The Post Office Looks Into the Abyss

My father's job depended heavily on the U.S. Post Office. He was a salesman for Merck, Sharp & Dome (later, just Merck), the giant pharmaceutical firm. I remember going with him to pick up the most wonderful packages. Mostly they contained samples of drugs (no, that's not the wonderful part). A lot of the brown boxes contained plastic models of bones, organs, and other body parts. The life-sized brain and skeletal hand were put to good use on Halloween, I can assure you. When I was still very young, the gorgeous old Post Office building blew the heck up. Gas leak, if I remember it right.

That old Post Office is my earliest memory of a Federal building. The U.S. Postal Service itself is one of the oldest expressions of the Federal idea. It is mentioned in the Constitution. It is one of the rare examples of a Federal institution that has been part of ordinary American life from the very beginning of the Republic. I like looking in the big box next to our front door every day. Nor will I ever forget the role of the Post Office in rescuing Kris Kringle in Miracle on 34^th Street.

The Post Office is going belly up rather fast. From the Washington Post:

"I'm operating right now with a week's worth of cash," Postmaster General Patrick R. Donahoe warned senators Tuesday. The Postal Service's weekly costs total about $1 billion, he said. USPS could post a $10 billion loss for its fiscal year, Donahoe said, as mail volume continues to drop.… [General Donahoe] warned again Tuesday that it is teetering on the brink of financial collapse and likely to go broke by fall 2012.

The USPS is a great study in the awesome strengths and debilitating weaknesses of government. Right now the latter have taken center stage. The biggest problem the USPS faces is the precipitous decline of traditional mail. I have a PO Box on campus and it used to be stuffed on a regular basis with catalogs from publishers. Now most of the latter try to tempt me to adopt their texts by alluring email attachments. The Zen Mountain Monastery used to mail me a nice slim catalog of incense, Buddha statues, and retreat notices. Today I got an email with a link. Here is how the New York Times puts it:

Mail volume has plummeted with the rise of e-mail, electronic bill-paying and a Web that makes everything from fashion catalogs to news instantly available. The system will handle an estimated 167 billion pieces of mail this fiscal year, down 22 percent from five years ago.

It's difficult to imagine that trend reversing, and pessimistic projections suggest that volume could plunge to 118 billion pieces by 2020.

That is only part of the problem. Private firms have to respond to market changes by changing their business model. As Meagan McArdle points out, the USPS has no such flexibility.

Congress has given the Post Office two incompatible mandates. It is to make money like a business . . . but it is not to have any of the freedom that businesses have to, say, close branch offices, cut its delivery area, or change delivery schedules. This is, to put it mildly, lunatic.

Let's cut to the chase. What does General Donahoe need if he is to have any chance of saving the Post Office? From the Washington Post's Federal Diary:

Donahoe, a 36-year-veteran of the Postal Service, wants Congress to allow the USPS to bust the anti-layoff provisions in its union contracts. He also wants permission to pull his 563,000 employees from the health and retirement plans that cover federal employees so the USPS can provide less generous programs…

The Postal Service says it needs to trim 220,000 career positions from its workforce by 2015, with attrition expected to take 100,000 of those jobs. For the remaining 120,000 slots, "it is imperative that we have the ability to reduce our workforce rapidly. . . . It is not likely that the Postal Service will be able to eliminate these layoff protections through collective bargaining," says a USPS white paper.

I am a state government employee and not an idiot. This sort of thing scares me excrement-free. Who's next? My discomfort doesn't change the facts. The USPS cannot survive in its present form. Whether it can survive at all is an open question, but one that can be answered only if it is allowed the kind of flexibility that private firms often (but not always) enjoy.

So what is the White House and Congress thinking? The White House wants a PO bailout as part of its deficit reduction package. Think about that for a moment. And then there is this:

In addition to structural reforms, Sen. Claire McCaskill (D-Mo.) suggested that USPS should mount a national advertising campaign promoting the value of printed mail.

"You cannot get money by text message," McCaskill said. "I really think that there is a longing out there right now, especially in these uncertain times, for some of the things that have provided stability over the years."

Well, there you have it. The solution is an ad campaign to sell people who have cell phones on the idea of writing out letters by hand, a campaign that will be funded by someone who doesn't know about online banking.

