the USPS cannot support its current cost structure. It should also be evident that increasing rates will further reduce, not increase, revenue.
    The answer, of course, is to have recipients of mail pay for the level of service they desire. A couple of ideas: a reduced rate for mail delivered to PO boxes; and every-other day physical delivery of First Class mail (there are plenty of “next-day” options for urgent mail) thereby eliminating the need for half the carriers and their overhead. Unfortunately, given Congressional meddling, postal unions and neanderthal management, the only way the sort or radical transformation required is like to come about is in bankruptcy.

    • Nearsited

      Drop the USPS mail delivery monopoly, along with Congressional oversight. Then guarantee delivery only to post offices, with an additional charge for site delivery.

      As a competitive 100% private concern, USPS might want to deliver to sites once or twice a week, and drop mail into post office boxes as often as it arrives.

  • Laurel

    I live in Sweden. They have strong unions but they cannot have an entity like this losing money for the taxpayers. In the cities the mail person rides a bike. Saves lots of money. No mail on Saturdays. No major buildings to rent. They changed to private kiosks inside shopping malls for people to mail things and customers to pick up packages, etc. Also, it costs 7 kr to mail inside Sweden, about $1.

  • Nancy in Ohio

    I do know that there too many people between congress and the operating of the USPS. Those people have mucked it up big time and have been doing so for some time.

    You’re on to something, Mr. Garfinkle. There’s definitely some bureaucracy that needs cleared away and this cronyism with corporate America has to stop.

    We need the USPS, no doubt, but it should be able to pay for itself simply through selling its products and services. And public sector unions? They need to go, period.

  • willis

    “This critical decision by the USPS leadership to cater to and rely on advertising revenue to keep itself afloat…”

    There certainly explains their tactic of alienating their first-class mail customers with employee attitudes ranging from indifferent to outright hostile, coupled with weak performance. That part of their strategy has worked flawlessly.

  • James R. Westmoreland

    How about customers… those who pay for services. The service in Brooklyn, NY is so bad that I cannot take a chance on the post office for any important transaction. I have NEVER had a certified letter come to me. They leave a “pink slip” and I go to the dirty and chaotic post office and wait in a line with angry customers … and hope, they find the package. I only get one pink slip… no second notice. How many customers has the post office lost by the aura of death that permeates the institution and the shoddy and unreliable service. I gladly pay 5 times the rate and go to Fedx where I know my package will be delivered in a clean vehicle by a competent employee. It’s so sad that Americans see the face of government via the post office, TSA and the IRS. Soon we will be intimate with HHS.

  • postal widow

    many do not understand the current situation in the usps for background the United States Postal Office was formed by continental congress members Samuel Adams and Benjamin Franklin during the revolutionary war to win the war and form the nation and write the constitution of which the post office is included as a part of congressional duties to build post offices not destroy them, however since congress has always seemed to be at odds with the postal service, and its employees, since in 1913 they were ignoring the working conitions and so collective bargaining was formed , can go to the free google book to read, ” the post office, its past record, its present condition and its potential relation to the new world era, Daniel Calhoun Roper, chairperson of the United States tarriff commision and also first assistant post master general who wrote the basic difference in the post office mission and its unions is service to the american people. In 1970, most postal workers were either working 3 jobs with the post office as one to support themselves on an economic level with the rest of the country making more money in the private sector, or on welfare along with working with the usps and being ignored once again by congress, so a postal strike took place calling attention to the workers plight , a no strike law ensued along with the rights of collective bargaining firmly in place. From 1980 until 2000, postal employees took cuts in pay, health benifits and pensions worth up to 200 billions in savings . In 2000, 2001 they were made to pay in 15 percent more to their retirement systems known as fers, federal employee retirment system and for older postal workers, csrs, civil service retirment system, for budget reasons only not for retirment . They were thanked by the president and congress for their ‘sacrifice ‘ while others were getting tax cuts. In 2002 the increase was removed from the presidents budget, and new legislation came about called the postal accountibilty and enhancement act, or paea, where an increase in pay for performance bonues were giving to the top of the executives in the post office , including pmg potter of an increase of 72 thousand more a year, and a heafty retirmeent benifit amounting to 5.5 million in the year he retired in 2010. Meanwhile non allowance of part of the law took effect of the law of having union as part of the oversight of the usps, was broken in the law that gave bonuses plus a non replacement policy of retirees to the working class craft taxpaying employees of the usps.more information can be found at this weebsite of http://www.postalmag.com/joygoldberguspsstress.pdf or AWPU 3800 first area tricounty local, PA, library, stress in the workplace articals, including ” how the ongoing violation of the usps guiding principles are creating a toxic work environment.” then if you search in google and look up http://www.billburrrasjounal.org -misc page, scroll down the elevator and read ‘ phoney excuses for diverting usps revenues’ and ‘myths versus facts,” you can find the poltiical landscape scapecoating techniques for blaming the usps for a manafactured crisis and risking the lives, health of the craft employees of the usps for corporative greed and lobby purposes. Plus can go to search and read ALEC/Koch Cabal The Priviitization of the USPS for Ups and FedEx, by bob sloan of vltp, and then go to examiner.com, read the Tim Mc Cown artical called ‘ behind all the schemes and lies of the privitization of the USPS”, june 10, 2012. Then go to http://www.savethepostoffice.com to read up on the process of destruction of the USPS and its working class work force , plus go to post office in criis the real story, michigan postal workers union, or http://www.mpwu.com/post_office_in_crisis.htm

  • Glen

    Talk about not seeing the forest because of a few trees!

    The USPS is simply another example of how cost‐control, efficiency, and innovation only occur when intense competition by new entrants puts old companies out of business or forces unwelcome and disruptive changes.

    Not surprisingly, these are all very painful processes, especially for entrenched incumbents who will use every ounce of their power to protect the status quo. And that’s exactly what’s happened to the USPS, along with GM & Chrysler, United & American, Kodak, IBM, Sears and thousands of other once-giant (and highly bureaucratic) firms.

    There’s no reason anymore to “save“ the Post Office. It’s irrelevant that postal services in other countries do more than deliver the mail. The USPS has long-since past the point when it fulfilled any national purpose; let it die.

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