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Privatizing the Post Office: the Right Solution?

There have been plenty of ideas bandied about on how to solve the financial problems at the US Postal Service.

should we privatize the usps?Recently, a Bloomberg article from ex-OMB director Peter Orszag (now a vice chairman at Citigroup), suggests that the USPS should go private.

His strongest argument is, by privatizing the Post Office, we remove Congress from the equation. He notes that Congress is unable to manage the USPS since it doesn’t allow USPS managers to make the cuts and raise revenue needed to fix problems.

His argument is compelling, but it’s not necessarily the best answer.

First of all, the Post Office is a service required by the US Constitution. Try making the USPS private, and you’ll need to deal with Article 1, Section 8.

Second, the privatization idea has been used before. It’s been offered as a panacea for everything from schools, to prisons, to highways. But the results are mixed; privatization doesn’t guarantee a better result.

The privatization idea is a red-herring. It’s simply taking us out of one pot of hot water, and putting us into another.

We’ve written about USPS problems in previous posts. An enormous issue, which Orszag did not discuss, is the multi-billion dollar ‘pre-funding’ imposed on the USPS by Congress. Developing a more equitable way for the USPS to save for future expenses would solve most of its financial problems.

The true problem isn’t with the Postal Service. It’s the way we’ve set up Washington.

We’ve set up a system that runs on 100% politics and 0% policy. We allow our federal budgets to be run like shell games — spending future money, papering over current shortages. We have a system designed to protect itself, rather than provide any responsible governance.

The problem isn’t how to fix the USPS. It’s how to fix Washington.


How Misinformation is Bad News for USPS

It’s surprising to see all the ‘news analysis’ that spotlights similarities between the financial troubles of the USPS and the US Government as a whole.

The trouble is that most of the analogies just aren’t true.

Yes, it may be true that the US Government does spend more than it receives, has not really made significant cuts to its large workforce, and hasn’t made full use of technology to drive down costs.

But none of those things are true about the US Postal Service.

As discussed in more detail in a previous post, the financial problems of the USPS are tied to a Congressional mandate that requires the USPS to pre-fund its healthcare insurance for future retirees at a draconian rate amounting to $5.5 billion per year.

Why all the misinformation?  By mis-stating that the USPS has more expenses than revenues, the analyst is trying to make an argument that the USPS is bloated or defunct, and needs cuts or face bankruptcy.

But when all the facts are presented, it becomes clear that the problem can be solved by addressing the Congressional mandate.

By ignoring this fact, the analyst draws us to the wrong conclusion.  And deprives us — leaders and voters — of the information that we need to guide us to the right solution.

From my brief look around, I’ve come up with four common arguments that ‘analysts’ make about the USPS financial problems where they conveniently leave out the facts about the Congressional mandate.  The motives for leaving it out could be expedience or ignorance; although, as you might sense in the last argument, politics could also play a role.

Here are those four arguments:

USPS as Microcosm of US Government

“Both USPS and the federal government have failed to adapt to changing times. The explosion of affordable information technology and Web-based communication tools have revolutionized the private sector, boosting productivity and allowing for leaner, more dynamic organizations. But the labor-intensive Postal Service business model has changed little over the decades, and the federal government shows a similar unwillingness to change how it does business.”  Postal Service problems a microcosm of entire government (3/18/2012: Federal Times)

The Federal Times article above is a good example of ‘news analysis’ that uses the “USPS/US-Govt” analogy but mis-states the facts along the way.  Not only does it not mention the Congressional mandate, it is plain wrong about USPS technology development and workforce trends.   Fact is the USPS is a leader in updating its facilities with computers and automation; and it has been steadily downsizing its workforce for years.

A Demand Problem

“In a time where instant messaging, texting, and email allow us to communicate across the globe in a matter of seconds, the idea of sitting down to write a letter seems foreign to many. And the USPS is feeling the heat, so much so that it is headed for default later this year unless Congress lends a helping hand.”  U.S. Postal Service nearing bankruptcy as email asserts its dominance (9/2011: Yahoo Technology Blog)

The Yahoo article also glosses over the facts to make its point (‘alas, tech beats the USPS’).

Yes, we now communicate electronically and this has impacted USPS revenue.  But the USPS has addressed those issues by driving down its costs proportionally.  The missed fact is the Congressional mandate, and that $5.5 billion item makes all the difference.