Comments

[George Mason]

KB; You missed an obvious link. One of the reasons the economy is in the tank is because of the increasing mandates the government puts on private business. Employment rules and employment taxes, ever increasing paperwork demands, taxes and tax rules, impending health insurance taxes and a looming huge increase in electrical rates. Add in CAFE rules which will substantially increase the cost of commercial vehicles, the additional paperwork the new health care law will require, congress demanding that banks continue to loan money to sub-prime borrowers (which created the financial mess in the first place) and on and on. It leads to increasing costs and too much time and manpower spent on non-productive activities.

[SeriousLee]

I have the answer to this fiasco. Obama should offer the USPS to their union for $1 and let them see if they can make it as a private, non-government funded institution. I bet they wouldn't take the deal.

The problem is well-stated. It's lunacy to let the government run a business without following the basic rules any other business has to live by.

This is true on many levels.

[Bill Fleming]

Probably way too late to make this argument stick, but I do recall there being some initial resistance by the Post Office to the formation of companies like FedEx, UPS, etc. Something about the Post Office being the only constitutionally authorized entity authorized to perform those functions. (Article 1 Section 8, Clause 7.) Given that all the other clauses in that section have been deemed exclusive powers (coining money, naturalization, etc.) it's curious that the argument never gained much traction.

[duggersd]

Congress shall have the power......To establish Post Offices and post Roads. As I read this, I am seeing Congress having a power, but it does not say anything about outlawing private enterprise. The Congress has not always had exclusive power to coin money. In the past, banks could put out bills. Depending upon the strength of the bank, money could be worth more or less. I think when that argument was made, the USPS knew they would be on a downhill slide.
The question becomes does the Congress HAVE to establish Post Offices and post roads. Having the power does not mean being required to use that power.

[George Mason]

Much like GM one of the largest liabilities the USPS has is health insurance for retirees. Unlike GM the USPS never had competitive pressure to give in to that union demand and unlike GM they do not have the option of bankruptcy to sort it out.

[Ken Blanchard]

Bill: should we outlaw email as well? How much backwardness and inefficiency is too much in order to protect the Post Office? UPS, FedEx, etc., are clearly good things for the economy. If the PO has to be protected in order to survive, maybe it shouldn't survive.

[Bill Fleming]

I hear you KB. I didn't mean to present is as an argument I agree with, just one I heard. A counter argument, much like yours is that if the USPS had been on its toes, FedEx and UPS may not have seen the market gap that they subsequently drove a truck through. You snooze, you lose.

Speaking of which, did you see Mitt Romney talking about Obama and phone booths and smart phones and stuff? What the hell was THAT all about? http://www.youtube.com/watch?v=qjY7zElJwrs

[Lynn]

My better half went to a meeting today regarding closing our small rural post office. Apparently if all the rural post offices were closed in the entire US, that would only impact the PO deficit by less than 1%. The entire problem is unions, and they are costing us our postal system. Apparently the unions will not allow the employees to be used efficiently and economically; big problem. Sounds like the old-times when certain railroad employees had to be hired even though the work they did was no longer being done; again unions. If Obama is planning to bail out the inefficient PO to please his union buddies, this will be yet another disastrous bailout at taxpayer expense, but what else is new from this administration.

The answer is to ditch the unions, allow the postoffice to reorganize efficiently, and fix the probably bloated pension and health care benefits. Then probably the PO could survive. Will then happen? If you think so, I have a bridge.... (and my bridge will be repaired by Obama's latest stimulus plan BTW!).

[George Mason]

Lynn; You may be on to something. Since many rural post offices (like ours) are contract operations (ours is run by the local store owners as an adjunct to their business)where the operators are not USPS employees this may be a business model that USPS could expand to larger PO's. This would save substantially on personel and facilities. They could also pay delivery drivers according to what they deliver and pick-up. This would increase efficiencies and reduce total employment.

[Bill Fleming]

George, how 'bout we just bring back the Pony Express?

Look, if working for the Post Office isn't a good job, why in the world would anyone want to spend their life doing it?

UPS and FedEX both have union workers. Unions are not the problem.

[Bill Fleming]

My bet is that those communities who have bitched the loudest about government waste and the socialist Democrats are the very communities that will be the first to lose their local post offices. You don't get to vote on the way things are, people. You already did. You made this bed, now, sleep in it.

[George Mason]

Bill; The post is about saving the USPS through more efficient operations. Unions always oppose this because it could mean fewer union employees. They (you) would prefer to eliminate all the jobs because efficiency may threaten a few. Having part time contract operators in small service area's makes sense. Maintaining full time employees in those area's is a waste. By the way Fed Ex is mostly non-union.

