Post Office woes: What to do with a govt-run, monopolistic, delivery dinosaur?

(A version of this later appeared in print.)

If you're a fan of evolution, the marketplace, or competition, the answer is obvious. If you don't like monopolies or corporate subsidies, the answer is obvious. 

But if you're someone who benefits from the status quo, is a fan of big government or labor cartels, or has a limited policy imagination, then you're in an increasingly difficult position-- trying to prop up an expensive, unwieldy dinosaur. (Check out this identical editorial "written by" various postmasters-- which appeared in various newspapers around the country, including the Courier-Journal! LOL!)

As an economist, part of me loves bad policy, since it gives me great examples to use in the classroom. Take away the Keynesian stimulus efforts of Bush, Obama and Congress-- and Macro fiscal policy becomes mostly a theoretical and historical exercise. Take away our country's sugar policy and I have to find a new opening example of the need to think through the primary and secondary consequences of our choices. 

Take away the Post Office, in its present form, and I lose a great opportunity to talk about the limited term "monopoly", the powerful concept of "degrees of monopoly power", the trade-offs inherent in "elasticity" (how much will quantity demand decrease with the rate raise in January to $.45?), and the ability of technology and market competition to erode even a monopoly established by government. 

For years, it's been easy to predict that the Post Office would struggle more and more, as market participants erode its first-class mail monopoly at the margins-- and especially, as technological advance renders its services increasingly obsolete. One can even throw in some cultural/economic discussion-- such as the difference between generational use of the USPS and its continuing fade. It's great stuff for the classroom! (See also: Amtrak which has been subsidized for its entire existence, even when it sets records for ridership.)

Some of the more subtle details are hilarious and point to inefficiencies: The USPS doesn't own their own planes-- to do their own Express Mail. I'm told that it's common to take advantage of their "next-day guarantee", knowing that it's unlikely that they'll meet the commitment. So, you can get a package delivered quickly (in two days)-- for free. Labor costs for the USPS are 80-89% and 48-53% for UPS. (NY Times  has the more modest numbers; Harpers has the more extreme numbers.) The USPS does not pay property taxes or vehicle registration fees. The recent proposal to reduce in mail processing services indicates that it was grossly inefficient for awhile or it can't be expected to do much to decrease costs. 

In recent months, the Post Office has gotten a lot of attention, because its subsidies have grown, its future has become more obviously bleak, and likely, that we've reached some sort of threshold in terms of the public's perception of its tenuous future. Like many other government services (federal, state and local), the Great Recession has exacerbated this focus-- an interesting by-product of the Bush/Obama/Congressional bungling efforts with our economy. 

In the absence of disbanding the Post Office or reducing its function to subsidized services for those in rural areas, we're just tweaking a bad institution. But that's probably the way things will go for another few years, since special interest groups-- corporate and labor-- have so much to lose. As such, assuming away dramatic reform, what should the USPS do? 

Two things seem like no-brainers to me. "Reformers" are talking about dropping Saturday delivery, but that's just a tweak. Home delivery should be reduced to once or twice per week. If mail was delivered twice a week, you could reduce labor costs dramatically. And how often do you need to receive mail? For individuals who want more frequent delivery, they can pay additional for the service or get a P.O. Box. Business delivery would continue daily for a charge based on volume.

Among more significant reforms, we should no longer subsidize "junk mail"-- or any mail, except perhaps to rural areas (if voters want to continue those subsidies). Unfortunately for the USPS, this would significantly reduce the need for their services, in terms of quantity and especially weight/volume. Not surprisingly, although already about half of their volume, they want to deliver more of this type of mail.

Other options: outsource inefficient functions or focus more efforts on logistics; sell advertising on vehicles. (AEI will have a conference on November 4th, with Richard Geddes 2003 book as the foundation of the discussion. Click here to hear it on-line.) But all of this is rearranging packages on the shelves of a sinking ship.

The long-term will deliver a defunct or greatly diminished Post Office. What remains will be subsidized since it is inefficient. The question is whether its size and subsidy will be small or large.