A Labor Problem

“During the past four years, the (postal) service lost $20 billion, including $8.5 billion in fiscal 2010. Over that period, mail volume dropped by 20 percent.”  Postal Service proposes cutting 120,000 jobs, pulling out of health-care plan (8/11/2011: Washington Post)

Even the venerable Washington Post published this article that neglected to mention the Congressional mandate.  Instead, it painted USPS financial woes based on unyielding labor unions.

The Bailout

“Americans deserve an efficient USPS that delivers for decades. But misguided action – or none at all – could saddle taxpayers with a multi-billion dollar bailout for the Postal Service. The clock is ticking…”   Saving the Postal Service (US Congress -Committee on Oversight and Government Reform)

Unfortunately, even Congress is providing us with misinformation on their Saving the Postal Service website.  Some in Congress have failed to admit that the Congressional mandate was misguided.  In fact, they’ve taken the position that reworking the mandate would be akin to a government bailout.

The analogy?  Let’s say that Congress writes a law that makes you pay 25 years of tax payments over the next 5 years.  Then, say you’re having trouble making those payments.  You go before Congress to ask for help, and they call this “saddling taxpayers with a bailout.”

Restructuring the Congressional $5.5 billion per year mandate is the responsible thing to do.

Calling the mandate a ‘bailout’ is simply a way to create excitement and get voters to look your way.  It’s doubly pernicious when Congress itself is a big source of the problem.

Yes, the USPS is confronting a bunch of challenges.  Revenue has dropped and so, expenses need to continue to drop as well.

But we as American citizens, or at least as USPS customers, need to understand the facts before we develop our opinions.  When we get our facts from biased sources,  we’ll probably arrive at biased solutions that don’t solve our problems, and are more likely to make things worse.

And here is where an analogy does exist between USPS problems and our US Government’s problems:

There are undoubtedly some tough conversations ahead as we American citizens write our country’s next chapters.  We need to become very good at understanding the big picture so that we aren’t easily misinformed, and misdirected, by those with a narrow interest.

Misinformation is a problem for the USPS simply because it could lead to a bad solution.  At a time when we Americans can’t afford any more of those.

USPS: Bankrupt and in the Red Zone?

The fact that the USPS needs to restructure financially is really no new news.

Post Office: bankrupt in 2011?But that the restructuring has now become a political football is unfortunate and is bad for all of us.  It not only adds emotions to what should be a rational process.  It also has polarized the discussion — if you are trying to restructure and save the US Postal Service, you ‘must be a progressive lune.’

The USPS has been restructuring for a while now.  It has downsized its workforce — down 35% over the last decade.  It has developed and implemented automation — the USPS now has the third largest computing infrastructure in the world.

And even though people are mailing less now, the USPS still survives on the revenue it collects from the postage it sells, rather than from Uncle Sam.

Those who wrote the US Constitution believed that the Post Office – and the Post Roads that connected them – would be a worthy resource for all Americans.  Although there were few national institutions created through the Constitution, the Post Office was one of them.

The Post Office helps ensure that we stay connected as a country.   Our first Information Highway, the USPS now delivers over 160 billion pieces of mail per year.   And even if your Internet crashes, your email gets hacked or your power grid goes down, you can still mail a letter across the continent for less than a dollar.

Today’s crisis that has been forced upon the USPS is man-made by politicians.   Congress legislated that the USPS would need to make accelerated payments to fund its healthcare commitments for its future retirees.   The annual payment — to be made to the US Treasury — was made into law in the Postal Accountability and Enhancement Act of 2006.   No other government agency, or private business, is compelled to make such an onerous expenditure.

In 2011, this payment amounts to $5.5 billion. And although the USPS can pay all its operating expenses, it doesn’t have enough to make the payment.   You can’t get blood from a stone.

And you shouldn’t throw the baby out with the bath water.

Most Americans, if provided the facts, would say the right thing to do is temporarily stop the mandated payments, or at least restructure them.  Keeping accelerated payments in place would be like asking for the USPS to operate with one hand tied behind its back.

Unfortunately, restructuring is portrayed by spin-meisters as a ‘bail out.’  (This is where the political football comes in…)

The irony is that there is actually a surplus of funds in the postal portion of the Civil Service Retirement System, the big pension fund that Federal employees pay into.  According to private sector auditors, there is between $50 and $75 billion in postal pension surplus.   So calling restructuring a ‘bail out’ is rather disingenuous.

Sure, there is  more that the Post Office needs to do to provide services that are relevant to 21st century Americans, work to have more autonomy on how it operates, and to keep lowering costs.

But to frame the problem in a way that pits Left versus Right is just plain wrong.