[SeriousLee]

"UPS and FedEX both have union workers. Unions are not the problem."

But Bill, there is a very big difference between UPS and FedEx unions and USPS unions. Unions are basically a parasite. They attach themselves to a workforce and drain nutrients (money) from their host. Private sector unions, like those at FedEx and UPS, know they can only drain so much nutrient from their host before they kill (bankrupt) it and die themselves (no more jobs). The USPS union, a public employee union, seems to be able to drain its host (taxpayers) to no visible end.

I support private employee unions and believe public employee unions should be banished for this very reason. Private unions simply cannot ruin their host company and expect to keep working. Public employee unions are currently allowed to suck my tax money away until the nation reaches insolvency, and maybe beyond.

[Bill Fleming]

George, I'm sorry, maybe you missed it. KB thinks the Post Office has become obsolete due to their ability to adapt to the marketplace in much the same way newspapers and magazines have. And I tend to agree with him. Message delivery systems have gone virtual. Direct mail marketing is a thing of the past, and the private sector has taken over the parcel delivery business. It's a triumph of technology and the free market. I would thing any good, red blooded conservative would be delighted. No? If not, why not?

[Bill Fleming]

...above... "due to their INability to adapt..." sorry.

[duggersd]

Bill, I do not know if the USPS is obsolete. I think George was talking about a way to help the USPS be profitable. I really do not have much care one way or the other as to how my mail gets to me. I rarely get anything in the mailbox that I really care about except bills. And more of those are coming to me online. Personally, if allowing for adjunct post offices in stores can help with this, fine.
So, I am sort of missing your position. Are you in favor of shutting down the USPS if it cannot be profitable or not? Do you think it should be subsidized by tax dollars to the point of breaking even? And are you willing to sacrifice those 600,000 employees?

[Bill Fleming]

I think the USPS should probably be repurposed. It would be fun to get in a think-tank with some other creative people and brainstorm some possibilities. There are good people there who are used to adapting to new technologies. Let's figure out a way to get them working on something relevant and interesting. Redefine what we mean by Postal Service and Post Roads. A redefinition of mission could mean everybody keeps working and a whole lot of new jobs open up as well.

[Ken Blanchard]

Bill: I didn't mean to sound like I was hammering you on that last point. The rise of private package carriers like UPS was a great challenge to the USPS and to some degree the latter clearly benefited. It remains to be seen, however, whether the PO can survive without a legal monopoly over something more valuable than ordinary mail.

[Dave]

KB fails to note a couple (or so) GOPer rules that change the way the Post Office works, GWB mandated that the PO finance its retirement 75 years into the future. I can't help but wonder how they would be doing if they did away with that rule...

[Ken Blanchard]

Thanks for the note, Dave. I doubt that Bush 43 really "mandated" that all by himself, but it might be interesting to learn more about the provision and how it is burdened the USPS.

[George Mason]

Thanks Dugger, Bill you missed the point completely. What was posted was how the USPS could adapt to remain viable. Their current business framework is obviously inefficient and obsolete (just the way the union likes it). If they don't exhibit some flexibility in how they conduct their business they will go the way of the buggy whip makers.

[Bill Fleming]

George, that actually WAS my point, except the part about the unions, which basically has nothing to do with it. In fact, to make this an argument against collective bargaining is to miss both KB's and my point completely.

[Dave]

Thanks KB, I'll take it upon myself to post a link and some interesting points here...

from http://politicalirony.com/2011/09/15/the-war-on-the-postal-service/ Please feel free to read and digest the info at your leisure. And jimi, these are inflation adjusted letters we are talking about here...

The three busiest years for the USPS, when the volume of mail was the highest in its history, were 2005, 2006, and 2007. What caused the volume of mail to drop after that was not the Internet, but the economy going south starting in 2008, brought on by the popping of Wall Street’s derivatives bubble. And over the last decade, the USPS has already shed 100,000 employees from attrition, so they should be able to deal with a reduction in the volume of mail.

Furthermore, the prices that the USPS can charge for mail are mandated by Congress, and since Congress doesn’t want them to compete against private companies like UPS and Fedex, what they are allowed to charge for packages is kept high while rates for first class mail (on which the USPS has a monopoly) are kept low. Rates for “bulk rate” junk mail are even lower. Reducing the amount of bulk rate mail actually saves the USPS money.

