The USMS
March 10, 2009
On the revenue side, the USPS can increase prices whenever it needs to - as we all know, first class postage will increase from 42 to 44 cents in May. But the history of first class postal rates provides the key to understanding why the postal service’s business model is broken.
From 1885 until 1970, the cost of first class postage rose from $.02 to $.06 per ounce, representing an annualized rate of 1.3%. Inflation data (CPI indices) are available starting in 1914, and the rate of inflation from 1914 to 1970 was 1.9%. Postal rates increased less than inflation during a period of rapid geographic expansion, including the admission of 12 states to the union.
But, from 1970 to the present, the price of first class postage has grown at a rate of 5.1% per year, significantly more than the 4.0% rate of inflation over this period. Meanwhile, the U.S. population became increasingly urbanized over this period, and consolidated deliveries to apartment buildings should have helped contain postal costs.
The choice of 1970 as the dividing line between these two periods is not accidental. In 1970, the postal union won collective bargain rights for its labor contract. This contract contains a “no layoffs” provision. The size of the postal work force can be managed only through attrition. As a result, the postal workforce is slowly aging and offers few opportunities to younger workers.
The combination of government ownership and a powerful union means the postal service has long since ceased to be guided by the invisible hand of the market. Workers are not rewarded for efficiency and management can raise fees as necessary to cover uncontrollable costs. The ultimate losers to emerge from this morass of misaligned incentives are Americans who now pay far too much for postage stamps.
Government ownership would place GM and Chrysler squarely on this path. An empowered union would have no incentive to make those concessions necessary to turn around these businesses and make them profitable. While entrenched unions are not the only reason the automakers’ business model has become untenable, these businesses will remain doomed without significant concessions in wages and work rules.
If the government pursues its current bailout strategy to its logical conclusion, it might as well rename GM and Chrysler the United States Motor Service.
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