And the number of packages being mailed has been going up, due to people shopping on the Internet. At least until Amazon figures out a way to email that T-shirt you just ordered.

The real culprit is the insane USPS retiree healthcare and pension plans! In 2006, Congress passed the Postal Accountability Enhancement Act (PAEA), which requires the USPS to fully fund retiree health care benefits 75 years in advance. They have to pay for health care benefits for future retirees who have not even been born yet.

No other government service, agency, corporation, or organization in the US has to do this, only the USPS. Every other entity uses a pay-as-you-go accounting practice. Instead the USPS has to cough up $5.5 billion every year and give it to the US Treasury to fund retirement packages in the distant future.

At the same time, the USPS has been required to overpay worker pension funds by an estimated $57 billion to $82 billion. If that money were available to fund other obligations through a return to normal accounting practices, the currently projected USPS deficit of $9 billion for 2011 would vanish.

[Ken Blanchard]

Thanks again, Dave. You have delved into this more than I have time to do. Distressingly, I have very little to object to in your comment. I would point out that UPS and American Express don't have the same problems.

[Dave]

UPS interestingly enough can adjust their prices, whereas the USPS cannot. And I'm not sure what American Express has to do with this topic...

[Ken Blanchard]

Dave: I meant FedEx. Yes, adjusting prices and other costs makes a difference.

[Jack]

In good times all losses can be subsidized, but in bad times you have to fold the business enterprise and move on.

[Dave]

Apparently its always good times for the banksters...

[val nostdahl]

please go to www.savethepostoffice.com to understand more of the postal issues, and yes may is coming up so it important to understand, and it is correct that in 20006 the postal accountibility and enhancement act came through which is mandated by congress and destroying the usps, so how do I know this, my spouse was a lette carrier for 17 years, and in 2000,2001 got thanked in his union legislative fact sheet for having more taken from his retirment fund (15%) more which was fers, they also took from csrs , civil service retirement fund, and for that you can go to postal comments to the federal trade commission, to read on the civil service payment that was made fully funded and additional 85 billion charge as well, then in 2003 congress was informed of the overpayment for that you would think it was a simple legislative act to give back to the usps, but not so for that go to federal budget treatment of the united states postal service, which then led to the paea. ( and for how that changed the working enviorment of the usps, go to awpu 3800, first area tricounty local, PA, and go to library and go to stress in the workplace artical by clerk joy goldberg and read the ongoing violation of the guiding principles of the usps is creating a toxic work environment, 2008. so then when the congress enacted the paea there were already 2 fully funded retirment funds for the worker,basically thr profits from usps are being put in to escrow for a 3rd retirment fund , for workers not born or working yet for the next 75 years, thus causing economic colaspe for the usps, at the same time the post master general and 12 other top exec, got bonsus raises from the paea, potter the pmg at that time got 72 thousand more a year, and eventually retired with a 5.5 million dollar retirment, meanwhile my spouse who was employed, got told no replacment workers in the office to help with his postal deliery , so basically he had 3 others to help in a small office and got none to help when 2 retired and one got injured, so became the only carrier for the town, thus they did political hiring of duel casual not allowing him a day off, his own route was 6 miles a day of walking, he did fight thru collective bargaining which they want to do away with and unions, since it is a bid to privitize the usps, and in fact cato istutuite started this when potter was first hired and wrote a letter to him recommending privitization and also non replacement via attrition cutting down staff, so the push if from big corporations behind the congress, and gop basially, so then my spouse did win hires but got removed a casual falsely illigaly and died the next day, since then there have been more, time clock ring changes or stealing of paychecks and even the court systme did not protect the workers so some commited sucide ( see gastonia nc june 2010, dr stephen muscarro artical) , meanwhile more bonuses were given out to top exeuctives, 38 vice presidents while this was going on. cato is supported by ups, a competitor, and also some of the senators on the oversight commitee are backed by koch brothers, so its a class warfare basically of getting rid of jobs in this economy and paying less to workers and trying to give them no benifits when they have fully funded their retirment and now their business the usps a constitutional mandated service to the USA citizens is under attack and is at risk for all americans.

[val nostdahl]

by the way this week alone one union group , nalc 11 had 3 deaths in one week of letter carries to attend to.

[val nostdahl]

you can go to the minot daily news archives, sign in and see more in the artical written in 2010 of postal politics.